What Is The Hull Moving Average & How To Trade With It

Hull Moving Average Explained

Moving averages are possibly one of the most popular technical indicators used by forex traders. Moving averages provide traders with a quick and easy way to identify market trends on charts. Most trading strategies will use some form of trend analysis to ensure that they either stay on the correct side of the trend or avoid trading in a range bound market, unless of course using a range trading strategy. In addition to the popular simple and exponential moving averages, there is an additional moving average developed by Alan Hull that is aptly named as the Hull Moving Average (HMA). No prizes for guessing why!

What is the Hull Moving Average?

The Hull Moving Average (HMA) is a moving average that puts more emphasis on the youngest candles. It brings into consideration the weighted moving average (WMA). On top of this, it loads up the weight of the latest candles, making the moving average of the current price more reactive to price changes. The result is a moving average that can turn direction much faster in anticipation of developing trends. The HMA aims to eliminates lag as much as possible whilst improving smoothing at the same time.

Hull Moving Average on chart
Hull Moving Average on chart

Hull Moving Average calculation

1. Calculate a Weighted Moving Average with period n / 2 and multiply it by 2

2. Calculate a Weighted Moving Average for period n and subtract if from step 1

3. Calculate a Weighted Moving Average with period sqrt(n) using the data from step 2

HMA= WMA(2*WMA(n/2) − WMA(n)),sqrt(n))

How to use the Hull Moving Average?

The Hull Moving Average with a longer period helps traders to identify the longer term trend. If the Hull Moving Average is rising, it indicates a prevalent uptrend and possible long opportunities can be explored. Similarly, if the Hull Moving Average is falling, it shows that the prevalent trend is down or falling. In such a scenario, short opportunities may be preferable.

100 Hull Moving Average - trend identification
100 Hull Moving Average – trend identification

A relatively shorter period Hull Moving Average can be used to find the trade entry points when the market is turning. When the Hull Moving Average turns green, it signals the potential start of a bullish trend whereas the Hull Moving Average turning red, can signal the start of a bearish trend.

Hull Moving Average - marking trade signals
Hull Moving Average – marking trade signals

However, just as with all technical indicators, there are drawbacks of using the Hull Moving Average. As the price may stay in a tight range, there would be many false signals. I would be using multiple market analysis to confirm all possible trading opportunities and only take those that present the most high probability with a favourable risk to reward ratio. I would not want 1 losing trader to wipe out consecutive winners.

Furthermore, I would prefer to trade using the HMA indicator on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels or a particular indicator value has been reached.

Hull Moving Average trading strategy

This strategy revolves around the Hull Moving Average (HMA), where we will use the change in the direction of the HMA as our entry signal. You can even set alerts on most HMA indicators so that you do not need to constantly chart watch waiting for a signal to appear.

As the HMA turns green, it indicates that the HMA is turning up, we will be buying the pair. If the HMA turns red, which is a downturn, we will be selling the pair.

On this entry signal, we’re also going to use one of the ways of adding the usual moving averages. We use the 200 Exponential Moving Average (EMA) to filter the trend direction on the long-term trend. We will only take buy signals when the price is above 200 EMA, and only sell signals when the price is below 200 EMA.

Currency pair: Any – I prefer major currency pairs as I find that they tend to have the most liquidity with tight spreads, especially when using an ECN forex broker.

Time frame: 5-minute chart and above

Hull Moving Average buy trade setup

Entry

  • Price should be over the 200 EMA
  • Enter the buy trade as the HMA glows green

Stop loss

  • Set the stop loss on the small swing slightly below the candle entry

Take profit

  • Set the take profit target to 2x the risk on the stop loss
Hull Moving Average - buy setup
Hull Moving Average – buy setup

Hull Moving Average sell ​​trade setup

Entry

  • Price is below the 200 EMA
  • Enter a sell trade when the HMA turns red

Stop loss

  • Set the stop loss on the small swing high above the candle entry

Take profit

  • Set the take profit target to 2x the risk on the stop loss
Hull Moving Average - sell setup
Hull Moving Average – sell setup

As you can see from these Hull Moving Average trading strategy examples, the indicator when used alone can give many false and delayed trading signals. Whilst we have added an EMA as a very basic filter, I would personally be taking a closer look at support and resistance levels along with an overbought/oversold technical indicator such as the Stochastic Oscillator.

Hull Moving Average conclusion

The key benefit of implementing the Hull Moving Average into a trading strategy is that the HMA appears to be less lagging than the usual moving averages we have become so accustomed to using. Whilst this can enable us to spot emerging trends early and for confirming established trends, I would only use the Hull Moving Average indicator as a very basic filter, not as an entry signal.

The methods of implementing the Hull Moving Average indicator into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the Hull Moving Average indicator, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!