Vertical Horizontal Filter

The Vertical Horizontal Filter (or VHF) is used to determine whether the market is in trend or in a congestion phase. This indicator was first introduced by Adam White in an article published in August 1991 in Futures Magazine.

The VHF is calculated by dividing the difference between the highest and lowest on a given period by the sum of absolute values of differences of daily closing price.

Typically, a period of 28 is used for the VHF.

Example

Interpretation

The VHF determines the strength of the trend. The higher it is, the more the trend is clear.

There are three ways to interpret this indicator:
• Use the value of VHF to determine the strength of the trend. Over the VHF, the higher the degree is important and we can use the indicators to monitor trends.
• Use of VHF direction to determine if a trend or phase congestion is developing. A rising VHF indicates the beginning of a trend. Conversely, a VHF going down indicates a value which may fall into a period of congestion.
• Use the method of opposites. When the VHF peaked, we can assume that the trend will stop and that the value will go through a period of congestion. Conversely, when the VHF reached a minimum, it can be assumed that the period of congestion will be terminated and that the trend is over.