The Mogalef trend filter

Description

The Mogalef trend filter (MTF) is a very precise trend filter. The filter can be added to any trading strategy. The MTF can identify eight trend situations. It will reject all trading signals which occur outside a trend situation which is optimal for the trading strategy. Trading strategies seem to generate better results when the MTF is added.

These are the advantages of the Mogalef trend filter:

• Identifies eight different trend situations.
• Can increase the profitability of trading strategies.
• Reduces the number of trades.

The Mogalef trend filter in detail

The MTF identifies eight different trends. The MTF has a value between 1 (most bearish) and 8 (most bullish).

1. The trend is bearish and the last candle is bearish (value 1).
2. The trend is bearish but the last candle is bullish (value 2).
3. The market is in a range with a bearish orientation, the last candle is bearish (value 3).
4. The market is in a range with a bearish orientation, the last candle is bullish (value 4).
5. The market is in a range with a bullish orientation, the last candle is bearish (value 5).
6. The market is in a range with a bullish orientation, the last candle is bullish (value 6).
7. The trend is bullish but the last candle is bearish (value 7).
8. The trend is bullish and the last candle is bullish (value 8).

This example shows the MTF below the main chart. The MTF has a value between 1 and 8 in the chart.

How to use the Mogalef trend filter

As usual, all parameters are set either in the chart or in the Designer Dialog.

Step 1: Test your strategy in each of the eight trend situations individually.

Start by setting 1 as the value for the “Trade Only This CASE” parameter. In this case signals are only accepted if the MTF has a value of 1 i.e. when the trend is bearish and the last candle is bearish. The equity curve shows the results of trading only when the trend is bearish and the last candle is bearish. Repeat this process for the 7 other values of the MTF.

This example shows the eight results of a DAX 30 strategy. The equity curves show the result for each trend situation. In three out of eight trend situations the strategy is profitable. The profitable situations are 1, 3 and 4.

Note: when testing the eight trend situations always use the default setting "Close same bar". Do not use the setting "Open next bar".

Step 2: Only activate the trend situation(s) during which the strategy is profitable.

Each trend situation has its own parameter (BlockCase 1, BlockCase 2…) in the Designer Dialog. If the parameter is set to 0, signals are accepted. If the parameter is set to 1, signals are rejected. In the example above the strategy is only profitable in trend situations 1, 3 and 4. BlockCase 1, BlockCase 3 and BlockCase 4 are therefore set to 0. All other trend situations are set to 1.

Step 3: Periodically check.

The Off/On setting in the Designer Dialog switches the MTF off, without changing its settings. This allows traders to compare the results of their strategy with and without the MTF.

This example shows the results of a trading strategy on the DAX. The MTF is switched off i.e. the market trend is not taken into account. The strategy did 136 trades and generated a profit of 1.861 €.

This example shows the same trading strategy on the DAX. The MTF is switched on i.e. the market trend is taken into account. The strategy did 90 trades and generated a profit of 2.815 €.

Practical implementation

Open the chart of the instrument you wish to trade.

Select, for example, a strategy in the WHS Strategies folder or make your own.

Activate the MTF in the WHS Store folder.

Follow the two steps described above.