Vertical Horizontal Filter indicator was developed by Adam White in 1991. This indicator is used in technical analysis to recognize periods when the price is trending (up-trend or downtrend) or this indicator is in the congestion phase (side-way trend). Vertical Horizontal Filter indicator was initiated by Adam White. This was first published in a magazine called “Issues of Futures” in August 1991. The Vertical Horizontal Filter (VHF) indicator is a very common indicator which is used by traders to find out the Phase of a Price Trend. Basically, a price trend can be in a Trending Phase or a Congestion Phase or Choppy Movement Phase of this indicator.
The Vertical Horizontal Filter Indicator
If the traders are want to get more details regarding the Vertical Horizontal Filter indicator, then please open the STUDIES section of Zerodha Kite. The traders are also visiting in Kite mobile App. The Period is 28 and if you want to change the value of Period then you can change it. The traders can also check attaching process of the VHF indicator to Reliance Industries share price chart. This indicator is available includes daily, weekly, monthly or intraday.
Adam White the developer of Vertical Horizontal Filter indicator was created this particular technical indicator to determine. Whether prices are trending in a particular direction or are they going through a transitional period on this system. This type of tool is used prior to any other Technical Indicator. This helps in determining the phase a stock is going through of Vertical Horizontal Filter indicator. After that, various Trend Indicators could be used to determine the Direction, Speed, and Volatility of Stocks. As the same way in style to ADX, Vertical Horizontal Filter (VHF) indicator is used to decide whether a trend is in situ. Another way of the trend is going through a non-trending transitional period commonly known as the Congestion Phase. This indicator is mainly used by traders to get rid of the limitations of Lagging Indicators like Moving Averages. Also, MACD which can victimize Traders if the market is non-trending.
Adam the developer of Vertical Horizontal Filter indicator used the comparison of an interval’s rate-of-change to their range from high price to low price during a specified interval of time. Vertical Horizontal Filter indicator removes this defect by using Trendiness of a market. Whenever there is an increase in this indicator, it indicates an upward or downward trend. On the Contrary, when Vertical Horizontal Filter (VHF) falls, then it is an indication of a Ranging Market.
The formula of Vertical Horizontal Filter (VHF) indicator :
Vertical Horizontal Filter (VHF) = (HCP – LCP) / [Absolute value of SUM(Change, N)].
N = This is `bar period selected by a user.
HCP = HCP is the highest close price in N periods.
LCP = LCP is the lowest close in N periods.
SUM(Change, N) = This is a sum of absolute changes over n periods.
Vertical Horizontal Filter Indicator from Upstox
The above chart is taken from a different platform, refers to as Upstox. Here, in this article, we provide examples of Vertical Horizontal Filter indicator from different trading platform. As we can see that the VHF rises with an up trending signal while falling VHF indicates a downtrend.
In order to calculate High and Low Prices, Adam the developer of Vertical Horizontal Filter (VHF) indicator used 28 days data. Also, he went to use 18-day data smoothed with a six-day moving average to study the Indicator. There are three common ways of Vertical Horizontal Filter (VHF) indicator :
- Vertical Horizontal Filter (VHF) indicator’s outcome is a significant indicator of the trend prevailing in the market. As the value of Vertical Horizontal Filter (VHF) moves upward, the degree of trending moves upward as well and vice versa. That means this indicator is trend following indicators can be used to predict future trends.
- The direction of Vertical Horizontal Filter (VHF) indicator can be used to predict a Congestion Phase. In a rising Vertical Horizontal Filter (VHF) is indicates a trending market. And a falling Vertical Horizontal Filter (VHF) indicator indicates a Congestion Phase Developing.
- Vertical Horizontal Filter (VHF) indicator can be used in situations contrary to Typical Trend Followers. This indicator indicates an approaching congestion period when the VHF Value goes too high. In the same way, extremely low VHF Values indicate an upcoming trending period in the market.
So all of this reason, the traders can rely on the values of Vertical Horizontal Filter (VHF). In this indicator, if the values of VHF are high, then the trend would be sharp. And another way, if the VHF values are low, then the trend would be stable and within a range. Hence, in the same way, high VHF values indicate a trend reversal approaching the market.
Advantages of Vertical Horizontal Filter :
- In all of the trend following indicators could be costly if a stock is going through a Congestion Period. At that time this Vertical Horizontal Filter (VHF) indicators helps in determining the phase of the market.
- Oscillators including RSI are handy when the market is ranging of Vertical Horizontal Filter indicator. But often signal premature decisions when prices pull back of this indicator.
- Vertical Horizontal Filter (VHF) indicator determines the current as well as an upcoming trend in the market. In this indicator, if the Vertical Horizontal Filter (VHF) Values have gone too high, then it means a trend reversal. As the same process, if the Vertical Horizontal Filter (VHF) Values have gone too low, then it shows an approaching congestion period.
Disadvantages of Vertical Horizontal Filter :
- Vertical Horizontal Filter indicator doesn’t generate trade signals likes buy signals, sell signals or buy and hold signals.
- This VHF indicator doesn’t provide a clear indication of whether a trend follower should be used or an Oscillator.
In technical analysis, the indicator plays a vital role.
Ankita has done her Diploma Engineering in Computer Science & Technology. She is pursuing her degree in Engineering and also well experienced in the equity market and real estate related content writing. She is the one who has developed the technical indicators section of our site.
Categories: Technical Indicators