Using the Vertical Horizontal Filter to Classify Trend and Congestion

Summary

This strategy uses the Vertical Horizontal Filter (VHF) to distinguish directional movement from choppy price action. It divides the high-to-low range over a lookback period by the sum of absolute close-to-close changes over that period. The example uses a threshold to classify the market: above it, the system takes a long position; below it, it takes a short position, with an option to reverse those directions. The stated defaults are a 28-period lookback and a threshold of 0.4.

The document explains that the ratio compares net range with accumulated movement, but it gives no backtest performance statistics despite supplying a BTC/USDT futures test configuration. It cautions that results depend on parameter choices, turning points can produce false trend readings, and longer lookbacks may miss short-term moves. It recommends validation, risk controls such as stops, and potentially combining VHF with other signals; these are suggestions, not demonstrated improvements.

Key ideas

• VHF divides a lookback high-to-low price range by accumulated absolute closing-price changes.
• The example goes long above its threshold and short below it, with an option to reverse the direction.
• The published defaults use a lookback of 28 and a threshold of 0.4.
• The document provides a BTC/USDT futures backtest configuration but no performance results.
• Parameter sensitivity, false readings near turning points, and delayed response to short-term moves are stated limitations.

Tags

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