Trading with the TMA slope indicator
Table Of Contents:
- Trading with the TMA slope indicator
- How does the Triangular Moving Average (TMA) work?
- How to use the TMA slope indicator?
- How to trade with the TMA slope indicator?
- The TMA Slope Indicator – Conclusion
The TMA slope indicator is a customized oscillator that is used as a trading system. The indicator is known for capturing the trends in the markets in a nice and visually appealing way. Not much of information is known about the development of the TMA slope indicator. For many traders, this doesn’t matter as long as any indicator can prove its mettle.
The name TMA comes from Triangular Moving Average. Similar to other moving averages, the Triangular Moving Average or TMA plots the moving average of the price of the security over a period of time. In a way, the TMA is nothing different from the regular moving averages used.
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Alerts In Real-Time When Divergences Occur
In order to understand how the TMA slope indicator works, it is ideal that the traders understand a bit of the calculation of the TMA indicator. The TMA indicator is not commonly found on standard trading platforms.
However, fret not as the trading community has come up with different customized indicators of the TMA. One such variation of the TMA is the TMA slope indicator. As the name suggests, the TMA slope measures the slope of the TMA.
There is nothing complex behind this oscillator. For example, you could even construct an exponential moving average slope indicator. The general reasoning behind the slope of the moving average is as follows.
When the moving average is sloping at an angle (to the upside or down), it indicates a strong trend in the market. The more the moving averages slope, the higher the chances that price of the security will continue to maintain the trend.
The first chart below shows a simple example of an exponential moving average. You can see how the strong trends are established and as represented by the slope of the moving average.
Slope of an exponential moving average
The areas represented by the rectangular boxes shows when the moving average turns flat. This happens when prices tend to chop around thus making the average prices to remain trading within a certain price range.
As a result of this, the moving average values do not change much and leads to a rather flat direction.
Thus, calculations can be derived by comparing one moving average value against the other and then constructing the slope. Using an oscillator, the slopes can then be designed as a histogram. This will give a visual depiction of the slope of the moving average.
Traders are then able to view the slope and understand how strong the trend of the price of the security is going to be. As you can see from the above chart, when the moving average slope starts to turn flat, it indicates that prices are not moving very far away from the average price.
Thus, this tells the trader that the markets are trading in a sideways range. This helps trend traders to either adjust their positions by booking some profits or wait for the sideways range to settle before entering into the new trend that will form.
The slope of the moving average basically shows the different phases of the markets. The markets tend to move in and out from the accumulation or consolidation phase and then switches to a distribution phase.
Trends are usually flat when the market moves into the accumulation or consolidation phase. This phase usually occurs when the markets are moving sideways. After this period, it results in a breakout in the price.
This breakout starts the new distribution phase. The distribution phase is the start of the trend (either an uptrend or a downtrend).
How does the Triangular Moving Average (TMA) work?
The Triangular moving average is based upon the initial calculation of a simple moving average. A simple moving average as you know is literally the simplest of all moving averages. If you have three variables, then the average of these three is nothing but the average value.
With a triangular moving average, the first step is to calculate the simple moving average of the price for the last N periods of time. Then, as the values are calculated when new price sessions are formed, these are all averaged once again.
In other words, the Triangular Moving average is a moving average of the simple moving average. One might wonder the need for creating another moving average of an existing moving average. This leads to a smoothing of the initial moving average itself.
Depending on how you see it, a double smoothed average indicator tends to lag quite a bit. Unlike a regular moving average which simply averages the price, a double moving average requires a lot more to react to the developing price.
For some, which can help to cut out the noise. But others might view this as a very lagging indicator that fails to capture the real time price movements. To each his own! This depends on how you wish to trade in the markets. It also comes down to your risk tolerance about the markets.
Therefore, it is important to note that if you are looking for an indicator that is quick to react to prices, then the TMA or the Triangular Moving Average is certainly not the tool that you should be using.
But if you prefer the markets to cut out the noise and are able to tolerate the volatility in the markets, the TMA can smooth out the trends for you.
How to use the TMA slope indicator?
As we mentioned earlier, the TMA slope indicator is not a standard indicator that is available on many trading platforms by default. Therefore, you can download the indicator from this article.
After you download the TMA slope indicator, paste it into the indicators folder of your MT4 trading platform. Restart your MT4 trading platform or simply refresh the navigation window in order for the MT4 trading terminal to pick up the new indicator.
Once the indicator is available in the navigation window, you can then double click or just drag it on to the chart of your choice. You will now be presented with the TMA slope indicator’s configuration window.
TMA Slope Indicator Configuration
The configuration settings for the TMA slope indicator is fairly straight forward. As per the configuration window for the TMA slope indicator seen above, the following settings are used.
The fast and slow TMA is the same configuration as how you would set the fast and the slow moving average. Note that the TMA is a smoothed indicator, so it is ideal to choose your settings wisely. Setting large values can lead to a lot of lag on the indicator.
The default settings are 50 and 25. But you can change these settings to anything of your choice. It would be ideal to use the 50 and 20 period TMA settings on the daily chart for example. This allows you to view the 20-period and the 50-period TMA.
The TMA price setting allows you to choose from a variety of price points for calculations. You could use the open, high, low, close, median price for example. The default is set to 5, which simply means the median price.
The median price is calculated as the average of the open, high and close. You could experiment with this setting. It doesn’t make much difference to the TMA except for a few points of change on the oscillator.
The hi and low settings basically allows you to setup the alerts. When the TMA is above +0.005 or below -0.005, you will get the alerts.
Once the TMA is applied to the charts, this is how it looks like.
TMA Slope Indicator Configuration
As you can see, the oscillator shows buy and sell signals in a visually appealing way. There isn’t much of configuration left to be done, except for how to send the alerts and the type of alerts you want to receive.
The TMA slope indicator, in a way looks similar to other oscillators such as the Awesome oscillator. However, bear in mind that the way the oscillator’s values are calculated are quite different. Do not make the mistake of thinking that the TMA oscillator is the same as other similar looking indicators.
The crossover of the zero line basically depicts the crossover of the Triangular moving average, in a bearish or a bullish fashion.
How to trade with the TMA slope indicator?
There are many different ways to trading with the Triangular moving average slope indicator. For starters, the zero line crossing is the most simplest. With this approach, traders buy or sell depending on when the TMA slope indicator crosses the zero level.
But this can also lead to some false signals unless the underlying trend is very strong. Therefore, traders need to be careful in this approach.
Besides the zero line crossing, another way of using the TMA slope indicator is to trade the divergences. Divergences as you know are applicable when you compare price’s highs and lows to that of the oscillator.
When there is a failure to confirm the highs in the price against the highs in the oscillator or vice versa, you can see a divergence on the charts. These divergences tend to give way to potential trading opportunities.
In the above chart, you can see that on the left side (during the bearish trend), there is a clear bullish divergence. Towards the very end price makes a new low, but the oscillator forms a rather higher low.
This divergence eventually morphs into a change of trend and the price action moves from a bearish to a bullish trend.
The TMA slope indicator can also be used across multiple timeframes. In this approach, you will basically understand what the trend is on a higher chart time frame. Assuming that the TMA slope indicator is below the zero line you would then move to a smaller time frame chart such as the 4-hour or the 1-hour chart.
Then, when the TMA slope indicator cuts across the zero line and validates the daily chart time frame’s trend, you can go long or short, in the direction of the larger trend. This approach allows you to trade with the longer term trend while being able to pick up key turning points in price.
The TMA Slope Indicator – Conclusion
To conclude, the TMA slope indicator is a rather simple but an effective indicator. Based on the triangular moving average system, the TMA slope indicator measures the slope of the TMA.
This can then in turn inform traders about the strength of the trend or the momentum in price. When the slope starts to rise, you will see that price also starts moving in the strong direction be it to the upside or to the downside.
The TMA oscillator can replace another oscillator such as the Stochastics or the RSI oscillator. The main difference here is that instead of using the price momentum, the TMA slope measures the slope of the Triangular moving average.
The TMA in itself is a bit of a smoothed indicator. Therefore, some traders might find that the signals from the TMA can lag a bit. You will especially find the drawbacks of the TMA indicator when the markets are very volatile.
But having said that, the TMA slope indicator is ideal to use in strong trending markets. These include mostly the commodity markets. Therefore, the TMA can be a great tool if you are trading commodity futures for example.
You can also apply the TMA slope indicator to the forex markets as well. But the effectiveness of this indicator basically depends on how strong the trends are in the currency pairs that you are applying them to.
Due to the fact that the TMA slope indicator can be applied across any time frame it can be used in both multi-time frame analysis as well as in day trading the markets if you choose to. As with any technical indicator, it is ideal that you first test the TMA slope indicator on a demo account and build a trading strategy rather than use this directly in the real markets.
