Trend Filter indicator. Description and optimal settings of the algorithm, plus a trading strategy
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Greetings to all lovers of trading, in this article we will talk about the Trend Filter indicator. I found the indicator Trend Filter on the Internet quite by accident, and it really interested me.
In particular, the Trend Filter will be very useful for beginner traders, and now I will explain to you why. The fact is that a beginner cannot always correctly determine what phase the market is currently in.
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That is, he looks at different timeframes and cannot put the big picture into one puzzle. For example, there is an uptrend on H1, a flat on M30, and so on, there is just some confusion in the head, and it becomes impossible to make the right decision.
Trend Filter is just created in order to visually show the trader what phase the market is currently in. Again, it cannot be said that Trend Filter is far from always clear. can separate a trend from a flat, but, as statistics show, the percentage profitable signals is high enough.
I have been following the Trend Filter for some time and I can say in the form of a review that it will come in handy for novice traders (download it), because at first many of them are not able to distinguish from .
Of course, with experience, an understanding of what phase the market is in will come, and it will be possible to no longer use Trend Filter, but while you are learning, it will become a good helper for you. Perhaps you will find it a worthy place in the context of your system.
Description of Trend Filter
In general, we can safely say what is in front of us. Accordingly, it is characterized by all the features of this group bycnhevtynjd. After watching the indicator work for some time, we can notice that it still lags behind the price movement, and this is quite logical.
The fact is that any indicator readings are derivatives of the price, therefore, it cannot go on a par, much less outperform the market movement.
On the other hand, no one ever knows where the flat will end and the trend will begin, not a single indicator will tell you about it, we can all see it after the fact.
The Trend Filter settings are quite simple and we only have two parameters to configure! N Bars is responsible for the Trend Filter period itself, the higher it is, the less sensitive it becomes in relation to market movements.
Look
Ma_period is responsible for selecting , which smoothes the Trend Filter readings. In general, there are no specific recommended settings, and everything depends directly on your trading style.
For example, if you are trading more aggressively, then it makes sense to lower the Trend Filter period. Thus, it will become more sensitive to market movements, and you will be able to capture a large number of signals without any problems. But, keep in mind, in this case, the number of signals will significantly decrease against the background of their number.
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I think that it will be quite good as a specific filter, but using it on its own would be stupid. Now, let's talk in more detail with you about how to apply Trend Filter in the market conditions.
Using Trend Filter
In general, the trading signals of the instrument are quite simple. If it turns red, it develops a downward trend; when it turns green, an upward trend develops. If the Trend Filter is yellow, then the market develops a flat and there is no need to open trading positions.
Here good example when it was possible to open a deal to sell. We see that after a certain lull, the line of the instrument changes its color to red. Accordingly, we have all the direct prerequisites for opening a deal to sell. In the end, the order would have worked out quite well, because the price really systematically decreased.
But here it was already possible to enter into purchases, because the line of the instrument turned green, and we see that the price really moved up in the future, and a potential order would have made a profit. But about the delay, I did not say by chance!
Please note that in this case, we would have entered the market very late, since the reversal has already taken place, but the instrument signaled this after a while.
Of course, nothing can be done here, because this is a feature of all trending instruments.
In view of this, it is not rational to enter solely on the signals of this instrument, in addition, exits will also be with an enviable delay, and now I will show you an example so that you can see for yourself.
Look carefully, it seems that we had a good moment to open a sell deal, as there was a clear change in the color of the instrument. Indeed, the price walked about 35-40 points down, but if we had exited on the opposite signal, we would have received a maximum of 10-12 points.
This once again proves that it makes sense to use the presented indicator exclusively as a kind of filter. That is, for example, your system signaled the appearance of a buy entry, but the Trend Filter indicator indicates the development of a downtrend.
In this case, it would be more rational to ignore the purchases and wait for the appearance of sales, so that the signal is stronger. In general, it is worth waiting for the most clear signals, which, with a high degree of probability, will be able to provide you with a profit.
But on the Internet you can find version 2 of this tool. Download and get green bars for bullish, red for bearish, blue and orange for transition periods of bullish and bearish interest, respectively. Don't forget to download and try both versions. On the second option, you can change only the color if you wish.
I can note that I noticed this version as part of the Nihilist strategy, but I would not say that it is very important, but on the contrary, it will fill your head with unnecessary information. Just be aware that, as mentioned for the first tool, both of them must be used within the system, because individually they most likely will not work as they would like.
conclusions
In general, these indicators are very interesting, and can fit perfectly as a filter absolutely in . Again, their independent use, I think, is irrational.
Many beginners now and then read information on how to trade in a trend, how to correctly identify it, and most importantly, how to build profitable strategies based on it. but experienced traders know that the market is not as linear as his books show us, because in addition to the price movement in a trend, there are moments when the price freezes or moves almost horizontally. This state of the price is also commonly called a flat, and when there is practically no movement, it is called consolidation at all. But if the insight that not only the trend reigns in the market, but also the flat, comes quickly. The understanding of how often it occurs, and what consequences its appearance leads to, begins to shock a little later. Actually, in order to determine it, forex indicators and trend filters are used.
Flat filter indicators are indispensable helpers and at the same time not trading tools that, in addition to the traditional signal function of finding an entry point, are able to determine a flat. A notable feature of this group of indicators is the fact that they can be used on absolutely all time frames, because consolidations and market uncertainties are characteristic of absolutely all time frames.
Moreover, it doesn’t matter what asset you use for trading, be it an index or a commodity, it always has flat sections.
Reasons why it is important to use a flat filter in Forex
A flat in the forex market is characterized by fluctuations in a very narrow range, namely, a trader can observe a sharp decrease in the amplitude of the price movement. However, there are cases, and quite often, when the flat takes the form of a “Saw”, for a long time, fluctuating in a fairly wide range. Naturally, in most cases, in a flat, everyone loses money, with the exception of the pros, who only earn on it. Therefore, the flat filter is a mandatory attribute when building absolutely any strategy. So, let's list the dangers of trading without using a trend filter:
- Because of the flat, a huge number of false signals appear;
- Flat is the reason for hitting Stop Loss orders;
- The price in a flat practically does not move, which means that it is almost impossible for a trader to make money;
- In order not to be thrown out of the market in a flat, it is necessary to expand Stop Loss;
- Flat leads to freezing of orders in the air, which leads to increased swap costs.
To date technical analysis offers hundreds of solutions to the problem with timely interpretation of the flat. However, it is rather difficult for beginners to choose a really effective filter, because the wider the list of indicators, the more difficult it is to find at least something worthwhile among them. Therefore, in order to simplify this task for you as much as possible, we have compiled our own small rating of tools that you can take into service.
Alligator
The famous instrument of Bill Williams has been used as a trend filter since the very first day of its creation. The fact is that, within the framework of his own strategy, the developer looked at how the Aligator bands were expanding, thus interpreting the trend activation.
Alligator as a trend filter is quite easy to use. So if you observe how its three lines narrowed very much and began to intertwine in a chaotic manner, the same sideways movement occurs on the market.
When the lines are lined up in order of increasing periods strictly one after another, we can state the end of the flat and the beginning of a new trend.
Fig 1. Flat filter by the Alligator indicator
Bollinger Bands
Bollinger Bands is a reliable flat filter that draws price channel and determines the trend based on it. However, the notable feature of this instrument is its ability to show trend strength and volatility. It is the damping of volatility that is characteristic of the emergence of flats and consolidations.
In order to determine the flat using Bollinger Bands, take a look at the dimensions of the price channel, how it narrows and widens, and also in which direction it is directed in general.
When flat, you will be able to observe either a sharp or gradual narrowing of the lines, and the direction will align closer to the horizontal. So, how it looks on the chart:
Fig 2. Flat filter by Bollinger Bands
Trend and Flat
Trend_and_Flat is the best flat filter that provides all the necessary information to the trader in the form of columns in a separate window in the bottom of the chart. The instrument perfectly demonstrates not only flat, but also how it changes into an uptrend or downtrend. And thanks to the settings, each trader can set it up in such a way that it is effective on all chart intervals.
Fig 3. Flat filter by the Trend and Flat indicator
A trading system formed on the basis of the readings of one analysis tool cannot only issue accurate signals to enter the market. Without an additional assessment of the market condition, mistakes are inevitable, which can significantly reduce the effectiveness of the applied strategy. Using filters when forecasting allows you to exclude unreliable signals and increase the profitability of trading.
Each forecasting tool produces accurate signals only when specific conditions determined by market sentiment. Some indicators are designed to work in a trend, while others are relevant for sideways movement. A change in trend can cause false signals, as the tool cannot identify suitable conditions for correct analysis. The trader must choose them himself. To do this, when working on Forex or with binary options, you need to use filter indicators. They are designed to confirm the main signal trading strategy. With their help, a trend movement from a flat is identified, and the main forecast is also confirmed.
Forex Filter Types
The filters used in trading strategies filter out the false signals they give. Depending on the analysis tool used, they are classified into several categories:
- indicator;
- candle;
- graphic;
- temporary;
- economic;
- combined.
indicator
When used on Forex as a filter of the main signal of indicators, it is convenient to identify the current market sentiment and the points at which a trend change is more likely to occur. The trader can use the analysis tools from the standard set trading terminal MT4, or install them after downloading them from the Internet. When developing strategies with indicator filters, the formation of the main signal also occurs according to the indicators.
Candlesticks
Figure 1. Candle combinations that can be used as a filter
When used as confirmations of candlestick analysis, the main signal can be formed by indicators or . After its identification, it is necessary to analyze the configurations of the last formed candles. By their combination, you can determine whether the identified entry point is relevant.
Graphic
Figure 2. Graphic patterns as instruments of the main or additional signal
Graphical analysis can be used both as a main and a clarifying signal. It is used in popularity among traders trading indicator strategies. However, most often, market participants predict price behavior by patterns, and refine it with indicator readings.
Temporary
It is possible to identify the true from the false signal over time. When submitting it with an analysis tool, you can wait a bit and understand whether the forecast was up-to-date. You can expect confirmation of the price movement or the formation of a filter signal. The disadvantage of the method is the possible loss of time or part of the market movement, on which one could earn.
Economic
Figure 3. Main signal filter by economic calendar
When trading on any strategy, it is necessary to focus on published economic indicators. Their evaluation is carried out according to the previous and current value. When working in the medium or long term, you should analyze all the parameters as a whole, which will help you understand the state of the state economy and what is the likelihood of its growth or decline. national currency. If the signals of the trading strategy indicate a certain change in the value of the asset, and the economic condition of the country cannot allow it due to reasons due to the facts of the published indicators, then you should not open a deal.
Combined
Mixed filters are formed by a set of tools and analysis related to a different category. They are considered the most effective, as they minimize the likelihood of the underlying signal being out of date. To obtain it, a simple indicator can be used, by which it is impossible to accurately determine the entry point, since this task in the trading strategy is solved through a comprehensive analysis of a number of submitted signals. Making an order and activating it in such trading systems is allowed when all instruments are indicated for movement in one direction.
Examples of filter indicators
Filter indicators are not always used to filter out false signals. In most cases, they are also used as the main analysis tool. For example, a moving average can be a basic element in a trading strategy. If you change the default settings, it is applied as an addition to it. A buy trade can only be opened if the price chart is above the line moving average, and for sale - below it. If this filter condition is not met, the underlying signal should be ignored.
Oscillatory indicators belong to the category of effective Forex filters. They can be used to identify overbought and oversold zones. Be wary of signals that do not follow the direction indicated by the oscillator chart.
Forex signals can be filtered using custom indicators that allow you to predict and identify a strong trend, as well as identify the impulse from a corrective movement.
There are universal analysis tools that can be used in any trading strategy as a source of refinement. These include indicators built into the trading terminal:
Figure 6. An example of a trading strategy in which the basic signal is the formed Wolfe wave, and the filter is divergence on the stochastic
The unforeseen is popular software MT4 indicator, which you need to download and install. It is an improved version of the oscillator tool.
Figure 7. Trend Filter indicator
His chart changes its color when changing market sentiment. The indicator accurately identifies critical areas where the trend most often changes.
Figure 8. An example of trading using a filter - the Trend filter indicator
Building a trading system using filters
When making a decision to open a deal, professional market players are guided by the signals of their own developed trading strategy. They include analysis tools in it, by which it is possible to assess the relevance of the forecast formed for the underlying instrument.
The main source of the signal can be the indicator readings, which can be used to assess the direction and strength of the trend. Nice results show chart patterns and wave structures. Any analysis tool can be used as a filter. It should be informative and be combined with the main forecast, as well as supplement it. When forming a trading strategy, certain rules must be observed:
- The basic analysis tool identifies the market trend and determines the direction of the global trend.
- The filter predicts the direction of the market movement.
- Additional tools identify precise entry points by identifying points where a reversal or continuation of the main move is more likely to be predicted.
- Several tools can be used as filters.
- Primary and secondary indicators should confirm and clarify the readings.
When developing a trading system, you should consider the algorithm that you need to follow in the analysis of the market trend, which is necessary to make a decision to enter the market. All tools can be combined, but the chart should not be cluttered with a multitude of indicators that will not help in making a decision, but will only distract the trader and raise doubts about any decision. Therefore, when selecting indicators, one should take into account their compatibility, information content and the possibility of clarification with each other. Only with this approach can confusion in the signals be avoided.
Results
False signal filter indicators are applicable for binary options and on financial market Forex. All analysis tools differ from each other in appearance and functionality, but often their predictions coincide. The use of this property reduces the likelihood of losses and increases efficiency. trading system.
The price of any market asset at any time can be in one of three states - grow (uptrend), fall ( downtrend), fluctuate slightly around a certain level (flat). The most useful for a trader are trend periods - you can always make money on them (and if you trade incorrectly or unsystematicly, you can lose all your capital). But flat conditions are not only useless, but also dangerous, because they do not allow you to accurately determine in which direction the market will move. Therefore, most traders prefer to refrain from trading during flat periods. For this they use Forex flat filters indicators, whose signals provide a clear identification of trend periods and sideways price movement.
Further in the article, various technical tools for determining flat states with detailed description operating principle and conditions of use. All of them cannot be used as an independent indicator, but only perform the function of filtering false signals from other technical instruments.
Flat filter indicator Trend_and_Flat()
After installing it on the price chart, a basement window is formed (Fig. 1), which displays areas of three colors:
- red - indicates a downward trend in given period;
- green - indicates an upward trend in a given period;
- gray - indicates a lateral movement in this period.
Flat filter Pulse_Flat()
It is displayed in the basement window as a histogram, the columns of which can change color, direction and distance from the zero level (Fig. 2):
- red bars pointing down from the zero level indicate a downtrend;
- blue bars pointing up from the zero level indicate an uptrend;
- green dots at the zero level are a signal of sideways price movement.
The distance of the bars from the zero level is directly proportional to the strength of the trend.
Flat filter for Forex iVAR ()
This technical analysis tool is based on the calculation of the variation index, which is derived from the fractal dimension. The value of this index can be in the range from 0 to 1. When applied to a financial instrument, the iVAR indicator forms a basement window under the price chart (Fig. 3), in which a curve is displayed that describes the trajectory around the central level 0.5.
The interpretation of these signals is as follows:
- if the curve is below the level of 0.5, then there is a trend in the market;
- if the curve approaches level 0, then the current trend ends;
- if the curve is above the level of 0.5, then the market is flat;
- if the curve approaches level 1, then a strong trend is likely to form;
- if the curve fluctuates around the level of 0.5, then the market is in a state of uncertainty.
Forex flat filter indicator Xaser ()
After applying to the graph financial instrument a window is formed below it, in which a curve is displayed, consisting of straight, rising and falling sections (Fig. 4). If the curve is at the zero level, then during this period the market is in a flat state. The growth of the curve from the zero level upwards indicates that the next trend is gaining strength, and the fall to the zero level downwards is a signal that the current trend is losing strength.
Trades are recommended to be opened when the indicator line moves up from the zero level. And if it starts to approach the zero level again, moving down, then this indicates the need to close the deal and take profits. On fig. 4 favorable moments for opening positions are indicated by checkmarks, and the moments of their closing are indicated by red vertical lines.
Flat filter indicator MA_SquizeMA_Ed ()
The lines of this technical instrument are displayed directly on the price chart (Fig. 5). Its algorithm is based on moving averages, the calculation scheme of which has been somewhat adapted for a better response to a flat. For this purpose, the display of two more lines was introduced into the indicator - yellow and brown.
When the indicator displays 4 lines - red, blue, yellow and brown - this means that the asset is in a flat state and it is better to refrain from transactions. Additionally, MA_SquizeMA_Ed shows the dynamic width of the lateral movement channel (it is proportional to the distance between the yellow and brown lines).
Forex flat filter indicator Alligator
This technical tool is included in the standard set of indicators trading platform MetaTrader. It is displayed in the price chart window as three curves of different colors - green, red and blue (Fig. 6). The signal of the beginning of the flat is the intertwined state of these lines with an almost horizontal movement.
The best flat filter
Among the described technical tools, it is impossible to single out any one that has a complete advantage over the others. Each of them is optimal in a certain market situation and in combination with specific technical tools. A trader chooses a set of technical instruments, the signals of which he will trade, based on the strategy used, personal preferences and test results on historical data or on a demo account.
Once again I welcome you to the pages of our blog! Today we will analyze a very, very important topic of signal filtering. This topic will be especially important for trend speculators. I explain why, any trend system faces the problem of interpreting signals in the flat, in order to filter out the signals that form in the sideways, traders use various filters to determine the flat. Based on this, we have prepared for you the best interpretations of filters for determining flat zones.
For each tool presented, we will give our own tips and recommendations. We will analyze in detail how to use each of the tools, as well as draw your attention to some of the nuances that appear when working with almost any indicator.
Flat filter indicator Trend&Flat (Download )
First on our list is an indicator for identifying the three market conditions, down, up, and flat. This tool is displayed in the basement window of the Metatrader bar chart. The principle of its operation is quite simple, if the market is in an uptrend, then the histogram of the indicator is painted in a green dotted line. If the market is in a downtrend, then a red dotted line is formed on the histogram. If the market is flat, then in the basement window you will see a gray solid bar.
I think the inputs here are simple and clear, in the case of a flat, we don’t trade, we work with the trend, we wait until the price reaches strong level or lines and open an order, remember once and for all, every trade should be based on something, levels are excellent zones for which it is profitable to hide your stops.
Flat and Trend indicator
The best flat filter PulseFlat (Download )
The second indicator in our review for determining a flat of a histogram type. This tool builds a histogram based on the McDuck principle. The instrument is displayed in the basement window of MetaTrader.
It is quite easy to work with the indicator readings, if you see bright red bars on the chart, this indicates that a strong “bearish” impulse has begun. If you see the growth of blue bars, it means that the momentum is now ascending.
Pay attention to the weakening of the momentum, if the momentum becomes weaker, then the color of the tool changes to a dimmer color, depending on whether the histogram is above or below zero. And of course, the green dots tell us that the market is flat now and the price is squeezed in a narrow corridor.
Flat detection indicator PulseFlat
iVAR flat filter (download )
This tool works on the principle of calculating the variational index, which is made up of the dimension of the fractal derivative. All values are displayed as a line in the basement window, the line has borders from 0 to 1. Signals will be given to us by a curved line that rotates around the central level 0.5. Let's take a closer look at what signals this analytical tool can give.
Signal variations iVar indicator:
- If the basement line is below the level of 0.5, then we interpret this signal as a trend signal
- If the line approaches 0, it means that the trend is coming to an end.
- If the basement curve is above the 0.5 mark, it is considered that the market is flat or flat.
- If the curve is trading around the 1 mark, this tells us that there is a high probability of a strong trend developing.
- In case the curve is trading around the 0.5 level, this means that the market does not know where to go.
That's all the interpretation of the indicator, which determines the flat and trend zones. The advantage of this tool is that the tool can show the end of the trend and its weakening.
Ivar flat tool
Forex flat filter. Xaser indicator (download )
This tool is also a basement indicator and lays out all its readings for analysis at the bottom of the bar chart in the form of a moving curve. After we drop the tool on the chart, you will see a curve that either rises or falls, in fact - this indicator indicates the entry point after the flat. If the curve is pressed to the bottom of the basement instrument, then the market is flat, as soon as the curve begins to move upward, this means that you can enter into a deal.
The developer also notes that after the signal, when the curve reaches its top and starts to fall down, this will mean that the trend is ending or weakening, in which case it would be logical to exit the transaction.
Xaser indicator
Flat indicator MA SquizeMA Ed (download )
This analytical tool differs from the above, its difference is that it shows flat and trend zones not in the bottom of the chart, all readings of the tools are visually available on the price chart itself, some traders like it, and some like clean charts, so we specifically made selection so that you can choose exactly “your” tool for filtering signals.
The algorithm for calculating the signal was developed on the basis of the legendary and already familiar moving averages, but with an emphasis on the calculation of moving averages with a more pronounced emphasis on flat areas. After installing the tool on the chart, you will see two main moving averages of red and blue, which indicate the direction of the trend. In the case of a flat section, two more moving averages appear, but already yellow, and it is they who tell us that there are no large movements in the market and the price is trading sideways.
You can also use flat moving averages as a flat price corridor, it will be very convenient for fans of flat trading, since in such cases it is beneficial to open orders from the channel boundaries.
MA SquizeMA Ed flat and trend indicator
Legendary filter Alligator
The last indicator in our review will be the Alligator indicator. The peculiarity of this tool is that it does not need to be downloaded and it is installed in almost every terminal of both MetaTrader and other terminals, very often it can be found even in browser terminals, which makes this tool universal for trading on any platform.
In general, the topic of the Alligator is quite wide, the not unknown Bill Williams wrote a book about trading on this instrument, we advise you to read the book, as there you will find a huge amount the most useful advice. Bill suggests using the instrument in conjunction with fractals and the Awesome Oscillator, which is also a standard instrument of the MetaTrader terminal.
In order to interpret the flat on the chart, it is necessary to wait for the moving averages to intertwine, if the line width grows, this may tell us that there is a strong trend movement in the market
Alligator as a flat detection tool
Summing up
Above, we presented you with an excellent collection of indicators for signal filtering. We strongly recommend not to trade on one instrument, but to use filter indicators in your work, which very well determine what stage of trading is currently on the market. In addition, I would like to note the trading sessions, the Asian session is considered a flat time, while the European and American trading sessions are considered highly volatile and trend movements most often occur during the trading of America and Europe.