Welcome to the first indicator study. This research represents an investigative look into how and why some indicators work and some don’t work as well.
New Versus Old
The theory behind these studies is to explore more efficient indicators, which may yield superior results than older indicators that were suited for different markets of a bygone era. Sadly, many traders defer to pre-packaged indicators and/or systems, which use combinations that just can’t compare with more modern trading tools developed in this century. Granted, there are exceptions, but they are few and far between.
Our first choice is…
We’ve chosen the Hull Moving Average, or HMA as our first choice. There are a few variations available, but we’ll stick with an original version. Moving averages are generally one of the first indicators a novice trader learns and uses, and usually finds itself as part of a trader’s toolbox.
Baseline Indicator
Developed by Alan Hull in 2005, it presents as an on-chart indicator, overlaying price (See snapshot below). We consider it a “baseline indicator”. A “baseline indicator” falls into the category of indicators whereby it serves as a type of signal gatekeeper when setting up your algorithm. These concepts are explained in great detail in the Stonehill Forex Advanced Course, HERE.
Advantages
Similar in appearance to most types of moving averages, the HMA has advanced math, which attempts to provide advantages, including;
*Reducing lag
*Increasing responsiveness
*Eliminating market “noise”
*Emphasizes more recent market prices
*Aids in identifying prevailing market trends
Settings
The setting includes; period, shift, method, and price. The default settings are 13 periods, zero shift, simple method and typical price. Before we take a closer look, I’ll explain what each parameter represents.
Period: The number of period to calculate the moving average line.
Shift: The ability to have all its values shifted forward (positive displacement) or back (negative displacement) in time. (We’ll be ignoring this setting, as the only real use it has is to align it with highs and lows. This does not help us find the best settings.)
Method: Simple, Exponential, Smooth, Linear Weighted – the manner in how data is calculated from price.
Price: Close, Open, High, Low, Median, Typical, Weighted – which specific set of price points the indicator uses to calculate the resultant data and subsequent appearance of the indicator.
Screenshot
Below is a screenshot of what the indicator looks like on the daily time frame. Note that we’ve changed the color of the candles to gray and the indicator to remove any emotional bias so that only the indicator is prominent. We’ve also changed the color of the indicator itself, so it stands out against price.
How we Use it
Generally speaking, traders use moving average indicators when price crosses and closes above or below the moving average line. There are some traders who take signals when price crosses above or below; however, do not wait for the candle to close. This practice is not advised as an open candle’s price action can change very quickly.
Signals
* Long = Price crosses and closes above blue line.
* Short = Price crosses and closes below blue line.
Settings
The setting includes; period, shift, method, and apply to (price). The default settings are 14 periods, zero shift, simple method and close price. Before we take a closer look, I’ll explain what each parameter represents.
Period: The number of period to calculate the moving average line.
Shift: The ability to have all its values shifted forward (positive displacement) or back (negative displacement) in time. (We’ll be ignoring this setting, as the only real use it has is to align it with highs and lows. This does not help us find the best settings.) Leave it at 0.
Method: Simple, Exponential, Smooth, Linear Weighted – the manner in how data is calculated from price. Since we’re discussing the SMA, this will remain at “Simple”.
Price: Close, Open, High, Low, Median, Typical, Weighted, Previous, First Indicator – which specific set of price points the indicator uses to calculate the resultant data and subsequent appearance of the indicator. This will remain at “Closed”.
COMPREHENSIVE TESTING RESULTS ACROSS
CURRENCY PAIRS, BITCOIN, AND GOLD ARE IN
PROCESS AND WILL BE AVAILABLE WHEN THIS
INDICATOR IS HIGHLIGHTED ON THE NNFX CHANNEL
BY VP.
Resources
Now that we’ve demonstrated some benefits of this indicator, you may wonder where it can be found. A simple Internet search will yield useful results. Or, you can download it from the indicator library on this site HERE!
More to Come
There’s a lot more to come. We are excited to provide more trading tips in the near future. Sign up on our contacts page or subscribe to our YouTube channel. Receive early notifications as we continue to publish helpful, relevant, and informative Forex related material to support your quest to becoming a better trader.
Our only goal is to make you a better trader.
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