Think logically, because if you have a trend trading system, then working on it within a flat may be fraught with negative results. Accordingly, many are interested in whether there is a flat filter that will clearly allow you to understand what phase of the market is currently in the market.

In this case, if you are expecting to get a better indicator or filter that will tell you this in advance, then I must disappoint you. Remember one simple truism - no one knows where the price will go. Even if you are a trader with huge capital and information support, you still won’t know 100% where the market will go at one time or another.

Within the framework of this question, I do not want to introduce you to various filters. There will not be any other indicator tools that will indicate to us the appearance of a flat. Moreover, I will tell you that indicators are not the best helpers here, because they talk about the appearance of a flat when this is already visually clear.

In general, what is a flat from a visual point of view? In simple terms, this is a sideways movement of the market.

Pay attention to the picture above! Here we can see a flat. Pay attention to the fact that the price does not have a clear directional movement vector, it moves sideways.

Okay, what can the formation of a flat mean from the point of view of market mechanics? In simple terms, a flat may indicate to us that supply and demand are in dynamic equality at the moment. That is, there are no global forces that would be interested in a sharp rise or fall in prices. On this we will build our filter for Forex and other markets.

As a rule, a flat is an excellent basis for action. This is due to the high level of liquidity within the flat, which is vital for a major player to accumulate and distribute his position. Accordingly, if you trade flat, you must understand that this is a breeding ground for various fraudulent manipulations and shakeouts.

Get to the point

Well, now let's look at the flat filter that I wanted to tell you about. I want to tell you right away that the appearance of this filter for Forex and others on the chart does not mean that there will certainly be a flat in the market. But, as practice shows, in most cases, after the appearance of this formation, the price remains in a flat for some time. What kind of pattern is this? Meet - this is the culmination of supply or demand!

In fact, this is one of the basic elements of VSA, which is perfectly applicable in practice as our filter in Forex and more. The appearance of a climax is far from an indicator that a flat will appear. However, in approximately 70% of cases, after the appearance of a climax, a flat begins to form.

Watch a video about technical analysis

However, there are about 30% of cases when after the climax there is a sharp market reversal or the price inertly continues to move towards the volume. However, if you see that a climax has appeared, this may be a signal to us that there is a high probability of consolidation. In this case, if you have a trend system and you hold a position, then when a climax appears, it is better to close the position or place it in , accordingly, this formation can appear with a sideways filter both on Forex and on other markets.

Let's look at what the climax looks like. In fact, the climax is a candle that has a huge volume. The candle spread itself is often also very large, but in rare cases the spread can be small. In general, you will not confuse the appearance of a climax on the chart with anything!

Pay attention to the picture above! We have a climax of supply here as we get a bearish candle with a very large spread and a close far from the low. Please note that this candle was accompanied by huge volume. It is noteworthy that after the climax appeared, the price moved in a flat for some time. Thus, the price itself told us everything in advance.

But again, don't forget what I told you. After the climax appears, the price may either reverse sharply or continue to move inertly towards volume for some time. However, more often than not, after a strong climax, the price moves flat for some time.

Examples

In general, I think you understand what kind of flat filter I am offering you, however, let’s look at how to work with it in practice.

In this case, we will use the intervals D1 and H1. On the daily interval we will look for global consolidation boundaries, and on the hourly interval we will enter to be able to set a smaller stop.

This is a daily chart. I used a red arrow to highlight the potential climax of the sentence. We have a very large spread on the bearish candle, and at the same time it closes far from the minimum. Please note that this comes with a very large volume.

I have marked with black arrows areas of potential global consolidation. At the same time, you see that we have a broken line in the middle. Here I have outlined a certain median of consolidation. In general, this level is weak for the daily chart, but relative to the hourly chart it may be very interesting to us. Now you can switch to an hourly interval and look at potential trades. At the same time, according to the standard, we will take the mathematical expectation of 1 to 3. At the same time, when the price passes a distance equal to two stops, then the transaction can be transferred to breakeven.

Here we have an hourly interval, and we see that our price is fixed below the global level, while a formation with a low volume is being formed, which may tell us about the lack of demand. We wait for the next candle for confirmation. Next we have a bullish candle with a small spread and small volume - this is no demand, which is a signal for us for possible sales. We set the stop behind the high up-thrust, which would be 25 points, respectively, our take is 70 points. The exit would be at the take, approximately at the green mark. Let's move on.

Here we again have the opportunity to enter. In this case, we see that the price is approaching support on increasing volume and large bearish candles. This is a sign that there will be a breakdown of the level rather than a rebound from it. Then, we have a bullish candle formed on a sharply fallen volume - this is no demand, which in a downward trend is a very strong signal.

Then we have an up-thrust on increased volume, which is an indicator of market weakness. Well, the result of the up-thrust is a bearish candle, which confidently consolidates below the level - this is our entry into the market! We place a stop behind the high of the breakout candle, which would be about 50 points, respectively, our take is 150 points. The exit would be at the take approximately at the green mark.

Here we have another potential signal! Please note that the breakdown of the level occurred during a general increase in volume, indicating to us that market participants were interested in raising prices. The first red arrow is a bearish candle with a low spread and falling volume, which shows us that there is a shortage of supply, which is a clear sign of strength in an upward movement.

Afterwards, a spring forms on the increased volume - this is a sign of strength. Then another spring, the volume increased even more. Well, in the end, the third spring in a row appears, the volume of which has increased even more, so we will enter on it. We set the stop at the red mark, which would be about 40 points, respectively, our take would be 120 points. The exit would have taken place at the take, approximately at the green mark.

conclusions

Well, these are not all the deals that could be. However, even these 3 trades would have brought us about 340 points. A couple of such deals a month, and you will already be in chocolate. For example, your risk is 2% of the deposit, so you strive to get 6% in a transaction. A couple of such deals already give us 12% of the deposit, and this is more than enough for a good life. It's a paradox, but less is more, think about it!

Actually, this is a flat filter, and this is a kind of alternative view.

Afterword

There are tasks in trading that precisely require the best sideways movement filter indicator for Forex. Their purpose may be to simply filter sideways from other trends in history. To give you a better idea of ​​what kind of tasks these can be, remember the ZigZag indicator, which is of little use in real time, but in history it perfectly helps filter Elliott waves in Forex and other markets. For our case, filtering in Forex, intertwined moving averages of different periods or an Alligator are suitable. I also came across several custom indicators suitable for filtering tasks on Forex history.

Of course, it's up to you to decide whether to use it, but I hope you found the material helpful!

About 3/4 of the time, Forex quotes are in a flat state, which is characterized by fluctuations in a narrow price range. During this period, a group of trend indicators generates mostly false signals, trading on which, at best, will not bring profit, and at worst, will ensure a stable loss. To avoid such unpleasant consequences, it is advisable to use the so-called forex indicators flat filter, which provide prompt identification of these low-amplitude conditions, during which one should not trade using trending technical analysis tools.

It should be noted that there are not only indicators, but also ready-made trading strategies that allow you to consistently make money even on flats. Therefore, the flat filter indicators discussed in this article allow traders to make profits literally around the clock - during a trend using trend trading strategies, and during a flat using flat trading strategies. And the transition from trading according to one strategy to trading according to another strategy is carried out using signals from the flat filter.

A flat state is formed when the forces of bears (sellers) and bulls (buyers) become almost equivalent. As a result, the price begins to fluctuate around a certain price level. These fluctuations are caused by new players entering the market (opening positions) or leaving (closing positions), which briefly violate parity. Moreover, the scope of such fluctuations can be significant, so even a flat can have high volatility.

The best flat filters

Next, we will consider typical representatives of the category of flat filter indicators, which allow us to determine with a certain degree of accuracy the beginning and end of the sideways movement of quotes. Knowing the end of a flat allows you not only to eliminate losses by promptly closing positions opened using flat trading strategies, but also to make additional money on a breakout of the range, which often represents an impulse of significant amplitude.

Bollinger Bands

Their main one is the moving average, which shows the current trend. Additionally, the algorithm of this flat filter indicator calculates the current volatility, proportional to the value of which the distance at which two lines are drawn up and down from the moving average, which are the boundaries of the channel, is determined (Fig. 1).

A signal of flat formation is a sharp narrowing of this channel (between the green verticals). With a narrow Bollinger band, the flat continues (between the right green and red verticals), and its sharp expansion (after the red vertical) is preceded by a price impulse that breaks through the flat channel.

Parabolic SAR

Its algorithm is also based on the calculation of moving averages, but a special method is used to visualize the calculation results - points above or below the price. In the first case, the trend is downward, in the second – upward.

A flat signal is a small distance between neighboring points. In Fig. 2 green verticals highlight the area where the distance between Parabolic SAR points decreases, which indicates the formation of a flat. The flat period is limited by the right green and red vertical. After the red vertical, the distance between Parabolic SAR points begins to increase, which indicates the completion of the flat.

RSI

This oscillator shows the relative strength of the trend. And since during a flat the trend strength is minimal, the RSI curve will be located during this period between the boundaries of the overbought and oversold zones.

In Fig. Section 3 of the flat is limited by the green and red verticals. The green vertical corresponds to the RSI exiting the oversold zone, after which the downward trend ended. The red vertical corresponds to the RSI entering the oversold zone, after which an upward trend began.

Envelopes

It is displayed as a channel, the boundaries of which are moving averages, calculated using the same algorithm, but shifted vertically relative to each other. At the same time, the algorithm for calculating moving averages is modified in such a way that when the price moves sideways, they are drawn as almost horizontal lines.

Thus, a sign of a flat is the horizontal location of the Envelopes channel (in Fig. 4, such a section is highlighted with red verticals). To correctly identify the beginning and end of flat periods, it is necessary to correctly set the shift value of the channel boundaries, which, in the general case, directly depends on the current market volatility.

Standard Deviation

One of its features, which allows you to identify a flat, is to calculate the volatility of an asset. To do this, the magnitude of the amplitude of quote fluctuations relative to the moving average is calculated.

During a flat, quotes are at a small distance from the moving average, so the Standard Deviation value will be close to zero. Thus, the flat state on the Standard Deviation indicator looks like an almost horizontal line, which is located directly near the zero level (in Fig. 5, the flat is limited by red verticals).

Force Index

Quantifies the relationship between the strength of bulls and the strength of bears. In addition to the price vector, the algorithm uses volatility (amplitude of fluctuations) and trading volumes. Displayed as a curve oscillating around the zero level.

A sign of a flat is an almost horizontal movement of the Force Index curve along the zero level with slight ups and downs. In Fig. 6, such a flat area is highlighted with red verticals.

Conclusion

All of the best flat indicators listed are built into each MetaTrader trading terminal. In addition to them, in the “Navigator” window you can find more than a dozen analytical tools that can be successfully used to identify flats. To check whether one or another of them is suitable for identifying flat periods, it is enough to find an area on the price chart with a clear flat and apply the tested indicator to this chart. If the behavior of the indicator in this area is different from the behavior during trends, then it can be used as a flat filter in Forex.

No trading system is capable of producing only correct forecasts; mistakes are inevitable. If you thoughtlessly enter the market based on all the signals provided, the effectiveness of the trading system will decrease. Therefore, traders use various kinds of filters that allow them to exclude “unreliable signals” from their work.

The term “filter” means a certain rule (condition) that must be met before concluding a transaction. There are several types of filters:

1. Indicators filters. Typically, when trading with indicators, several instruments are used at once; in this case, one indicator serves as the main signal generator, and 2-3 act as a sieve that filters out false signals.
2. Temporary filters. Relevant when trading on news, when time plays a decisive role.
3. Graphical and candlestick analysis implies strict compliance of the market situation with a certain pattern. Only in this case is a deal concluded.
4. Combined. Most often, both indicators and graphic patterns are used in trading, and news releases are also taken into account. Therefore, several types of filters are used at once.

As for indicator trading, in this case almost any indicator can act as a filter. It all depends only on the trading system and which instrument is chosen as the main signal provider, and which one is chosen to filter out false ones.

Filter indicators as the basis of a trading system

The role of such tools is not only to discard a few signals from the total mass. Tools in this category can also be used for a general assessment of the situation, serving as the foundation of a trading system.

An example is the usual moving average, which, despite its apparent simplicity, is used in many trading systems to identify a trend. And a set of MAs can turn into a self-sufficient trading system; just remember Bill Williams’ Alligator.

Another category of popular filters can be called various oscillators. The same Stochastic divides all price movements into oversold/overbought zones and is also used as a filter.

Various modifications of indicators built into MT4 are quite popular. The operating principle is the same, but the display of information is slightly different. Thus, in the Trend Filter indicator there are no divisions into oversold/overbought zones, and the color of the indicator line will help classify the market state. Red and green colors respectively indicate a flat after downward and upward trends, and yellow indicates a trend in the direction of the indicator.

Indicators filters for all occasions

It is simply impossible to mention all popular filters in one article, so attention is focused on several universal tools. They will easily fit into any trading system and will only increase its efficiency.

Moving averages can be considered the undisputed leaders in the ranking of filter indicators. As a rule, they act as support/resistance levels and, taking into account the position of the price relative to the MA, the trend is determined. The period depends on the working timeframe.

The standard ADX built into the trading terminal can help filter out areas when there is no clearly defined movement in the market; MA will not help in this case. The dependence is simple - the higher the indicator value, the stronger the trend is observed. The ADX value equal to 25 is taken as the boundary mark.

In addition to mathematical methods of market analysis, psychology is also important, so it would be nice to add to the list of filters an indicator that displays market sentiment (bulls/bears ratio). Of course, the majority opinion does not mean that the price will move in the desired direction, but this component must be taken into account.

In addition, you need to take into account the release time of important statistics, if trading is carried out on a small time frame and even on more than one pair, then the task of indicators is filters that duplicate the economic calendar directly in the terminal window. During calm trading, you can also monitor the news background manually.

Building a trading system using filters

Most often, in trading, traders use both indicators and graphical analysis tools, so in the example, attention is paid specifically to the combined trading system. It is expected to enter the market in the direction of the trend after the completion of the corrective movement.

It is planned to use Fibonacci levels and graphical constructions as the main “signal generator”. Indicators will only play a supporting role. When drawing up rules for entering the market, you need to solve the following problems:

1. Determine whether there is currently a trend movement in the market, and if so, determine its direction.
2. To the standard Fibonacci levels you need to add a filter that confirms the price rebound and the completion of the correction.

To solve the first problem, you can use the ADX and MA filter indicators, and the completion of the correction will be confirmed by Stochastic. It is proposed to work according to the proposed system in the following order:

1. First, the presence and direction of a trend is identified.
2. Then the Fibonacci levels are extended to the last strong movement.
3. Near important levels (38.2% and 61.8% are especially important), you just need to watch the price and stochastic readings.

For a buy transaction, it is necessary that the price, after a strong upward movement, corrects to the nearest level, and the Stochastic lines intersect in the oversold zone. For short positions the rules are reversed. In order to make a sniper entry into the market, you can monitor the situation on smaller timeframes.

Summarizing

You should not consider filter indicators as a universal remedy for all failures. This tool is an exclusively auxiliary element, which, if used correctly, will increase the efficiency of the trading system. If the trading algorithm initially contains a flaw, then indicators will not help.

You also need to understand that absolutely any indicator can act as a filter; it all depends on how the trader will use it. The same Ichimoku indicator can be used to identify a trend, or can act as a full-fledged trading system.

The number of filters is no less important; 1-3 indicators in any trading system are more than enough. Otherwise, the trader simply runs the risk of getting confused in a multitude of conflicting signals and trading efficiency will most likely decline. Source:

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It's no secret that trading in financial markets begins with the development of a trading system. At the same time, traders use both their own developments and those of others, which they modify to suit their own needs.

But any trading system gives many signals for opening transactions, both true and false. Therefore, for their processing they use Forex filters. Today I propose to take a closer look at such filters.

The conditions of a trading strategy are a set of certain rules, in the presence of which the trader performs actions. These may include: opening or closing orders, or take profit, etc. What will a trader get from using filters on Forex?

“The most important thing is that these algorithms help eliminate false signals that the trading system provides. »

By eliminating such strategy errors from trading, we will protect ourselves from losses, or significantly reduce the number of negative results. The next positive aspect of using filters on Forex is the optimization of the trading system itself.

Forex filter categories

All filters that are used by traders to sort signals on the Forex market can be divided into several types (categories).

To the first category include filters that are based on the use of Forex technical indicators. Here, to filter false signals, various technical indicators are used, which can be included in the standard set of the MetaTrader terminal or installed separately. Usually in such a trading system it is used to receive signals, the second part of the indicators is used to filter out false signals.

For the second category Forex filters are used that are based on the use of graphical analysis. Such filters, like trading systems, have recently become very popular among traders. The essence of using these filters is that when a certain combination of bars or candles appears on the chart, we expect confirmation of the signals by subsequent bars or candles.

Next category Forex filters can be classified as temporary. The simplest example of a time filter in Forex is checking the truth or falsity of signals with time. That is, when a certain signal appears, you just need to wait for some time, and then it will be clear whether it is a false signal. Of course, this is just one example of such filters. The disadvantage of such a filter is the time itself - the wait can drag on and turn into a waste of time.

Another category worth noting- these are mixed or combined filters on Forex, which may include a combination of instruments of various categories. In my opinion, these are the most effective “cleaners” in the Forex market, which allow you to leave situations for work that have a high probability of a positive outcome.

Let's now look at examples of using filters in trading on financial markets.

Trend Filter

A technical indicator belongs to a type of oscillator and is designed to determine the trend and movements in the market.

You can download it here:

The indicator is located in a separate window and is a line that changes direction and color when the trend direction changes. If the instrument line is colored green, then there is an upward trend in the market, or a flat movement in this trend.

The yellow color of the line indicates either a change in trend or a state of uncertainty. When the line is colored red, there is a downward trend or flat in the market.

The Trend Filter indicator is very effective in determining the direction of the trend. It allows you to eliminate various market noises and false signals. The developers do not recommend using it as the main indicator of a trading system.

But if you use Trend Filter to filter out dubious situations, then this will be most effective for the trading system. For example, if we have a sell signal and the indicator line is in the green zone, then it makes sense to ignore such a signal and wait for the trend to change.

Forex filters for false breakouts

Another important example, in my opinion, of using protective algorithms in the Forex market is identifying false breakouts of key support and resistance levels. As you know, these boundaries play an important role in the analysis of price movements of currency pairs.

Traders often wonder whether a breakout of such levels can be considered a serious market intention to move on, or is such a breakout only intended to mislead market participants? Let's look at options for filtering false breakouts of important price levels.

The simplest way to determine whether a price boundary breakout is realistic is the price movement zone above or below the price level. If the price, after breaking through an important level, passes only 15-20 points and then returns to this level, then with a high degree of probability we can talk about a false breakout.

Analyzing the history of price movements, it can be noted that for major currency pairs, a movement of 20-30 points after a breakout of the price level is not a true breakout, and for cross-currency pairs, the limit of false breakouts can reach up to 70 points with volatile price movements.

Using this example, we can observe a false breakout of the resistance level for the USDCAD currency pair. The price, having broken through the important level of 1.3165, went to 1.3187 and then returned back. The breakout of an important level turned out to be false, after which a downward trend began.

So, let's summarize our review.

“Forex filters are not an independent trading strategy, do not forget about it. This is just one of the tools for determining the realism of signals. »

But using such filters in the Forex market will help reduce the percentage of losing trades and receive more accurate signals from the trading system.

It is also important to note that the older the timeframe used for trading, the better the false signals will be filtered out. That is, the most effective use of Forex filters will be in medium and long-term trading.

Trend strategies are the most popular in all financial markets without exception. It is not surprising that traders and programmers have created hundreds of special indicators for Forex trading, the main task of which is to identify the main trend. One of these algorithms is called Trend Filter.

It’s difficult to say when its first version appeared, since you can find many similar tools on the Internet, the main thing here is that it does not redraw, so it can be successfully backtested.

So, the main function of Trend Filter comes down to analyzing the prevailing movement, but it should be noted that the author in this case decided to take a non-standard path and included power functions in the formula.

This algorithm has taken the form of an oscillator, i.e. after installing it on the chart, the trader will see the markings not on the main chart, but in the basement window.

As you can see from the example above, the Trend Filter values ​​change smoothly, without sharp fluctuations, which I personally already like, since market noise and random spikes constantly lead to errors and premature trades.

This algorithm is very easy to set up; all you need to do is set the values ​​of just two variables:

• NBars – the main period of the indicator, on which the forecast horizon will depend;
• MA_Period is a smoothing factor, similar to the “slowdown” variable in the stochastic oscillator.

Using Trend Filter on Forex

I have already noted that the main task of this indicator is to identify the trend, so let’s start with these signals. The author recommends working according to the following principle:

the line turns green - open a long position;

the line has acquired a red tint - we are selling the asset;

the oscillator is yellow – it is recommended to refrain from concluding transactions.

This approach really seems logical, but there is one problem here - the user cannot set the boundaries of the indicator scale, after crossing which the color of the main line will change. It would be more accurate to say that they can be configured in the “levels” tab, but the result will not change.

We have to be content with only standard Trend Filter setting, which in my opinion is too strict. To see this, let's look at another example:

a buy transaction is opened after the line has crossed the -0.5 level from bottom to top, and is closed according to the standard (the function value closed below 0.95);

a sell order opens after crossing the 0.5 bar from top to bottom and closes at the moment when the Trend Filter indicator changes color from red to yellow.

As you can see, the quality of the signals has noticeably improved, but even in this case, exit points are formed too late, when the rollback from the previous direction manages to “eat up” most of the profit.

This problem can be solved by combining two indicators with different parameters, the first of which (the basic one) will determine the entry point, and the second (with a shorter calculation period) will make sense to look for signals to exit the position.

Of course, Trend Filter periods should be optimized for each trading instrument and timeframe, in particular, by default NBars = 89, but in the examples I used the values ​​60 and 20, since they are closer to the standard analysis horizons on daily charts (business quarter and month) . Variables are selected in a similar way for all other TFs.

As for the smoothing function, its value will depend on the nature of the tool. In particular, the more noise there is, the longer the period of the auxiliary moving average should be.

But that's the scope of application Trend Filter indicator is not limited, because it copes well with the role of an oscillator, i.e. can generate signals from overbought and oversold areas ().

Of course, in this case it will not be possible to open positions at the moment the level is first touched, since the line “sticks” for a long time in critical areas. Instead, trades should be concluded at the moment when the indicator goes beyond the corresponding bar.

In general, Trend Filter provides a lot of opportunities for experimentation, because based on its values ​​you can build moving averages, Bollinger Bands, RSI and other standard indicators.

Particularly interesting in this regard is an envelope made of heavy “masks”, which can be used as an alternative to the fixed levels discussed at the very beginning of the review.

In this case, the trader moves away from being tied to static values ​​and explores the “live” market, because the longer the price rises or falls (and along with it the value of the envelope increases or decreases), the stronger and more rapid the rollback will be. If you focus on horizontal levels, the likelihood of losing part of your profit due to a signal delay increases significantly.

To summarize today's topic, I cannot say anything bad about the Trend Filter indicator, since it is no worse than the usual stochastics or RSI. Its only drawback is that the formula is not entirely clear, since to study it you have to go into the source code and see what functions were used there, but it is impossible to understand the calculation algorithm from standard variables.

This indicator has much more positive aspects, in particular, it does not redraw, shows both trend and flat, can be used as an oscillator, and is even compatible with other classical algorithms.