The great "Dilema" of trend indicators is whipsaws when volatilty drops, they just start performing in a way that all your dreams of having a resting villa at Dubai goes thru the toilet
and here many people if they where at some time succesfull, they just return all their gains back to this non friendly market
SO..... SO... what to do about that ? how this complicates the challenge of having some trend definition ? for our trend trades...
It certainly is a hard issue that has to be dwelt and has to be "optimized" thru some new modern indicators...
In this case VMA`s and particularly this VMA from Bemac have some properties that will help us reduce dramatically the whipsaw dilema...
Let me show you how this works, a normal sma has the same input thru the entire dataseries, an ema gives some more weight on last data, but the vma literally changes its inputs depending on volatilty... so this way if things get chopy... this lines will literally get "horizontal"... what is the advantage of that ? well horizontal lines normally dont have much opotunity of crossing with other lines... so things kinda halt and just dont give us false signals...
Let me see if I can explain with some graphs here :
I hope you get the idea here, because understanding this it may represent you a great change on your trading life...
This "horizontal performance" has the effect of bringing down noise and whipsaws in an unprecedent scale...
Now when we take this and create a rainbow, things start to rock... but let me first show you some real life examples of this horizontal effect :
On the above chart I mark with elipses the chop areas and with arrows the trending areas... notice how during the chop the VMA (black line) literally gets horizontal, and during trending she starts to follow...
With a regular average on this chops you would been chopped in various pieces
but with this one you are simply in one side of the rainbow... meditate on this... its simply powerfull yet so simple... cheers Walter.