Introduction to the Hull Moving Average Indicator
Moving average lines are the most basic trend following indicator that traders use. However, they also have a recurring weakness, which could either be lag and its susceptibility to false signals. The Hull Moving Average, developed by Alan Hull, is a modified version of the moving average which attempts to eliminate both lag and its susceptibility to false signals.
What is the Hull Moving Average Indicator?
The Hull Moving Average (HMA) Indicator is a modification of the basic Simple Moving Average (SMA) line. It was modified to plot a moving average line which very responsive to price movements. At the same time, it also has a smoothing effect which lessens the false reversal signals which are typically generated by market noise.
How the Hull Moving Average Indicator Works?
The Hull Moving Average uses a formula which is derived from the Weighted Moving Average (WMA). The formula below is the formula for the Hull Moving Average.
HMA = WMA (2 * WMA (n/2) – WMA(n)), sqrt(n))
How to use the Hull Moving Average Indicator for MT5
The Hull Moving Average has three basics variables and options which allows traders to modify the sensitivity of the line it plots.
The “Hull period” refers to the number of bars the indicator would use for its calculations.
The “Hull power” refers to the power used on the HMA formula.
“Price” refers to the price point on a bar which would be used for the computation of the moving average line. It could be the Open, High, Low, Close, Median Price, Typical Price, and Weighted Price.
The Hull Moving Average can be used just as a regular moving average line is used.
It can be used to determine momentum and trend direction based on the slope of its line as well as the general location of price action in relation to it.
It can also be used as a dynamic support or resistance line where traders can anticipate possible reversals.
Traders can also use it as a component of a moving average crossover to identify potential trend reversals.
Reversals can also be identified based on the curling up or down of the HMA slope. However, this is best done in confluence with the trend or with a support or resistance line.
Buy Trade Setup
When to Enter?
Identify an uptrend market with a clear upward sloping support line. Wait for price to retrace near the support line. Open a buy order as the HMA line curls up. Set the stop loss on the support below the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of a bearish reversal.
Sell Trade Setup
When to Enter?
Identify a downtrend market with a clear downward sloping resistance line. Wait for price to retrace near the resistance line. Open a sell order as the HMA line curls down. Set the stop loss on the resistance above the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of a bullish reversal.
Conclusion
The Hull Moving Average is one of the better versions of the moving average line. This is because it has somehow reduced the weaknesses of a basic moving average line which is lag and false signals. It is not perfect but it is an excellent option to use.
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