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Vertical
Horizontal Filter
Description
The
Vertical Horizontal Filter (VHF) determines
whether prices are in a trending phase or a
congestion phase. The
VHF compares the sum of a one period
rate-of-change to the range between high and low
prices over the specified period.
The
age-old problem for many trading systems is their
inability to determine if a trending or trading
range market is at hand.
Trend-following indicators such as MACD
and moving averages, tend to be whipsawed as
markets enter a non-trending congestion phase.
On the other hand, oscillators (which work
well during trading range markets) tend to
overreact to price pull-backs during trending
markets. The
VHF indicator attempts to remedy this by measuring
the "trendiness" of a market.
MetaStock
Pro
prompts you to enter the number of periods to use
in the calculation.
The default value is 28.
Interpretation
There
are three ways to use the VHF indicator:
-
VHF
values above or below certain levels indicate
the degree of trending.
The higher the VHF, the higher the
degree of trending.
-
The
direction of the VHF can be used to determine
whether a trending or congestion phase is
developing.
A rising VHF indicates a developing
trend; a falling VHF indicates that prices may
be entering a congestion phase.
- The
VHF as a contrarian type indicator.
Expect congestion to follow high VHF
values. Low
VHF values may indicate a trending phase will
soon follow.
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