The Simple Trend Channel Filter study is part of a trading system developed by James E. Rich and John B. Rich. Being the first step in the system, a filter, it recognizes symbols suitable for application of the strategy. Like many other study filters, it has been adapted for usage in thinkorswim Stock Hacker.
The Simple Trend Channel trading system is an attempt to simplify trading decisions using only few well-known basic indicators, namely, three simple moving averages (SMA) with different lengths. Before applying the filter, a 50-period SMA needs to be calculated for S&P 500 to check whether the market is trending and if it is, to determine the trend direction. Since the main principle of the system is simplicity, this check is also simple: prices above the SMA are read as an indication of an uptrend, while the opposite situation is perceived as a downtrend.
When the overall market trend direction is determined, the filter will help you recognize the stocks to apply the strategy to. These stocks need to be moving in the same direction as the market and it’s up to you to decide at which trend strength they could be profitable to trade. The filter allows for three levels of trend strength: Min, Normal, and Max; this is controlled by the “trend check” input parameter. Basically speaking, this input defines how strict the trend check needs to be. Setting it to "Min" will only compare the close price with its 50-period SMA; "Normal" will add comparison of the 20-period SMA with the 50-period SMA; "Max" will also have the system compare the 50-period SMA with the 200-period one.
|Defines how strict the trend check needs to be.
|Defines whether or not to display a chart label that indicates the recognized trending conditions.
|A boolean plot that has a value of 1 for symbols that are in downtrend, based on the selected trend check mode.
|A boolean plot that has a value of 1 for symbols that are in uptrend, based on the selected trend check mode.
1. "Simplify It" by James E. Rich with John B. Rich. Technical Analysis of Stocks & Commodities, November 2015.
*For illustrative purposes only. Not a recommendation of a specific security or investment strategy.