Moving Average Entanglement: ATR and Volatility Filters for Trend Signals

Summary

The indicator measures the absolute gap between a fast and a slow moving average, using either simple or exponential averages. It plots that gap as a histogram and compares it with several thresholds: a percentage of average true range, a moving average of the gap, and a standard-deviation-based band. The author describes the ATR threshold as a dead zone for moves considered too small, with a gap above it treated as confirmation of a breakout move. Direction comes from whether the fast average is above or below the slow average.

Alerts mark threshold crossings, directional conditions, and selected changes in the histogram or volatility filters. Inputs allow the price source, average lengths, ATR percentage, smoothing period, and deviation multiplier to be adjusted. This is an indicator description, not evidence of a profitable strategy: no tested markets, results, or trade management rules are provided. The code also contains apparently identical conditions for its buy and sell histogram trend-change alerts, so that particular alert labeling warrants verification before use.

Key ideas

• The histogram is the absolute distance between fast and slow moving averages.
• An ATR-scaled dead zone filters out gaps that are small relative to recent range.
• A smoothed gap and a standard-deviation threshold provide alternative volatility filters.
• The fast-versus-slow average ordering supplies the directional bias.
• No performance evaluation is given, and the trend-change alert conditions appear duplicated.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.