Welcome! I’m sure many traders are now using in their trading systems indicator moving averages. Many in his base are trying to build a break-even strategy, but this tool has a significant drawback – lag the price.
At the time this matter came to grips with a trader in Australia Alan hull. He modernized simple moving average, thus he completely changed the code. His baby was the Hull Moving Average, in fact – it is the same moving average that responds promptly to changes in market conditions.
Hull Moving Average. How does it help?A significant percentage of traders uses moving averages to identify the trend or as levels of support and resistance dynamic type.
The ultimate testimony of any moving average is calculated by averaging prices over a selected period of time, in the end, we get a smooth performance.
However, the main disadvantage of this tool is exactly in the method of calculation! Based on the fact that the indicator take into account the prices of the past, it will be significantly lagging behind the price trend developing at the moment.
Shown in the graph on Hull Moving Average
In the example above You can see the installed Hull Moving Average on the price chart. In appearance it is no different from a simple moving average, but the main difference is that HMA significantly less late the price. In confirmation of this, consider the example below!
Compare Hull Moving Average and SMA
On the chart imposes a hull mA and a simple moving average. They have the same period, however, IA much more clearly responds to changes in price dynamics. These results halloo was achieved through the use of a new formula! In fact, the basis of the evidence lies with the square root of the averaged values, not the average value so such!
The Calculation Of The Hull Moving Average
Let’s look at how the trader from Australia managed to significantly smooth the estimates of the moving average. He was able to achieve similar results by averaging the moving average itself.
On this basis, the indicator should become less perceptible to the price dynamics, and as a consequence even more to keep up with growing price trend. Hull failed to notice a similar pattern, inherent in moving averages smoothing, respectively, he managed in their formula to neutralize the component that is causing the delay.
Hull explains how he managed to reduce the lag of moving to a minimum! He explains this fact using a numeric sequence that starts with 0 and ends with 9. Each individual in the sequence number has a certain weight, the number 9 has a higher priority, as it is nearest to the current time prices.
Initially, Hull Moving Average start calculating their testimony given the simple moving average with period 10. The average value of this moving average is 4.5. It is logical to assume that in this case there is still some backlog from the current prices!
Hull further explains that the period of the moving average must be halved (to 5) and apply to the latest figures 5,6,7,8,9. In the end we get the average value, which is equal to 7. This value is directly applicable to the difference between these two moving averages. That is 2,5 (7-4,5), which in the end is 9.5 (7+2.5) of the.
Based on the fact that the current price value equal to 9, such compensation hull explains himself, supposedly this is convenient, since we are offsetting the time lag effect of prices, which is structurally inherent in any standard moving.
Important details when using
All traders need to clearly understand that this indicator has its drawbacks. The bottom line is that the intangible assets may exceed the current value of market prices. Based on this, many experienced traders are aware of the fact that blind following of intangible assets can play a cruel joke.
In the video tutorial attached to this article, we noted that you can potentially use standard the intersection of IA to open trading positions.
However, it is to do it exclusively on large time intervals, so as to use this method at lower TF is very problematic.
Through its technical capacity Hull Moving Average is quite an interesting technical analysis tool. With its help, you can quickly see a reversal in the market, in addition, it well fulfills itself as a dynamic level of support or resistance. It can be used both inside and on large time intervals!
Of course, the indicator has certain design flaws, but with its main task to cope quite well. In principle, the NMA do significantly smooths price indicators, rather than simple moving averages. In any case, You have to understand that to use this tool is pointless, but with the right approach it can take its rightful place in Your strategy!