Hull Moving Average - your new moving average

Hello, friends! Many of us, one way or another, use moving averages in our forex trading. The main problem with this classic indicator is that it lags.

Australian trader Alan Hull once became concerned with this problem and improved the ordinary moving average by almost completely removing the lag while preserving the smoothness of its readings. Since then, this indicator, the Hull Moving Average, has gained considerable popularity among traders. That is what we will talk about today.

Very often, traders use moving averages to assess momentum and identify dynamic support and resistance. Moving averages are calculated by averaging the value of an asset's price taken over a certain period of time,  which ultimately smooths out the price fluctuations of that asset.

The main drawback of this tool lies in the basis of its calculations: since the moving average is calculated from prices obtained over a past period of time, it will lag behind current price activity.

The Hull moving average takes this limitation into account.

Alan Hull's moving average is an indicator that not only smooths out price fluctuations, but also eliminates a major drawback of the ordinary moving average: price lag.

Hull Moving Average is able to cope with this problem because its calculation is carried out using the square root of the given period, rather than the actual period as such.

Let us begin with how deeper smoothing is achieved in the calculation of the Hull moving average. This is accomplished by averaging the average. Thanks to this, the curve is displayed more smoothly, and usually in such cases the indicator lags even further behind current prices. Hull discovered this relationship inherent in smoothing curves and thus included in his formula a component that reduces such lag.

Hull explains how the lag of his moving average is minimized using the example of a series of numbers from 0 to 9, each of which carries a certain price value, with the number 9 carrying the latest price closest to the present moment. The calculation of the Hull moving average begins with calculating a simple moving average with a period of 10, which gives us an average value equal to 4.5. Obviously, there is a lag from the freshest price here.

Next, Hull explains the following: "we halve the average period to 5 and apply it to the latest values 5, 6, 7, 8 and 9, resulting in an average value of 7." This average value will be added to the difference between these two averages, or 2.5 (7 - 4.5), which totals 9.5 (7 + 2.5).

Since the current price is equal to 9, Hull explains this kind of overcompensation by saying that it is "convenient, because it compensates for the effect of price lag that is built into the moving average calculation."

The formula for calculating the Hull moving average is as follows: value (square root (period)) WMA .

Traders should know about one of the main drawbacks of the Hull moving average, which is that it tends to exceed the average price value, in particular, to exceed the average value of current prices. Traders describe this property of the Hull moving average as follows: "if you follow the Hull moving average too closely, you can get into trouble."

In addition, one should not rely on crossing signals with the Hull moving average, since this technique is based on the lag element of simple moving averages, which is not characteristic of the Hull moving average.

Thanks to its more timely nature, the Hull moving average is a useful indicator that gives good signals for the moment of a price reversal, for entering and exiting the market, and it can also be used as a filter for your forex strategy, which will confidently tell you what action you should take next.

The Hull moving average has certain limitations, but it performs its main function: it makes the curve smoother and eliminates the drawback associated with lagging behind the price chart, which is often inherent in ordinary moving averages.

Platform: Metatrader 4
Currency pairs: any
Timeframe: any
Trading time: any
Recommended brokers: Alpari, Roboforex

Respectfully, Andrey aka topepo241
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