This Moving Average Reduces Market Lag | SMART Trading With Hull Moving Average


Most of Forex or stock market traders, in
one form or another, use different types of moving averages while trading. But the main problem of all indicators built
on the mathematics of averages is the lagging factor. Traders use indicators based on averages to
build dynamic lines of support/resistance and to evaluate the strength of price momentum. Their main disadvantage lies in the method
of calculation: since moving averages are calculated based on past prices (for a certain
period of time or number of bars), the calculated line reduces price fluctuations, but will
always lag behind real price. For this reason, Alan Hull, an Australian
financial analyst and trader, proposed an improved version of the moving average, providing
smooth indicators in the construction and almost completely eliminating the negative
effect of lagging. The hull moving average is an extremely fast
and smooth moving average. In fact, the HMA almost eliminates lag altogether
and manages to improve smoothing at the same time. Its calculation is rather complex but I’ll
try to keep it simple, so you’ll understand why this type of moving average is better
than the classic ones. The hull moving average formula makes use
of the weighted moving average (wma). It emphasizes recent prices over older ones,
resulting in a fast-acting yet smooth moving average that can be used to identify the prevailing
market trend. The HMA employs weighted moving averages and
dampens the smoothing effect (and resulting lag) by using the square root of the period
instead of the actual period itself. For clarity of the analysis, let’s compare
the hull moving average indicator with a simple moving average. So we added a 20 period simple moving average
and a 20 period hull moving average. First, you immediately notice that the hull
ma is faster than the simple moving average. Also, is more reactive to price action, because
it has less lag. The simple moving average is way behind the
hull one, with delayed entries and exits. The hull ma is providing signals well ahead
as compared to the simple moving average indicator. How to use hull ma? For those who use price action to trade the
markets, there are mixed opinion about the use of moving averages. I mean, why would you use them if price is
your indicator? Well, let me explain why the hull ma can add
to your trading arsenal. I use hull moving averages in two basic ways:
– to identify a change in trend or the strength of a trend. – as dynamic levels of support and resistance. Hull mas can provide insight to possible trend
changes as well as showing traders an indication of the strength of an existing trend. Using a hull ma to determine the trend of
an instrument is great… during trending moments, but during consolidation periods,
relying on mas all-too-often causes traders to get whipped out of trades. But we’ll discuss more on that later. How this indicator works:
First, to define a trend: A longer period hull ma may be used to identify
trend. If the hull ma is rising, the prevailing trend
is rising, indicating it may be better to enter long positions. If the hull ma is falling, the prevailing
trend is also falling, indicating it may be better to enter short positions. Here are a few examples, based on price action
and a hull moving average. So, the change of slope of the hull moving
average indicator tells you to be ready to buy or sell. If the slope starts to point up, get ready
to buy. If the slope starts to point down, get ready
to sell. In fact, i would say the hull ma works even
better as a reversal filter, and, therefore, its exit signals are more reliable at times
than the entry. Now what about when the price crosses above
and below the moving average? I saw a lot of traders trading the hull ma
in a wrong way, trying to scalp or day trade when the price crossed above and below the
ma. Here’s an important tip: the “breakthrough”
by the price of the line of the hull moving average indicator itself shouldn’t be perceived
as the market signal. Because of the small lag, it is difficult
to generate buy/sell signals on the crossovers of hull ma and price. Have a look at this example of a strong trend. Let’s consider that you aim to sell every
time the price crosses the hull moving average to the downside. Although you are protected in a small way
by the strong trend, you see that the signals are not as accurate. The price cuts through the moving average
with ease, practically stopping out the traders on the other side of the moving average. But if you just followed the slope of the
hull ma like i said before, you wouldn’t need to enter so many times in the market,
because the slope was pointing down the whole time. You got in the trade once, captured the move
and got out when the hook of the moving average turned upwards. And that’s the positive scenario, of a trending
market. Look what happens when you want to trade price
crossovers of the hull ma in a range. Things can get ugly pretty quick. Look at how many false signals this strategy
offered. It’s a trader’s nightmare. As soon as you enter a trade, it immediately
retraces in the opposite direction. So, if you want to preserve your capital in
long run, avoid trading crossovers between the price and hull ma. What about the crossover between 2 hull moving
averages? I would ignore those signals also. If you watched my other moving averages videos
on my channel, you know that I’m not a big fan of crossovers, because in the long term,
they will slowly diminish your account. Yes, there are traders that rely exclusively
on moving average crossovers, but I’m not one of them, I’ve experienced more losers
than winners trying to come up with a magic crossover. So let’s take a look at some charts to see
what a crossover of 2 hull ma tells us. We added a short term one, a 7 hull ma and
a longer term one, a 50 hull ma. First scenario: trading crossovers on trending
markets. So, what do we see? Yes, a couple of good signals, but if you
missed the good ones and entered here, for example, you got stopped out quickly. Too many bad signals. What about ranging markets? Well, it’s almost impossible to be consistent
trading crossovers when there isn’t a trend. I don’t see how you could avoid all these
false signals and have a positive balance at the end of the trading session. How i would trade with 2 hull ma on my chart? I told you before: the slope is all you need. You have the long term 50 ma, and the short
term ma, the 7 period, The shorter period hull ma may be used for
entry signals in the direction of the prevailing trend. A long entry signal, when the prevailing trend
is rising, occurs when the 7 hull ma turns up, and a short entry signal, when the prevailing
trend is falling, occurs when the 7 hull ma turns down. You don’t search for crossovers; you search
for both the ma to indicate the same direction. So if the 50hull ma is pointing upwards, you
carefully watch for the hook of the 7 ma to shift upward. Is this strategy perfect? Of course not, but you’ll enter the trade
early, compared to a crossover. Also, it goes without saying, but you should
aim to trade during trending scenarios. So always look for higher higher and higher
lows, and lower lows and lower highs. Here are a few examples of potential entries
using 2 moving averages. Now, a serious drawback of hull moving average
is the fact that as a moving average indicator is not quite consistent with reality. If you are accustomed to using standard moving
averages for trends searching, the HMA indicator will not be a full replacement: it shows only
the general direction of market trend, but it is completely unclear when it is safe (and
profitable) to open a trade. Adding the HMA only tells you that you can
safely open a short position when its slope is down and a long trade when the slope is
up. That’s why hull moving average indicator
without additional filters is not recommended. As always rely first on price action, support
and resistance, and then confirm your bias with the hull ma. If you found value in this video, consider
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31 Replies to “This Moving Average Reduces Market Lag | SMART Trading With Hull Moving Average”

  1. i love this channel, beautiful voice and excellent explanation with lounge music feeling like we're in a professional business meeting, focus yet relaxing.

  2. Your content is always clean and instructive. You don't bullshit with unecessary things… I'm happy that your channel find the audience its deserve. GG Bro

  3. When it comes to Stock trading the lack of strategy is not a real problem,the challenge is finding one that suits you. I was privileged to find this great man Mr.Wilson, he didn't just give me the right strategy but also gave me the grand basis and I keep making consistent profit on every trade you can contact him via [email protected] With Wilson Jonathan method's I was able to rack in $12,000 in a week.

  4. Thank you, a very interesting idea. As you stated,the Hull MA, reduces lag. I have read that the Triple Exponential MA does the same( reduce lag). How would you compare the two? Thanks

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