Smoothed Momentum
Hold Your Horses
Or is it, “Hold the horses”? Given the choice of fast and furious versus smooth operator, which one would you prefer? I suppose context plays a part here. After all, if your finger is caught in the car door, then a fast response is probably preferred. The same thing can apply to indicators as well. Confused by the analogy? We’ll make it clear while you slow down and smell the flowers.
Choices
We’ve got a single line cross indicator from 2015 which is on the simple side with regard to its signal identification, with enough variables to make it flexible enough to accommodate most markets. That’s a pretty good combination. It also ticks our box on something that helps define a trend; momentum.
𝑝=𝑚𝑣
Back in physics 101, we had to memorize a short, but powerful formula to describe momentum. Momentum = Mass multiplied by Velocity. With a long storied history spanning over 2000 years, the concept of momentum described the motion of a thing moving from here to here. It makes you wonder if some joker threw a rotten fruit at his buddy for a laugh and then contemplated what would have happened if he really got his hips and shoulders into it. More momentum = bigger splatter. I actually had a line from a song go through my head while writing this; “Hit top speed, but I’m still moving much too slow.” Old schoolers know where this comes from.
Like a Noodle
Maybe it’s just pasta on the brain, but this indicator reminded me of a long noodle tracing its path. We just thickened it up for better visibility, but other than that, it’s pretty much what you see is what you get. However, there is another component to this that we’ll spend a little more time with shortly.
Adding a Component
Without the single line (or mid-line) component, it would be somewhat difficult to determine where the long and short signals occur. Adding one is a small process, but it’s fairly simple. The first thing is to see what the upper and lower boundaries are.
Then take the upper value and add it to the lower value…
Divide the sum by two…
And then round to the nearest tenth place.
This becomes the new single line cross.
Then you’ll want to add this via the settings menu.
And, now we’ve got our reference line for long and short signals.
Now that we’ve got that settled, we’ll look at the whole chart. However, for our signal identification and testing purposes, we’ll be using a crossing line value of 100 to keep things consistent throughout the rest of this blog.
Settings
We’ll go through the settings, but first, we wanted to address the “Use_Smoothing” variable. Until now, it’s been toggled to “true”. It changes the signal line to this if you toggle it to “false”.
What jumps out at us is that it creates a lot of false signals. These are definitely not helpful, so we’ll just leave that setting to true and address the others.
Momentum_Length: The number of periods for the overall calculations. The default value is 12.
Smoothing_Method: The type of moving average used. 0-Simple, 1-Exponential, 2-Smoothed, and 3-Linear Weighted. The default value is 0-Simple.
Smoothing_Length: This is the value of smoothing function in periods. The default value is 20.
Price: This is the price data set. 0-Close, 1-Open, 2-High, 3-Low, 4-Median, 5-Typical, and 6-Weighted. The default value is 0-Close.
Just One More
There is one more settings we’ll need to address. We’ve already talked about it; the crossing line, or variable mid-line cross. You know how to calculate it. Now you need to know why.
Different Strokes
Each market will generate different upper and lower values. So while we’re using an approximate mid-line value of 100 for our overall default value, we wanted to drill down on better accuracy, which is reflected in our testing. You should do the same. We’ll give you a few examples to demonstrate what we mean.
Noodles With Sauce
Let’s go ahead a check out a marked up chart using our overall default value of 100.
At first glance, we see an issue of signals coming a bit late. That’s totally fine since we have the ability to change the indicator’s parameters. Also, don’t forget you’ll be moving the mid-line as necessary.
Get out of the Fitting Room
One note of caution here. There does exist the possibility of “over-fitting” by moving the mid-line too far one way or the other. This can bias you towards an unnatural amount of longs or shorts and miss opportunities in the opposite direction.
Just The Sauce
The Choice is Yours
Overall, not too bad. We got some good numbers on the 4-hour BTC and XAU, which was a pleasant little gift. EUR and BTC on the daily were acceptable and of course, XAU on the daily did its “golden” thing. SPX500 was still a little soft, but performed slightly better than it had been in past weeks. Perhaps we’ll be in for some better numbers soon?
Resources
You can get the indicator from the on-line 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. Sign up for the Advanced NNFX Course HERE.
Our only goal is to make you a better trader.
*Our published testing results are based on money management strategies employed by the NNFX system and depend on varying external factors, which may be different between individuals and their specific broker conditions. No guarantee, trading recommendations, or other market suggestions are implied. Your results and subsequent trading activities are solely your own responsibility.
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