Greetings Traders, and welcome back to another In Depth with Chris episode.
In today's discussion, we'll be talking about the Hull Moving Average.
That is H-U-L-L, not "whole" like I want the whole pie.
You might want that as well.
But before we get going, let's show you how you can
apply it to your charts with the Finamark platform.
That way you can follow along the entire time.
The first thing that we're gonna do is go up to the top center
portion of the screen and click on the "show indicator options"
button, and then down here, the fourth item down at the moment
if I give this a click, it will add the hull moving average to my charts.
If I want to change any of the settings with it, I'm gonna
come over to where it populated on the section 1 side,
and I'm gonna click on the cogwheel.
Then I can change the period as well as the color
of the line that is representing the moving average.
But without further ado, let's go ahead and dive into that
information so we can learn more about the Hull Moving Average.
The Hull Moving Average is another moving average.
We sometimes refer to it as an "HMA" instead of something like,
say, an SMA or an EMA.
What it is is a directional trend indicator that is a
combination of weighted moving averages.
The concept is to provide higher quality information to traders
whose strategy depends on slim margins within price movements
of a particular instrument.
It prioritizes recent price changes over older ones.
The result is a moving average that's dynamic yet smooth.
It's able to help identify the dominating market trend.
Some traders also use the indicator to time their entry and
exits themselves. Alan Hull, who's a trader and a mathematician,
he developed the HMA, which is the Hull Moving Average,
in 2005, so it's not relatively that old in regards to other
trading technical analysis. The calculation of the HMA is
really not something that you'll have to know too much, and
we're not going to spend a lot of time on it.
But I did want to include it in this video.
If it is something of interest, just come back to this
point in the video and pause it on this frame.
It explains how it's calculated, as well as shows the equation at the bottom.
Now let's talk about how we can use the Hull Moving Average.
As a directional trend indicator,
the HMA is capturing the market's current dynamic and presenting it to us.
It's trying to determine whether the market conditions are
bullish or bearish relative to historical data by relying on recent price action.
Knowing this should make interpreting the indicator a little bit easier to understand.
Most platforms will display the HMA with two dimensions.
You can have a positional value and a directional value,
but in some cases it's just simply one value.
We generally are using this value to get an idea of what
an HMA is trying to tell us exactly.
As we can see on this chart here, which is of the E-mini S&P 500,
we have a line running through it, representing the HMA.
Now, there's nothing significantly different from the way
other moving average indicators will appear in the chart in relation to this one.
At first glance might look just like a simple moving average.
But how it's calculating that line is what makes it different.
Before we switch over to other moving averages or trading
strategies around the HMA, it's important that at this point,
if you haven't already applied the HMA to your chart, I strongly recommend doing so
so you can get an idea and understanding as we go forward
talking about how the strategies will be employed.
According to Hull, the indicator signals are most efficient
when using them for directional signals and not for crossovers
themselves. The reason that crossovers are likely to be
not as desired by a trader is because they're more distorted
by the lag that the moving average might have.
Instead, Hull always recommended looking at turning points
to try to identify entries and exits.
Based on this, the strategies that we can use with the
Hull Moving Average are pretty much as simple as they get.
We would look to buy when the HMA turns up and we'd look
to sell when the HMA turns down.
Over here on the left, we have a buy scenario because
price is crossing above the HMA, but also because the HMA is
going up now. Over here, the HMA is turning down, and not only that,
but price is actually fallen below the HMA.
Over here we have the HMA switching directions going up again.
This provides an opportunity to buy.
Over here, we have an opportunity to sell when the HMA is
now angled back down and price is in fact trading below it.
In the core aspects of HMA trading, we're really just
trying to give ourselves an idea of which way we actually want to go.
On this chart, we can look at an HMA versus an SMA.
Here the yellow line, which is the one on bottom on the
left side of the screen, this is the SMA.
We are all familiar with the simple moving average.
Look how it differs from the HMA, which is the blue line
that is moving through price.
It follows price up to almost the very top of the market's run here,
and then it quickly reacts going downwards, whereas
the SMA is something a bit more smooth in its averaging,
so to speak, where it's giving price a wider birth from the
extremes, both up and down.
It's pretty noticeable that the HMA is a little bit more
closely tied to current price action than the SMA.
On this chart, we can see how the HMA is comparing to an
exponential moving average.
Now naturally, an exponential moving average does, in fact,
weight more current price heavier than price from the past.
We should expect to see some more comparable results here.
But even still, it's still very noticeable that the HMA is
still gluing to price and responding quicker than the EMA itself.
The blue line, remember, is the HMA in this scenario,
whereas the green line, which is starting underneath, is going to be our EMA.
Once again, we see how the HMA is a little bit more accurately
following price action and responding a little bit quicker
to price changes. Finally, we have the WMA.
This is the weighted moving average. Here,
we will once again see our HMA as a blue line, and we'll
see our competing moving average as the WMA, as the purple line in this case.
Once again, the weighted moving average is in fact getting
even closer to keeping up to the HMA, but it's still falling short.
The HMA is still responding more quickly, and it's
responding in a more accurate way, so to speak, than the
weighted moving average is.
We're seeing more of an overall average being displayed by
the WMA, whereas with the HMA, we're seeing more of an average
of recent moves being displayed than an overall average.
If that makes any sense to anyone out there, and if it does,
then come over for tea later because you actually understand me
In conclusion, the Hull Moving Average is a great
technical indicator that can be viewed by most as an improvement
upon the regular, simple moving average as well as some of
the moving averages that came after the SMA. When coupled
with something like the RSI or the ATR, some very powerful
market reads can come from the hull moving average, and
we can find confirmed entry and exit locations with relative ease.
I strongly recommend checking out the Hull Moving Average on
your demo account, playing around with it for a
little bit before you ever go ahead and consider taking it live.
But until next time, please do me a favor,
click that like and subscribe button down below so I can
keep coming out with content for you all out there.
But best of luck, all of you, in the markets.
I will see you very soon.