Description
The VHFTrend strategy is based on the trend-following indicator Vertical Horizontal Filter (VHF). Values of this indicator are interpreted by the strategy as follows:
- VHF values being greater than both a lower threshold (
crit levelin the input parameters) and its own lowest value times a multiplier are read as indication of trend development; - VHF values being greater than a higher threshold level (
trend levelin the input parameters) but lower than the maximum level are interpreted as strong trending conditions;
If either of these conditions is true and close price rises above its own moving average, a simulated buy-to-open order is added. In the same conditions, a simulated sell-to-open order is added should the close price fall below the average.
Simulated exit orders are added based on crossovers of the close price plot with its moving average: when the close price crosses below the average, a simulated sell-to-close order is added; when it crosses above - the simulation of buy-to-close takes place.
Input Parameters
length
|
Defines the period for the calculation of the Vertical Horizontal Filter (VHF). |
lag
|
Defines the period upon which the lowest VHF value is to be found (used in checking for trend development). |
average length
|
Defines the period for the calculation of the moving average. |
trend level
|
Defines the minimum VHF level at which strong trending conditions are recognized. |
max level
|
Defines the maximum VHF level at which strong trending conditions are recognized. |
crit level
|
Defines the minimum VHF level at which trend development is recognized. |
mult
|
Defines the multiplier used in checking for trend development. |
average type
|
The type of moving average to be used in calculations: simple, exponential, weighted, Wilder's, or Hull. |
Further Reading
1. "Which Trend Indicator Wins?" by Markos Katsanos. Technical Analysis of Stocks & Commodities, October 2016.