How to use
Traders would use the KAMA indicator in the same way you would a moving average such as using a different speed in one to identify crosses. Overall this is used to spot trends and possible reversal areas.
When looking for reversals using a crossover system such as the below example with the settings 10,2,30 and 10,5,30. When the faster moving average crosses above the slower 10,5,30 it is indicating a change to an upwards trend. In this situation, a trader can go long and close when the two KAMA lines cross back. When changing the second KAMA to a closer setting such as 10,3,30 it will increase the reactiveness of the indicator but it will increase the number of false signals
Another use of the indicator is to indicate a general trend of the price. You would use a similar style of settings varying the number of periods on one of the inputs. A change of the faster-moving average can help to smooth out the indicator line. If the KAMA line is moving lower the trend is down and when moving higher the market is in an uptrend. In the below example the KAMA is showing a downtrend since the end of February.
The last usage can be to identify the difference between a short or long term trends. With a lower figure for the faster moving average, the indicator is tracking the trend in the short term and if the setting is high you start to look at the long-term trend.
This indicator was developed by Perry Kaufman for the purpose of finding the moving average while ignoring the short-term market volatility. When the volatility is low, the indicator remains tight to the price but as the volatility increases the moving average will lag behind. Generally, it is used to spot trends as well as reversal areas.
The standard settings recommended by Perry Kaufman are 10,2,30.