The Hull Moving Average. Best Indicator for Beginners?
I’m a technical trader. Although I don’t completely ignore fundamentals entirely (possibly to my own detriment), I’m a firm believer that fundamentals get priced in so quickly that technicals, in general, reflect the same theory that is seen and executed on by fundamental traders. Seeing as most technical indicators are some function of price and volume, which is itself driven by both fundamental and technical traders, I don’t see any problem in trading based solely on technical indicators. They are all lagging. Even so called ‘leading’ indicators are actually lagging by the virtue of their data, which exists because it’s already been printed.
Yup, all indicators lag. Don’t fool yourself into thinking otherwise.
I’ve been all over the place when it comes to technical indicators. Some of my more wilder setups have had perhaps ten or twelve indicators. Combinations of simple moving averages, exponential moving averages, volume studies, stochastic studies, etc.
This is overkill, in my current opinion (subject to change, always). When you’re new to the markets, it’s incredibly easy to get sucked in to thinking that if you simply find a handful good indicators, you can be more successful than anyone ever in the history of trading and win 100% of your trades.
Sorry folks, it doesn’t work that way.
This mindset gives you this false sense of confidence. And when, not if, you inevitably bag hold some trades and destroy your account, it will shatter your confidence in those “special” indicators. And then you’ll look for new ones and a new strategy. This is called style drift and it will set you back if you do it too much. Trust me.
If I could go back and tell myself how I should start developing my own system, one of the first things I would say is find a good trend indicator. You might think you can look at candlesticks and tell a trend easily…And you know what? Yes, you could. It’s pretty clear if the trend is up, down, flat, choppy, or consolidating most of the time. However, having a visual clue as to what’s going on gives you more of a clear idea without having second guessing yourself when you’re judging candle wick sizes.
Currently I run essentially two indicators, perhaps three, but two of the same indicator using different input amounts.
That indicator is:
The Hull Moving Average
I’ve probably put every single indicator that comes with ThinkOrSwim on my chart, just to check them out and mess with them. Ninety percent of them I quickly discard and move on to the next. When I first put the Hull Moving Average on my chart, I stopped and took my time with it.
First, the Hull MA is an incredibly fast moving average and even makes an Exponential Moving Average look painfully slow in comparison. I was amazed at with just price (in candles) and the Hull plotted, it smoothed out trends visually and in my own mind.
Second, the added benefit of the ThinkOrSwim version is that when the Hull peaks out or bottoms out, it changes color after the direction switch. It’s incredibly intuitive for beginners and there’s no guessing to see if it is pointed up or down like other moving averages.
Third, you can adjust the input length and find a value that works well for you. The default input length for the Hull on ThinkOrSwim is 20 I believe, but I use a longer period than this.
It’s Not Perfect
Just like any other indicator, it’s not 100% clear 100% of the time.
During period of consolidation and volatile or range-bound price movement, the Hull Moving Average can appear relatively flat but flips up/down between color 1/color 2. Of course, the challenge is, you don’t necessarily know you’re in consolidation until you see that you are. This is where using another indicator in conjunction with the Hull is useful, like a stochastic, so at the very least, you’re not buying at the top of a consolidation range.
See /GC Gold Futures Below on the Daily:
How NOT to Use the Hull Moving Average
Some methods of taking trades with other moving average types I believe are irrelevant when it comes to the Hull: moving average crossovers, price crossover/under, price bounces on HMA.
Moving Average Crossovers
You might think about plotting more than one Hull Moving Average on your chart. Heck, I do. But I don’t use the crossing of HMAs to trade. They only show direction of the trend in a given time period. They do not show subcycles of a longer-term cycle.
Price Crosses Above/Below
With an EMA or SMA, you might buy when a candle closes above it or sell when it closes below. I don’t do that with the Hull MA. The reason why is because of exactly how fast it is. Even higher-input HMAs will print closer to price than lower-input EMAs and SMAs. Consequently, you’ll frequently see price print above and below it while maintaining it’s trend and color.
Price Bounces on HMA
Another way traders will use more traditional moving averages is as support and resistance points. The most popular moving average lengths in the world are probably the 20, 50, and 200 MAs and/or EMAs. If you plot these on your chart, you might frequently see price ‘bounce’ off of these lines. Whether you believe them to be valid or not, you certainly should not look at the Hull MA in the same way. If it appears price is ‘bouncing’ off a Hull, there is probably another moving average or support/resistance area that is in confluence and it’s not because of the Hull.
A Popular Strategy with Heiken Ashi
One of the more popular setups involving the Hull MA is with Heiken Ashi candles.
I’m not going to go into details about this particular candle type (it is calculated differently than standard candles), but Heiken Ashi candles are similar to the Hull MA in that they visually smooth out trends and involve a change in color coinciding with a change in trend. However, they don’t take an input, and you will see more choppiness reflected in the Heiken Ashi candles than the HMA.
This strategy is especially neat because you can color-coordinate these indicators/candles together.
Take a look at Century Link/CTL below:
The basic idea is: buy when you have a white candle and a white HMA and sell when you get a red candle and a red HMA.
You can get an idea of how powerful this can be from the chart above. There are some great runs you can capture with this strategy. You can clearly see why you might not want to buy on white candles with a red HMA line and vice versa.
The Hull Moving Average is a unique moving average which can help clearly distinguish trends and consolidation areas. It’s input value makes it tailorable to your strategy as well as existing strategies that incorporate it, such as the combination with Heiken Ashi. At the end of the day, if it has value to you, then great. I use it and am constantly learning new ways to use it. Take a look at it, especially if you use ThinkOrSwim. You just may leave it on your charts for good!