Hull Moving Average ( ) formula
Integer(SquareRoot(Period)) (2 x Integer(Period/2) (Price) - Period (Price))
Solving the problem of lag requires an explanation with numbers rather than charts. Consider a series of 10 numbers from '0' to '9' inclusive and imagine that they are successive price points on a chart with 9 being the most recent price point at the right hand leading edge.
If we take the 10 period simple average of these numbers then, not surprisingly, we will determine the midpoint of 4.5 which significantly lags behind the most recent price point of 9. Here's the clever bit, first let's halve the period of the average to 5 and apply it to the most recent numbers of 5, 6, 7, 8 and 9, the result being the midpoint of 7.
To remove the lag we take the midpoint of 7 and add the difference between the two averages which equals 2.5 (7 - 4.5). This gives a final answer of 9.5 (7 + 2.5) which is a slight overcompensation. But this overcompensation is very handy because it offsets the lagging effect of the nested averaging.
Hence the result of combining these 2 techniques is a near perfect balance between lag reduction and curve smoothing. The manages to keep up with rapid changes in price activity whilst having superior smoothing over an of the same period.
The employs weighted moving averages and dampens the smoothing effect (and resulting lag) by using the square root of the period instead of the actual period itself.
There are 3 HullMAs in the script, one runs on current price, and others on previous candle prices, when they cross over, is the entry signal.
The strategy also includes a candle cross condition for entry:
(if current price greater than previous candle value (Open+High+Low+Close)/4) then BUY
(if current price less than previous candle value (Open+High+Low+Close)/4) then SELL
in total 4 crossover conditions must be met to initiate a signal.
//From Indicator420 by SeaSide420 HULL MOVING AVERAGE CROSS & CANDLE CROSS
strategy("Indicator420 Strategy", shorttitle="HMA_X", overlay=true, default_qty_type=strategy.percent_of_equity, max_bars_back=420, default_qty_value=100, calc_on_order_fills= true, calc_on_every_tick=true, pyramiding=0)
n1e=plot(n1, color=c, linewidth=1, offset=2)
n2e=plot(n2, color=c, linewidth=1, offset=2)
fill(n1e, n2e, color=c, transp=75)
plot(cross(n1, n2) ? n1 : na, style = circles,color=c, linewidth = 4)
closelong = p<p and n1<n3
closeshort = p>p and n1>n3
longCondition = strategy.opentrades<1 and n1>n2 and p>p and n1>n3
shortCondition = strategy.opentrades<1 and n1<n2 and p<p and n1<n3