ASH Indicator For MT5

The ASH Indicator For MT5 is a momentum oscillator that could be thought of as a hybrid mix of various oscillators like the RSI and the stochastics. The abbreviation, ASH, stands for Absolute Strength Histograms, which is pretty self-explanatory. Like all momentum indicators, its main job is to discern the momentum of an instrument’s price as a means to assess the strength or weakness of particular trends.

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Momentum is one key aspect to observe with any instrument, and as traders, an understanding of this is crucial. The ASH is a custom indicator with many similarities of popular oscillators which have been mentioned.

Understanding the ASH

The ASH Indicator For MT5 is comprised of histograms, almost identical to the MACD, which oscillate around a zero line. In the indicator’s default settings, these histograms are made of two simple moving averages with the periods 9 and 2, which are applied to the closing price. However, any of these parameters can be adjusted. Traders have the luxury of adjusting to which aspect of price they want the moving averages to be applied to, the type of moving average they want and even whether they want a RSI or stochastic view.

The most basic way of reading the ASH indicator is that readings higher than the zero line would be interpreted as bullish momentum, and inversely, readings lower the zero line would be interpreted as bearish momentum.

Similarly, any situations where the histograms move from positive to negative values could also be viewed as potential trend continuations. Traders can find a number of uses with this indicator such as assessing the current trend of a market, the potential for a start of a new trend and divergences. The latter two of these uses could be particularly beneficial with regards to the ASH.

Using the indicator

The biggest problem with all indicators and oscillators is obviously the lagging nature of them and the proneness for a trader to unfortunately be whipsawed consistently through false signals. However, only scalpers would be more susceptible to these drawbacks, though those who tend to analyse time-frames above the H4 could ‘find a pot of gold’ by strategically exploiting this lag to their advantage. In general, what makes up for the lag with all indicators is just moving a few time-frames up to stay away from market noise and using a few other very good reasons to taking a position.

The ASH Indicator For MT5 can definitely perform better in these situations where it is used to confirm new and stronger momentum rather than just assessing what the trend is. This is easily one of the simplest yet most effective ways to trade with this indicator if one is not an out and out trend follower and is also not concerned so much on trying to experiment with changing the settings.

One obvious method to utilise this indicator is trading reversals at key levels on a chart. It is a well-known opinion that when a market has been trending for an extended period of time in one direction where it is constantly breaking new highs and lows in its path, there will eventually come a time at which it rests and consolidation takes place. In these situations, usually, one of two things are likely to take place.

Even with the longest period of consolidation or sideways movements, the market could still eventually resume its preceding trend, though this may stem from a ‘sneaky’ fake-out to the other side. This is where the ASH Indicator For MT5 can come into play as it seeks to answer only one question, which would be is there enough momentum to give conviction to a genuine and potential long-term reversal or not.

In the screenshot above, one could have observed the depth of the histograms that peaked above the zero line just before the market approached the key level at 106.850. As it approached this area, firstly, the histograms noticeably peaked below.

Furthermore, they peaked even deeper below the previous peak, which were clear suggestions the market had very strong momentum to the downside. Through using simple understanding of support and resistance or supply and demand, these areas would have been observed very carefully mainly for signs of dying momentum and then renewed, convincing momentum to the other side after some time. The comparison of the length of the histogram peaks makes a lot of sense in relation to what would occur in the market.

The line with the point, 121.475, clearly show that the histograms, as the market started turning around this key area, were above those before the market was approaching this area. This would have been a very good reason to go long because this would have been considered a significant event, and in this case, one would have only needed to find the best place to enter in the pullback to ‘ride the wave’.

Linked to this, another obvious way this indicator could be used is trading divergences. Naturally, divergences which form on histograms are generally a lot slower to form and are not very well-defined on smaller time-frames. Hence, they are few and far between and occur in much higher time-frames like the dailies and weeklies, though can provide very unique trading scenarios reserved for the very patient.

On the whole though, divergences are just a staple of oscillators. In the reversal case highlighted previously, divergences could definitely be considered in similar situations in addition to other confirmation factors. Divergences are not only limited to reversals, but as a trend continuation signal as well.

Summary

The ASH Indicator For MT5 is a great cousin of some of the popular oscillators out there especially where it used to give conviction to renewed momentum in a particular area. Other tools that would enhance this would certainly be things like powerful price action patterns, perhaps another indicator and any other type of analysis that will compliment the indicator. It is critical to know it is much better suited and reliable for more long-term traders that use the daily, weekly and monthly time-frames instead of time-frames below this threshold. Happy ASH trading :-)  

 

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