Moving Averages (MA) facilitates technical analysis by smoothing the price data constantly updated after a set time interval. The second-generation traders, Alan Hull, developed a Moving Average. The fund manager, writer, I.T. expert, businessman, speaker wanted to create an MA that could respond to the current price activities and maintain the curve’s smoothness. Thus, the Hull Moving Average was created in 2005. This Moving Average claims to be more competitive and accommodating than the other MAs as it strives to eliminate lag while improving curve smoothness.
What is Hull Moving Average?
The Hull Moving Average (HMA) represents an extremely fast and smooth moving average developed by Alan Hull. HMA minimizes the lag of a traditional moving average while retaining the smoothness of the moving average line.
Please download the Hull Moving Average indicator for MT4.
Alan Hull moving average formula.
HMA= WMA(2*WMA(n/2) ? WMA(n)),sqrt(n))
To calculate the HMA moving average, it is necessary to do the next five steps:
- Calculate the Weighted Moving Average for a period of time.
- Reduce the time period into two halves by dividing it by 2. Now, use the value to calculate your second WMA.
- Multiply your second WMA by two and subtract the first one from it.
- Find the square root of the new time period and take its integer value.
- The final integer that you found in the above step will be used to find the third WMA.
Alan Hull used the three Weighted Moving Averages (WMA) formula to develop his Moving Average. The WMAs are difficult to build, but they are more comprehensive and reliable than the Simple Moving Averages. Consequently, you can expect more conducive results from the Hull Moving Average.
The Best setting for hull moving average
The best setting for Hull moving average for long term trades is on 16 weeks long MA. For the hourly and daily charts, the best setting is the default 21 period long settings.
Many believe that considering a 13-week average would be better as it makes a quarter of the year, but Alan Hull explained the set-up of his Moving Average with the help of a 16-week long MA. Let’s take the same route.
When you are on your trading platform, you will see a column with a list of indicators. Scroll down and select the ‘Moving Averages’ option. This will open another box with various options. You will see a dropdown menu with options like Exponential, Simple, Wider, and more. Choose Hull. You will also get options to set the time period.
Once all this is done, you can add this indicator easily to your chart. You can edit the indicator by simply opening the indicator panel. You can change the settings, save everything, and close it. You can delete the indicator as well using the same panel.
If you wish to change the indicator’s colors, you can click on ‘L’ that could be found on the toolbar. You can do the same by typing the same letter on your keyboard. You will find several color options that you can select by clicking on the desired color patch.
Using the Hull Moving Average for Trading Signals
The Hull Moving Average creator recommends that traders use his creation for directional signals only as crossovers could face distortion due to lag. You should hold a long position when the Hull Average turns up and opt for a short position when it turns down. You can introduce a longer-term MA in the direction of a signal and then trade in the same direction.
How to trade using the Hull Moving Average
Hull Moving Average Strategy
Hull moving average strategy is based on the crossover technique applied on two moving averages to a chart: one longer and one shorter. The trader can enter into a position and exit from the position when a longer and shorter moving average cross.
For example, we can check a 13-period cross 52-period example or 16 and 32 cross example.
The green 32-weeks Hull MA is our source of trend directions in the above graph, while the trade signals are taken from 16-weeks Hull, MA. The latter is possible only when the 32-weeks slope is in the same direction.
In the above graphs, the green line means to go long, the red one means to go short, and the gray one gives exit signals. These colors can be changed. Read to know-how.