Introduction to the HLC Trend Indicator
The HLC Trend Indicator is a trend following indicator which is based on the Exponential Moving Averages (EMA) of the high, low, and close of price, thus the name HLC Trend Indicator. It is an oscillator type of indicator which compares the EMAs derived from the high, low, and close of price.
What is the HLC Trend Indicator?
This indicator plots two lines which oscillate around a midline which is zero. In the template used in the examples here, the indicator is set to plot blue and green lines. These two lines tend to move opposite to each other. The green line would be above the blue line whenever the market is in an uptrend, and below the blue line whenever the market is in a downtrend.
How the HLC Trend Indicator Works?
The HLC Trend Indicator uses an algorithm which compares the Exponential Moving Average of the high, low, and close of price. It then plots a line which is derived from these calculations. It also incorporates a formula which makes the two lines inversely correlated which is why the two lines tend to move opposite of each other.
How to use the HLC Trend Indicator for MT4
This indicator has three modifiable variables which would allow users to adjust the characteristics of the oscillations of the two lines.
“Close period” refers to the number of bars used to calculate the EMA based on the close of price.
“Low period” refers to the number of bars used to calculate the EMA based on the low of price.
“High period” refers to the number of bars used to calculate the EMA based on the high of price.
This indicator can be used as a trend direction filter. Traders may identify trend direction based on whether the green line is above or below the blue line. Traders could then opt to trade only in the direction of the trend as indicated by the HLC Trend Indicator.
It can also be used as a trend reversal signal indicator. Traders can open and close trades based on the assumption of a trend reversal using the crossing over of the green and blue lines. However, this is best executed in confluence with other technical analysis indications.
Buy Trade Setup
When to Enter?
Open a buy order as soon as the green line crosses above the blue line. Set the stop loss on the support below the entry candle.
When to Exit?
Close the trade as soon as the green line crosses below the blue line.
Sell Trade Setup
When to Enter?
Open a sell order as soon as the green line crosses below the blue line. Set the stop loss on the resistance above the entry candle.
When to Exit?
Close the trade as soon as the green line crosses above the blue line.
Conclusion
This indicator has the potential to produce signals that could yield very high gains on a trade. This is as long as the signal actually results in a trend. However, this is not always the case. There are instances when this indicator would produce false signals especially during choppy market conditions. This is why this indicator is best used in confluence with other technical indications especially on the long-term.
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