Triangle Moving Average Generalized
King of Shapes
A triangle is the strongest shape there is. Granted, some have championed other geometric shapes, but for everyday applications, three sides is where it’s at.
And how does that apply to us traders?
Great question.
We’ll find the answer in the explanation of this week’s indicator, along with some other nifty what not’s for your educational experience.
This week, we’re looking at an indicator which comes from one of the greats. We’ve profiled his work before. It’s none other than the man himself; John Ehlers. His fascinating work in the 1990s with trend analysis gave us something called the Triangle Moving Average Generalized. Long name, simple indicator. So, how could a baseline signal be equated to a triangle, and hence, the moniker. We’ll get into that, after this captivating feature film.
It’s All In The Averages
The TMA is computed by examining price over a specified period, and assigning greater weight to certain prices. What makes this different from moving averages which assign weight is that it assigns greater weight to data in the MIDDLE and less on the ends of the specified period. This process is repeated until a triangular shape is produced, hence the name.
Friends With Benefits
The benefit is that it’s smoother than other moving averages, although without testing and some possible tweaking, it could be a bit slow to sudden changes in the market. By the way, the original MT4 version was coded in 2013. However, we’re using a brand-new MT4 version created from a 2019 MT5 version where the code was cleaned up by our own expert coder, Niels. For MT5 fans, we’ll add the original version to the library as well.
Simple Is As Simple Does
Happily, some of the best things can be simple. The calculations for the TMA could actually be plotted by hand on graph paper, if you’re into that kind of thing. Not by us, though, we like our microprocessors too much. The formula for the TMA is;
TriMAgen = SUM / Len2
Where:
SUM = sum of SMA(Applied price, Len1) within the Len2 range
Len1 = Floor((Period+1.0)/2)
Len2 = Ceil((Period+1.0)/2)
Smoothie
Like all the baselines we’ve been examining, this one is a nice citrus yellow for easy visibility. Candles are a chromatically pleasing blue and red to see where the entries are, but other than thickening up the signal line for better visibility, everything else is right out of the box.
Settings
Only two settings for this indicator are available, and we use both.
Period: The number of periods used to calculate the signal line. The default value is 20.
Applied price: The price data set used in the calculations. They include Close, Open, High, Low, Median, Typical, and Weighted Price. The default set is the Close price.
Advantages
* Fairly easy to test.
* Created by one of our heroes.
* Smoothed appearance for better trend identification.
How we use it.
One of three actions need to happen in the last 30 minutes prior to the close of the trading day. They are; opening, maintaining, or closing, a position. This is when you make your trading decisions, and not actually wait for the close at 1700 EST, because we trade on the daily time frame.
Long: Price crosses above the signal line. Entry is in the last 30 minutes of the trading day.
Short: Price crosses below the signal line. Entry is in the last 30 minutes of the trading day.
Follow The Green Circles
Signals here are pretty clear. We do have a bit of “here and there” action on the right side of the chart. A close-up of the area in the white square where price crossed above and below multiple times before finally settling on the short signal. For us NNFX traders, that’s not a big deal because the other components in your algo would have filtered out those multiple entry signals.
Baseline Notes
There was some discussion revolving around whether a baseline could be used as an indicator. We wanted to clarify that after some discussion we had with VP. You can always use a baseline as an exit; however, it’s not an “exit indicator” by definition — but it has that built-in quality on its own in certain situations. That situation might present when you get an immediate (opposite) cross from your baseline, which indicates there has been an abrupt change in price’s direction (where your exit indicator hasn’t caught up yet).
Money For Nothing
If you’re new to these studies, we recommend looking at some older blogs to understand how we conduct our testing. We’re going to be using our alternative numbers.
Thanks, John!
Below is the data from our testing.
The daily numbers are definitely something we can all work with. A little soft on the EUR 4-hour chart, but that’s totally fine. After all, with so many pairs for you to investigate, there’s a good chance that opportunity will find you. XAU and BTC were the darlings of the bunch, as they have been for a while. Dig in, work diligently, and go get it.
Resources
You can find this indicator in the library for free. When you’re ready to get it, click HERE. Be sure to subscribe to the Stonehill Forex YouTube channel for the technical analysis videos. For the advanced course, click HERE.
Our only goal is to make you a better trader.
BTW — Any information communicated by Stonehill Forex Limited is solely for educational purposes. The information contained within the courses and on the website neither constitutes investment advice nor a general recommendation on investments. It is not intended to be and should not be interpreted as investment advice or a general recommendation on investment. Any person who places trades, orders or makes other types of trades and investments etc. is responsible for their own investment decisions and does so at their own risk. It is recommended that any person taking investment decisions consults with an independent financial advisor. Stonehill Forex Limited training courses and blogs are for educational purposes only, not a financial advisory service, and does not give financial advice or make general recommendations on investment.