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.
Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, and there is no guarantee that the same strategy implemented today would produce similar results.
Technical analysis is not recommended as a sole means of investment research.
For educational purposes only. Not a recommendation of a specific security or investment strategy.