What is a Vertical Horizontal Filter and how to use it to detect a trend


Vertical Horizontal Filter on IQ Option platform

Traders will find many practical indicators on the IQ Option platform. It is very beneficial to get to know them, use them and stay with the ones that serve you best. This article will explain to you what is a Vertical Horizontal Filter.

The Vertical Horizontal Filter on IQ Option

The Vertical Horizontal Filter was first introduced in the magazine “Issues of Futures”. It was developed by Adam White in 1991. Traders use it to determine whether the market is trending or not.

Setting up the chart

In order to use any indicator, you must first attach it to your chart. Before you can do that, however, you should be logged in to your trading account and make a few decisions such as what kind of asset you are going to trade, how much money you will invest in a single trade, how long your transactions should last, how big loss you can handle. Once you have it clear, go to the indicators icon and choose ‘Trend'. The Vertical Horizontal Filter will be on the list displayed on the right side. Click on its name and it will be added to your chart. Now you can start using it.

How to find Vertical Horizontal Filter on IQ Option platform
How to find the Vertical Horizontal Filter on the IQ Option platform

Calculations

The period of the Vertical Horizontal Filter is 28 by default. You may choose to change it if it suits your strategy better. Then, a different value will be taken into the calculations. The number of periods is defined as n.

When you know your n, you have to find the highest closing price (HCP) within the period. Then, identify the lowest closing price (LCP). You will also have to determine the change in the closing price for every period that is to subtracting the closing price from yesterday from today's closing price. Repeat this step for n periods and you will receive a sum of absolute values for n periods. Divide the difference between the HCP and LCP by this sum and the calculations for the VHF will be done.

VHF = (HCP – LCP) / sum of absolute values for n periods

How to read the Vertical Horizontal Filter indicator

The VHF is utilised by traders to determine future trends. In general, when the indicator is moving upwards, the market is trending. When the indicator is moving downwards it means the market is in the ranging phase.

It is possible to forecast future price movement by observing the indicator's line. When it rises extremely high, you may expect the congestion phase is coming. When the indicator reaches extreme low values, a trend is forming.

VHF is growing when there is a strong uptrend or downtrend
The VHF is growing when there is a strong uptrend or downtrend

When the line of the Vertical Horizontal Filter is rising, the trend is getting stronger. This is true for both, uptrend and downtrend.

The VHF line falls and remains low when the market is ranging. Consider the exemplary chart below.

In the ranging market VHF line remains low
In the ranging market, the VHF line remains low

Below, there is the USDJPY chart with the VHF attached. There was a downtrend for some time. You can notice how the Vertical Horizontal Filter moves higher and higher. It goes to the extreme in comparison to the previous levels. You may assume the downtrend is coming to an end.

Extremely high value of VHF can be a sign of trend exhaustion
The extremely high value of the VHF can be a sign of the trend exhaustion

The following trading chart shows the example of the USDCAD currency pair. After a long congestion phase, the VHF falls extremely low. You can expect that a new trend is about to form.

Extremely low value of VHF tells about upcoming new trend
The extremely low value of the VHF tells about an upcoming new trend

Summary

The Vertical Horizontal Filter is a trend following indicator. It can be utilised to determine whether the market is trending (rising VHF) or ranging (falling VHF). Moreover, traders may predict the future beginning (extremely low values of the VHF) or the end (extremely high values) of the trend.

Note that the indicator does not reveal the direction of the trend nor provide the trading signals. To determine the best point to open or close your transactions you should use some additional technical analysis tools.

Remember about the IQ Option demo account which is always available for free. Go there and check for yourself how the Vertical Horizontal Filter behaves.

Wish you good trading results!

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