Hull Moving Average For Forex Trading

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What Is The Hull Moving Average

Developed by Alan Hull, this improves the weighted moving averages and its cousins to become one of the best technical indicators available.

Doing technical analysis, there are hundreds of trading indicators out in the trading wilderness that people love and hate.

All can help you get better at forex trading.

A common thing for a forex trader to do is to stick to common trading indicators such as Ichimoku, Weighted Moving Averages, and RSI’s.

These work in their own accord but there is one indicator that we absolutely love and recommend using (IF you have to use any), and that is the Hull Moving Average (HMA).

What’s so special about this one?

It’s not because it’s unique, in fact, it is just a variation of the simple moving average calculated in a different way.

It’s the way it is a weighted moving average weighted towards price, which means it provides a silky smooth moving average that you can work with a lot easier than its cousins. It essentially eliminates lag altogether compared with traditional moving averages, such as weighted moving averages or simple moving averages.

It can be used for all types of trading through technical analysis, such as scalping or swing trading.

If this is the first time you’ve heard of Alan Hull and his Hull Moving Average (HMA), or if you are further down the rabbit hole, then this article is for you.

It’s time to learn more about, what we believe, is one of the best indicators for day trading forex you can use.

After reading the article, you should no longer be searching Google for “Which is the best moving average, simple or exponential”, because the Hull Moving Average (HMA) is the answer.

Hull Moving Average

As you can see from the image above, it just looks like a normal moving average, but later on, we’ll show you the key differences and why it is vastly superior.

The Hull Moving Average Formula

Alan Hull uncovered the formula that transformed the weighted moving average and took it to the next level

The Alan Hull moving averages formula is really simple, to be honest, but this is the secret sauce that makes it work mathematically, as well as outputting a moving average.

The formula is:
Integer(SquareRoot(Period)) WMA [2 x Integer(Period/2) WMA(Price) – Period WMA(Price)]
(Source: Alan Hull)

WMA = weighted moving average.

Now let’s compare it with its more popular cousin’s formulas:

Simple moving average formula:

Easiest to compute:

The SMA = Close Price x + Close Price x + Close Price x divided by No. of Periods

For example, a 3 day Simple Moving Average would be 60+62+63/3 = 61. Therefore the indicator would plot 61 as the SMA.

Exponential moving average formula:

The exponential moving average gives more weight to the recent trading day’s activity, which helps filter out when the price drops significantly for one day but then recovers.

[Close – previous EMA] * (2 / n+1) + previous EMA

Example: 3-period EMA:

[(59 – 61) x (2/4) + 61 = 60]

As you can clearly see that the Hull Moving Average uses a mixture of the two formulas.

This is why it works so well.

So with the formula, you are combining the best of both worlds, which results in a better, more reliable, moving average to place on your trading charts than the traditional moving averages.

After reading the above formulas, if you are still with me, then I have some good news for you…

The software packages compute the above formulas for you instantly and automatically, so you don’t need to worry about the formulas too much.

Hull Moving Average - Billions

The Hull Moving Average Indicator

This indicator is nowhere near as popular as its other moving average cousins like the smooth moving average or the weighted moving average.

So let’s explain the core differences below:

Hull Moving Average Indicator

In the image above you can clearly see the difference with the indicators following the price and how much/close they are to hugging the price.

You can see that the Hull Moving Average (HMA) follows the price much more closely than the others.

In terms of closely following the price, it goes in this order:

  1. Hull Moving Average
  2. Exponential Moving Average
  3. Simple Moving Average

Remember that all indicators are lagging due to the nature of the computations.

However, as you can see the hull indicator clearly follows price in a much cleaner fashion than the other two moving averages.

This is what gives it the advantage as there is no “lag”*.

*Well, there is lag because it requires previous data to compute the hull indicator on the screen.

But it’s much more reduced vs. traditional moving averages.

How To Use The Hull Moving Average

Now you know its benefits, now its time to learn how to use it

By now you must be realising the extreme similarities between the Hull Moving Average and its other variations.

You can append the Hull Moving Average to either:

  • Close price
  • High
  • Low
  • Open

And any other methods you can think of.

You can set the indicator to any time period as well.

If you can use a simple moving average (or any of the other popular versions), then you can 100% use the Hull Moving Average.

Hull Moving Average Crossover Strategy


This is the beauty of the indicator

You can do all the strategies that its cousin moving averages can do, but more accurately and sooner in most cases.

For example, a very common strategy is the hull moving average crossover strategy because it is super simple and very easy to trade.

The main principle behind the crossover strategy is to follow trends, just like all crossover strategies.

Here you will use two hull moving averages to generate the trading signals.

However, with the HMA, you will have found a potential signal earlier.

The core signal for the strategy is this:

Buy

When the faster HMA cross above the slower HMA = buy signal.

Sell

When the faster Hull Moving Average crosses below the slower Hull Moving Average = sell signal

That’s it.

A super simple but effective strategy.

What about taking a profit?

You can either:

  • Wait until the HMAs cross back over the opposite way, or;
  • Take profit at the nearest support and resistance level, or;
  • Move your stop loss to follow the market direction.

Here is an example of a hull moving averages crossover strategy buy signal

Hull Moving Average Crossover Strategy - Buy

Here is an example of a hull moving averages crossover strategy sell signal:

Hull Moving Average Crossover Strategy - Sell

As you can see with both of the examples above that the crossover happens frequently in smaller timeframes, and like ALL strategies – it provides false signals.

So it is up to you to use other resources to filter trade signals out.

Here is an example of how the Hull Moving Average Crossover finds signals earlier and more accurately vs the simple moving average (in white).

Hull Moving Average Crossover Strategy vs SMA - faster signals

Just by throwing out the Simple Moving Average for the HMA can dramatically impact your strategy for the better.

With that being said, this is not the only strategy the Hull Moving Average can be used for effectively – the world’s your oyster with trading strategies with the HMA.

Hull Moving Average Scalping – Is it for you?

So, is hull moving averages good for scalping?

Well, it can be, that is for sure.

Remember it is just a smoother, less-laggy version of the other moving averages – so if you scalp with moving averages, then the Hull Moving Average can be a game-changer in your technical analysis toolbox.

You can use two hull moving averages to generate a short-term directional trend indicator.

Ideally, you can use it to capture moves when the market’s breakout is above and below the Hull Moving Average in order to generate a few pips profit.

Scalping can be difficult to grasp, but there is no harm in loading up a demo account and seeing how you get on with scalping.

That’s the beauty of trading – some methods are great for you, whilst others are not.

Hull Moving Average Download

There are many resources online where you can find the hull moving averages download and most are completely free

You can click here for the hull moving average download from MQ5, which is a marketplace for the indicators themselves.

Or you can formulate your own using the hull moving averages formula discussed earlier.

You can download the indicator for free here.

Wrapping It Up – The Hull Moving Average

There we have it, the Hull Moving Average (HMA) indicator could be the missing piece to your trading jigsaw.

It eliminates lag altogether and is an improvement on traditional technical indicators.

We recommend this to all learning forex trading for beginners to have a look at and try.

So what do you think?

Now you have read this article you are in a much better position to grab the indicator and give it a go.

This is true, in our humble opinion, the better of all moving averages you can use for free.

If you are still thirsty for knowledge about trading indicators, then you should check out this article:

The 7 Best Trading Indicators For Day Trading

Until next time:

Hull Moving Average - End - Alphaex Capital

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