Why should you use the Hull Moving Average? This article shows you the pros and cons of this fantastic indicator and how to use it with graphical examples.
There are many variations of a moving average, but Hull MA is really interesting. What makes Hull so interesting is the fact that it is calculated from a Weighted Moving Average.
Dozens of moving averages are already on your platform. Why add another? It is true that you already have a lot of moving averages, but each of them is slightly different and this small difference can sometimes wholly change a strategy.
By observing the Hull Moving Average and comparing it with a simple moving average, you will immediately realize how different the Hull is and even just watch it on a graph.
There are many pros and cons to consider, in this article, we will go into every aspect of this indicator, but mainly the most important things to know are the following.
The Hull Moving Average is helpful to find turning points more quickly than the standard moving average. The Hull MA is a smoothed moving average and reduces the lag in the market entries and exits. Many times this moving average is too fast and tends to generate more false signals than the standard moving average.
We like this indicator because we prefer the smoothed indicators for our automated trading systems and we think that they can be useful for every trader.
This article will show the differences between the Hull Moving Average and the other most used moving averages. To help make things clearer, we’ll show you a lot of charts with real market examples.
Hull and other moving averages
Difference between HULL and SMA
The Simple Moving Average is the most used indicator in the world. The differences between an HMA (Hull Moving Average) and an SMA (Simple Moving Average) are quite evident even just through a visual examination.
In this Eurusd chart, we have inserted a Hull Moving Average and a Simple Moving Average at 20 periods:
As you can see, Hull MA is always very close to prices and reacts quickly to any change of direction, sometimes even too fast.
On the other hand, the simple moving average forms a more distanced dividing line between rising prices and falling prices.
When prices cross the SMA, there has already been a retracement of almost 50% in the price because the SMA is a lag indicator.
Look at this example taken from the previous chart:
In the first phase, the price goes up quite quickly and we can see that:
the simple moving average begins to assume a rising slope only after 7-8 bullish candles, while the Hull Moving Average after only 1-2 candles has already assumed an increasing slope.
In the second phase, when the mini-trend reverses its direction and becomes bearish, prices immediately cross the Hull Moving Average, while they reach the SMA only after 6 candles.
This delay regarding price movements is a critical feature that separates the two moving averages. If you need more responsiveness, you will rely on Hull Ma; in other cases, you will prefer a standard moving average.
For example, if you want to exit a trade as soon as possible, you will set an exit signal based on the Hull while if you’re going to follow a trend until its real exhaustion, you will choose the SMA.
The differences we have shown you may be minor if we consider an Exponential Moving Average as it is much more reactive than price movements.
Difference between HULL and EMA
Let’s now look at this graph where the three moving averages are present:
- HULL MA – Red
- SMA – Blue
- EMA – Green
In quiet, range-bound markets, simple and exponential moving averages behave in the same way and are very close to each other while Hull follows prices very closely.
When prices explode, of course, the exponential moving average reacts faster than a simple moving average, but the Hull moving average is far more responsive.
An exponential moving average reacts faster to price movements because it is constructed to provide further importance to the latest market prices.
Even the Hull is built in the same way and giving greater importance to the latest prices it moves and reacts very fast.
We would like to point out one thing by looking at the three moving averages.
Observe the intersections between the moving averages. When the price changes direction, simple and exponential moving averages cross each other faster. Being very close to prices, the Hull Moving Average takes much longer to cross one of the two other averages.
HULL Moving Average Calculation
Hull moving average formula
The formula for Hull Moving Average calculation is:
HMA = WMA (2 * WMA (n / 2) – WMA (n)), sqrt (n))
- WMA = Weighted Moving Average
- Sqrt = arithmetic square root
As you can see, you can calculate a HULL MA starting from the calculation of a Weighted Moving Average. Fortunately, you will not have to perform any calculation; the indicators do this work for you.
This is the code to build the calculation function on TradeStation and MultiCharts in EasyLanguage:
// HULL Moving Average for TradeStation and MultiCharts EasyLanguage code inputs: Price( numericseries ), int Length( numericsimple) ; once if Length <= 1 then RaiseRunTimeError( "Length must be greater than 1." ) ; _HMA = WAverage( 2 * WAverage( Price, IntPortion( Length * 0.5 ) ) - WAverage( Price, Length ), IntPortion( SquareRoot( Length ) ) ) ;
Hull moving average settings
The Hull Moving Average follows prices very closely, so many traders ask us which setting should be used.
In fact, as we have seen in the previous graphs, using the classic 20 periods, the Hull follows the price’s movement in an almost perfect way.
If we wanted to use a simple moving average similar to a 20 period Hull, we would have to choose a 5 period SMA. However, the movement would not be identical because Hull is a smoothed moving average, so it has a smooth curvature.
We show you in detail the different reactions of the two averages to a small price movement.
As you can see, Hull draws almost a trend line, and the average does not change its trajectory even if the price moves slightly.
This means that Hull is much less susceptible to little price movements and this characteristic is because it is a smoothed indicator.
A smoothed indicator is an indicator on which a moving average is calculated. If you have been following us for a long time, you know that we really like smoothed indicators and that we always inserted them into our automatic trading systems.
So which setting should you choose for Hull MA?
It depends. You will increase and decrease the calculation period based on the strategy you will have to use. We recommend performing a graphical analysis of the indicator to understand how it reacts to the movements of a given financial instrument.
You should examine moments with different volatility to understand which setting provides the least false signals or perform a backtest to find a setting that improves the performance of your strategy.
Hull moving average in an automated trading system
Trend Filter in intraday
The Hull Moving Average can be used as a trend filter.
As well as the simple moving average, the Hull Moving Average also allows you to filter the trend. The average most used to analyze a long-term trend is that of 200 periods.
When using a moving average to filter the trend, the rule is established that if prices are below the average, the trend is bearish and vice versa.
We should use Hull when our priority is to indicate a trend change as quickly as possible by accepting some more false signals.
If we need to filter the trend for a trend follower strategy, it may be preferable not to use the Hull Moving Average. A trend follower strategy needs to stay in position for a long enough period and Hull could make us exit the trade early and not give breath to the trade.
We do not consider the use of this type of moving average to filter a long-term trend useful. The purpose of a long-term filter is to have a stable view of the direction of the trend. The continuous changes of Hull’s direction would certainly give less stability to the system.
Let’s look at our chart to see how Hull behaves in filtering a long-term trend. We always compare with a simple moving average to better understand what the differences are. The Hull Moving Average, also, in this case, remains much closer to prices and reacts more reactively.
Insider tips: the simple moving average could be used to indicate the direction of the long-term trend and the Hull Moving Average as an alert on a possible reversal.
Let’s take a real example from the previous chart. Where we have drawn the red square, there is a divergence in the trend filter between the two moving averages.
The crossing of the price with the Hull MA line indicates a trend reversal, but at the same time, the trend reported by the SMA is still healthy and has an ascending direction.
This false signal would have mistakenly interrupted the long trades in a trend follower system. We could use this information in another way.
We could use the SMA as a trend filter and therefore, we would not have interrupted our long trades. Still, at the same time, we could decrease the exposure to the market when Hull signals the reversal and, therefore, open smaller trades.
This solution allows you to stay much more in tune with the market than the traditional method that uses only the simple moving average and is generally too much lagging.
Using Hull for Trailing Stop
Many traders use moving averages as trailing stops because they work very well.
In practice, they exit the trade when the prices cross the moving average and therefore signal the end of the movement toward their trade.
The Hull Moving Average could instead be interesting if used as a trailing stop. We have seen that this moving average reacts very quickly to price changes and therefore if used as trailing, it will make our exit faster.
For this use, it will be convenient to set the Hull to 20 periods.
Our advice is to use the Hull MA as a trailing stop only in the very last part of the trade.
Let’s take an example. We have just entered long and we have a profit target of 100, we could set a trailing stop with a simple moving average that is activated when the profit has reached 80. We could also start the trailing stop managed by Hull only when the profit has reached 100, in this way being able to bring home a last piece of profit if the price continues to rise, but we would immediately exit the trade in the event of a reversal.
Hull moving average multi time frame
As with any other indicator, it is a very good idea to use a multi time frame version because knowing what the price is doing in the various time frames is essential for a trader.
For example, if we are trading an H1 stock chart, we could use a 20 period Hull on the Daily, Weekly and Monthly chart.
We prefer to use very high time frames because this moving average is very reactive and could be useful for intercepting a reversal in a higher time frame.
We said earlier that using a short-term Hull to filter the trend could be a mistake because too many false signals would be generated. We also explained that for some trend follower strategies, a too-hasty exit could be an enormous problem in the final performance and for the average trade profit.
In this case, however, we are operating on an H1 graph and checking much higher time frames; therefore, it is correct to use a 20 period Hull to anticipate a trend reversal and inhibit operations.
The Hull Moving Average is an excellent indicator when used in the right context and with the right strategy. We have seen that expecting a lot of the reversal of a trend can make you exit a trade faster, but this can make you have many false signals.
More about this topic on https://alanhull.com/