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The Vertical Horizontal Filter by Adam White, (aka the VHF) is used to determine whether a trend is actually in place, or whether the market is still in a non-trending 'congestion' phase. The VHF, therefore, attempts to address the limitations of trend following 'lagging' indicators such as moving averages and the MACD which tend to 'whipsaw' traders if the market is not actually trending. Likewise, indicators based on oscillators (e.g. the RSI) work well when the market is 'channelling', but tend to cause positions to be closed prematurely if a strong trend is actually underlying the market action. By helping to put a value on price "trendiness" the VHF can be invaluable in helping a trader decide which other indicators to place the most weight on. Basically, the higher
the VHF, the higher the degree of trending, and a rising VHF suggests
a trend is developing whereas a falling VHF suggests that a congestion
phase may be beginning. Some traders even use it in contrarian fashion
(congestion periods can be expected to follow very high VHF values,
look for a trend to develop after low VHF values). If you are intent
on day trading with the Vertical Horizontal Filter, be aware that
there is little evidence to suggest it is anything more than subjective
on timeframes shorter than a few days. |
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