What Is a Hull Moving Average

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The Hull moving average, or HMA, was created by Alan Hull, author of Active Investing (Wrightbooks, 2004). The HMA is an accelerated moving average that attempts to solve the issue of lag in normal moving average indicators. The HMA is actually several weighted moving averages calculated with the square root of whatever period you set the HMA to. The result is a moving average that responds much faster to price and gives bargain hunters an excellent visual indicator of when the market is on sale in the midst of price action.

If you're interested in the calculations used by the HMA, you can read Hull's explanation of the indicator by visiting www.justdata.com.au/ Journals/AlanHull/hull_ma.htm. Hull's web site includes formulas to create an HMA in MetaStock and SuperCharts; additionally there are HMAs available at the MetaQuotes Language Community web site at www.mql4 .com. If you want the HMA I use for MetaTrader, visit my web site at www.ryanokeefe.com.

Configuring a Hull Moving Average To begin, you need to configure an HMA on the currency chart you intend to trade. You should place the HMA over a daily or weekly chart and set the indicator to a period of 12,16, or 20. The period you choose has to do with the number of trades you are willing to take. The lower the period you choose, the more trades you will be presented with. Of course, the more trades you take, the more exposed you are to taking a loss, so a balance must be struck. I prefer to set my HMA to a period of 16. Some HMA indicators allow you to configure the price the HMA should use for its calculation. I prefer to set my HMA to use the open price of each daily candle versus the close price. This keeps the HMA static throughout the trading day because the open price doesn't change, whereas the close price does change until the end of the trading day. If you

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FIGURE 7.1 Configuring a Hull Moving Average MetaTrader, © 2001-2008 MetaQuotes Software Corp.

FIGURE 7.1 Configuring a Hull Moving Average MetaTrader, © 2001-2008 MetaQuotes Software Corp.

don't mind the HMA jumping around on you, then it doesn't matter. When you are finished you should have a line on the chart that looks very similar to Figure 7.1.

Simulating a Hull Moving Average If you are unable to use Meta-Trader or can't locate an HMA for your chart software, you can come very close to an HMA by using a weighted moving average. The HMA is built on several weighted moving averages, and the square root of the period entered for the HMA, so a faster weighted moving average can closely simulate an HMA. You will not receive the same smoothing that an HMA is able to attain, but that isn't important for the purposes of identifying a bargain day with the indicator. Try using a standard weighted moving average set to calculate from the open price using a period of 5.

Figure 7.2 illustrates the differences between an HMA set to a period of 16 and a WMA set to a period of 5. You'll notice that the differences are slight; both indicators follow price quickly, which is all you need to identify a bargain day.

FIGURE 7.2 Comparing a Hull Moving Average to a Weighted Moving Average MetaTrader, © 2001-2008 MetaQuotes Software Corp.

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