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Introduction to Moving Averages What is the Exponential Moving Average?
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What is the Arnaud Legoux Moving Average Indicator?

The Arnaud Legoux Moving Average (ALMA) is a technical analysis indicator used to smooth price movements and identify trends in the market. Developed by Arnaud Legoux and Dimitris Kouzis-Loukas in 2009, it is designed to be more responsive to current price movements than traditional moving averages. Traders use the ALMA because it can provide more accurate and timely signals for entering and exiting trades. The ALMA is based on a Gaussian distribution curve and adapts to changing market conditions to provide a smoother, more reliable representation of price action. Its development was based on the belief that traditional moving averages can be too slow to react to sudden price changes, resulting in missed trading opportunities. The ALMA is now widely used by traders in a variety of markets, including stocks, forex, and commodities.

How the Arnaud Legoux Moving Average Works

The ALMA differs from other moving averages such as Simple Moving Averages (SMA) and Exponential Moving Averages (EMA) by using a unique formula and set of parameters. The ALMA is based on a Gaussian distribution with a variable width that adapts to market volatility. The formula takes into account the difference between the price and the average, giving more weight to recent prices. This feature helps to reduce lag and filter out noise, resulting in a smoother and more accurate trend line. Unlike other moving averages, the ALMA also has a directional bias, meaning it is more sensitive to price movements in one direction. Traders use the ALMA to identify trends and potential reversal points, as well as to confirm signals from other technical indicators.

Advantages of Using the Arnaud Legoux Moving Average

The ALMA provides traders with a reliable tool that can help them predict price movements over time. ALMA uses two moving averages – one slow and one fast – to accurately identify moments of strength or weakness in the market. This indicator helps traders identify entry and exit points, as well as trends that may be forming from momentum shifts, allowing them to make informed decisions on when is the best time to enter or exit the market. Additionally, ALMA helps traders become more aware of opportunities for profitable trades, allowing them to increase their gains and minimize their losses. Ultimately, using this indicator not only gives traders an edge but ultimately makes trading much easier and less risky than other trading styles.

Examples of the Arnaud Legoux Moving Average

The ALMA has been used successfully by traders in various markets, including stocks, futures, and forex. In charts showing ALMA signals, traders can see how the indicator accurately identifies trend changes and minimizes false signals. The ALMA is often compared to other popular moving averages such as simple moving averages (SMAs) and exponential moving averages (EMAs), and the ALMA consistently outperforms these traditional indicators in reducing lag time in trend identification. Backtesting results have also shown the ALMA to be an effective tool for traders. By incorporating the ALMA into their trading strategy, traders have been able to improve their trading performance and increase their profits.

Arnaud Legoux Moving Average

Potential Drawbacks of ALMA

One of the main drawbacks of using the Arnaud Legoux Moving Average, or ALMA, is that it can cause confusion when analyzing trading signals. Another drawback of using ALMA is that it sometimes produces inconsistent results due to its calculations based on adaptive truncations. This means that markets with high volatility can sometimes produce erratic results that can lead to wrong decisions. Traders should consider these drawbacks when deciding whether or not to use the ALMA moving average.

Example scanners and strategies that use Arnaud Legoux Moving Average

The Arnaud Legoux Moving Average can be used in both Scanning the market and Testing Strategies. To see how exactly it can be used in these ways, we provide the following samples. The first one is a scanner that searches the market for stocks using this indicator, and the second is a strategy that tests buying and selling rules built around this indicator

"TS: Arnaud Legoux MA" scanner by TrendSpider
“TS: Arnaud Legoux MA” scanner by TrendSpider
"Arnaud Legoux Momentum Strategy #Marketplace" strategy by TrendSpider
“Arnaud Legoux Momentum Strategy #Marketplace” strategy by TrendSpider

The Bottom Line

After careful consideration of its benefits and limitations, it is clear that the Arnaud Legoux Moving Average (ALMA) can be a valuable addition to any trader’s arsenal. Its ability to accurately identify trends and minimize false signals can lead to more informed trading decisions and improved profitability. However, traders must also be aware of the potential challenges posed by its sensitivity to price fluctuations and the risk of over-optimization. Nevertheless, with its unique formula and customizable parameters, the ALMA offers a sophisticated approach to technical analysis that can benefit experienced traders looking to refine their strategies. We recommend that traders explore the use of the ALMA in conjunction with other indicators, using TrendSpider to maximize its potential and mitigate its limitations.


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