Moving averages are probably the most popular indicators among traders. But their use in real trading is not as effective as we would like them to be. This is due to the lag in indicators. The market analysis tool I want to tell you about today has no such drawback. This is the HMA indicator. If we decipher its abbreviation, we get “Hull Moving Average”. The author’s name includes the author’s name, Hull. The trader decided to find a solution to the delay problem, and Hull did it. Alan Hull changed the calculation formula to eliminate the lag of moving averages.
What did Hull change in the MA calculation formula
The formula of the usual Moving Average with the period of 10 looks like this: (0+1+2+3+4+5+6+7+8+9) /10=4,5. This value of the indicator will differ significantly from the price for the last period (9). Which is the cause of the delay.
First, Alan Hull suggested the following formula: (5+6+7+7+8+9) /5=7
It already allows you to reflect the market situation more accurately, as 7 is closer to the price of the last period than 4.5.
Then the author of the indicator decided to add the difference between the two values to the number 7: 7- 4,5 = 2,5. And then the value of MA became 9.5 (7+2.5). That is, it is close to the current price and even slightly higher than it is, which is also a disadvantage of this analysis tool, but still not as significant as the delay.
Hull indicator parameters
HMA indicator has simple settings.
The main parameter is HMA_Period, which defines the moving average period.
HMA_PriceType – specify the type of price to be used in calculations. Variants are indicated by numbers from 0 to 6. Usually leave the value of parameter 0, which means that the calculations will be made on the closing price.
Parameter HMA_Method allows you to choose the method of calculation Moving Average: simple, exponential, smoothed or linearly weighted.
And the last parameter is VerticalShift. It determines the size of the shift in points vertically.
NormalizeValues is not significant, so you can simply ignore it.
Hull indicator application in trade
For the beginning let’s see how it looks on the price chart:
HMA indicator is displayed as a green and red line. The change of color indicates a change in the direction of price movement. For the sake of clarity, I have set up a regular MA with the same period on the chart. I think you’ll agree with me that the Hull indicator reflects the market situation more accurately.
We trade in the direction of the prevailing market trend, which is indicated to us by Hull Moving Average.Download HMA indicator:HMA_indicatorFyodorov’s Inga01.08.2018