Forex

VHF Indicator

Hi there!

We are still studying some of indicators that measure the strength of the trend, we have studied the ADX and Aroon indicators and our indicator today is one of the indicators that determine the trendiness of the market. Our indicator today is VHF (Vertical Horizontal Filter) indicator which was introduced by Adam White in 1991.

Note: I have to emphasis again the very important note about this category of indicators ; the trend measuring indicators are not used to generate bullish or bearish signal and they wouldn’t tell you the direction of the trend. They have to used with trend following indicators like MACD and Moving Average which tell you what the direction of the trend.
When you use the trend measuring indicators with the trend following indicators you can distinguish between the good trend from the false trend and act upon.

Formula of VHF indicator:

I’ve search the net for a MetaTrader version of VHF indicator but I didn’t find any code, so, I’ve wrote the attached VHF indicator (VHF.zip) based in the following formula:

1- The first step is calculating the highest closing price and the lowest closing price over the specified time period (recommended 28-days).

HCP = Highest(close price,period)

LCP = Lowest(close price,period)

2- Then we subtract the lowest closing price from the highest closing price, this value is the numerator:

Numerator = HCP - LCP

3- The denominator of the formula is the sum the absolute value of the difference between each day’s price and the previous day’s price over the specified time periods.

Denominator = SUM ( ABS ( Close[0] - Close [1] ) , N)

4- Now we can calculate the VHF indicator like this:

VHF = Numerator /Denominator

The formula above will produce an indicator like what you see in figure 1.

How to use VHF indicator?

1- The higher the readings of the VHF indicator the higher strength of the trend, consult your trend following indicator to determine the direction of the trend, consequently, the type of signal.

2- The lower the readings of the VHF indicator the weaker of the trend and a sign of ranged market period.

3- The continuous raising readings indicates trend strength. Conversely, continuous failing readings indicates trend weakness.

12:03 pm