Technical analysis is a popular method among traders and moving averages are frequently used to identify market trends and make trading decisions. However, their effectiveness can sometimes be limited due to the lagging problem of traditional moving averages. To solve this problem, the HLC3/Kaufman strategy offers a more effective approach using moving averages.
What is HLC/3 Kaufman?
The HLC3/Kaufman strategy is a technique developed to solve the lagging problem of moving averages and generate more accurate trading signals. This strategy is based on the Kaufman Moving Average indicator and is designed to react faster to price movements.
The indicator consists of two moving averages. Red Line and Black Line, Kaufman Moving Average blackline (Kaufman MA) is a type of moving average that is adaptive to price movements and resistant to volatility. This indicator can adjust its speed depending on market conditions and detect trend changes more accurately. The HLC3/Kaufman strategy generates trading signals using the Kaufman MA indicator. The Red Line moves slower and its crossovers are important for trading signals.
How to Use the HLC3/Kaufman Indicator?
The HLC3/Kaufman strategy allows traders to make more effective trading decisions. The strategy identifies trading points using the crossovers of moving averages. Trading decisions are determined by the crossovers of moving averages on the Kaufman MA indicator. This increases the chances of making more accurate and timely trades and optimizes the profit potential.
Using HLC3/Kaufman in Traderlands Strategy Creator
The HLC3/Kaufman strategy can be used when creating a strategy in Traderlands Workshop. You can create your strategy by selecting the HLC3 Kaufman Redline and Blackline moving averages from the list of indicators. You can test it on the platform. The working logic of the strategy is based on the crossovers of moving averages in the Kaufman MA indicator. A buy signal is generated if the slower moving average (redline) crosses the other one to the upside, while a sell signal is generated if it crosses it to the downside. This way, it is possible to detect trend reversals earlier and execute profitable trades.
Strategy Performance Review and Revisions: After creating a strategy with HLC3/Kaufman, it is important to monitor its performance and make revisions if necessary. By backtesting the strategy, you can evaluate how it performs on historical data. It is also important to monitor the results of positions opened in virtual trading in live market conditions. When monitoring the strategy's performance, you can make an objective assessment using the trade success rate, return-to-risk ratio and other metrics. If the strategy needs to be improved, corrections can be made, such as adjusting parameters or adding additional indicators.
I hope that this blog post about the HLC3/Kaufman strategy will be useful to you and help you understand it better. I wish you successful implementation and profitable trading!
Rules you can add to the Strategy Creator LONG/SPOT Entry Algorithm Section:
Rules you can add to the Strategy CreatorLONG/SPOT Exit Algorithm Section:
Trade Settings:
Backtest Results:
The backtest results of a strategy with HLC3 Kaufman (KAMA) indicators and input/output algorithms designed and trading settings as above, between June 22, 2023 and December 22, 2022.
WARNING: The entry and exit strategies in the images are prepared ONLY for educational purposes to explain how indicators work. It does not guarantee any profit.
When creating an algorithmic trading strategy, a rule set is usually created by using more than one indicator.
TradingView: https://www.tradingview.com/v/TOv4zoTc/