Introduction
The Gann HiLo Activator is a trend-following indicator that can help traders identify the direction of the market and enter trades accordingly. It was developed by Robert Krausz and published in his book “W. D. Gann Treasure Discovered: Simple Trading Plans for Stocks & Commodities”. In this article, we will try and understand how the Gann HiLo Activator works and how to use it in trading.
The Gann HiLo Activator indicator consists of a simple moving average and a modified moving average. The simple moving average acts as a support or resistance level, while the modified moving average acts as a signal line. When the price is above the signal line, it indicates a bullish trend, and when it is below the signal line, it indicates a bearish trend.
The indicator is constructed based on a simple moving average of the previous three periods’ highs or lows, depending on the trend direction. When the price is above the Gann HiLo Activator, it implies the security is in an uptrend, and the indicator is computed based on the previous three lows. Conversely, when the price is below the Gann HiLo Activator, it implies the security is in a downtrend, and the indicator is computed based on the previous three highs.
How to use the Gann HiLo Activator
The Gann HiLo Activator can be used to generate entry and exit signals based on the trend direction and the price action. Here are some basic rules for trading with this indicator:
Identify and follow trend
The basic rule of using the Gann HiLo Activator is to follow the trend indicated by the position of the price relative to the indicator line. If the price is above the Gann HiLo line, it means that the trend is up, and you should look for buying opportunities. If the price is below the Gann HiLo line, it means that the trend is down, and you should look for selling opportunities. You can also look at the direction of the signal line. If the signal line is moving upward, it indicates a bullish trend, and if it is moving downward, it indicates a bearish trend.
Crossovers
One way to generate entry signals with the Gann HiLo Activator is to wait for a candle to close on the opposite side of the indicator line, indicating a trend reversal. For example, if the price was below the Gann HiLo line and then closes above it, it signals a bullish reversal, and you can enter a long position. Conversely, if the price was above the Gann HiLo line and then closes below it, it signals a bearish reversal, and you can enter a short position. You can use this information to enter or exit trades, depending on your trading strategy.
Use in conjunction with other tools
Another way to generate entry signals with the Gann HiLo Activator is to use it in conjunction with other indicators or tools, such as oscillators, chart patterns, or candlestick patterns. For example, you can use an oscillator like Relative Strength Index (RSI) or the Moving Average Convergence Divergence (MACD) or Stochastic to identify overbought or oversold conditions in the market, and then use the Gann HiLo Activator to confirm the trend direction and enter a trade in alignment with it.
By combining other indicators, traders can gain a better understanding of market trends and potential trade opportunities. Alternatively, you can use chart patterns like triangles or flags to identify breakout points in the market, and then use the Gann HiLo Activator to filter out false breakouts and enter a trade in the direction of the breakout.
Use as a trailing stop and an entry signal
The Gann HiLo Activator can also be used as a trailing stop and an entry signal. As a trailing stop, it helps traders protect their profits and stay in the trend as long as possible. As an entry signal, it helps traders catch the trend reversals and enter trades in the direction of the new trend.
To use the Gann HiLo Activator as a trailing stop, traders can place their stop-loss order below the indicator in an uptrend or above the indicator in a downtrend. This way, they can lock in some profits and exit the trade when the trend changes. The stop-loss order can be placed below the indicator and moved up as the price rises. When the price breaks below the indicator, it signals a trend reversal and a possible exit point.
Conversely, the stop-loss order can be placed above the indicator and moved down as the price declines. When the price breaks above the indicator, it signals a trend reversal and a possible entry point.
Also see: Setting up stop loss levels – The importance of stop loss
Therefore, it is advisable to use the Gann HiLo Activator with caution and discretion, and always combine it with other indicators or tools to confirm its signals and filter out noise. It is also important to use proper risk management techniques when trading with any indicator, such as setting stop-losses, trailing stops, and take-profits according to your trading plan and objectives.
Advantages & Limitations of the Gann HiLo Activator
The Gann HiLo Activator is a technical tool designed to assist traders in determining trend direction and entry/exit points in the market. Here are some advantages and limitations of using the Gann HiLo Activator in trading.
Advantages
- Trend Identification: The Gann HiLo Activator can help traders recognize the direction of the trend by showing whether the market is trending up or down. This information can assist traders in making better trading decisions and avoiding false breakouts.
- Easy to use: The Gann HiLo Activator is a straightforward indicator that is simple to use and understand. Traders can utilize it to confirm their market analysis and make more informed trading decisions.
- Helps with entry and exit points: The Gann HiLo Activator can identify possible entry and exit points in the market. Traders can employ this knowledge to enter and exit trades at the correct time, maximizing their profits.
- Versatile with multiple timeframes: The Gann HiLo Activator can be utilized in multiple timeframes, making it an adaptable tool for traders who use various trading strategies.
- Compatible with Other Indicators: The Gann HiLo Activator can be used in combination with other technical indicators to enhance the accuracy of trading signals.
Limitations
- Lagging Indicator: The Gann HiLo Activator is a lagging indicator, meaning it may not provide accurate signals in real-time market conditions. Traders must be aware of this limitation and utilize other indicators to confirm signals.
- False Signals: Like any other technical indicator, the Gann HiLo Activator can generate false signals. Traders must exercise caution when using this indicator and confirm signals with other indicators or analysis.
- Not suitable for all market conditions: The Gann HiLo Activator may not be appropriate for all market conditions. Traders must use other indicators and analysis to determine market conditions and adjust their trading strategies accordingly.
- Asset Compatibility: The Gann HiLo Activator may not perform well with certain assets, such as low-volume stocks or assets with erratic price movements. Traders must be aware of this limitation and use other indicators to analyze these assets.
- Can be subjective: The interpretation of the Gann HiLo Activator can be subjective, as different traders may have different criteria for identifying trends and signals. Traders must be consistent in their approach and utilize other indicators or analysis to confirm signals.
The Gann HiLo Activator is a technical indicator that can help traders determine the trend direction and potential entry/exit points in the market. This versatile tool can be used in multiple timeframes and in conjunction with other technical indicators to increase the accuracy of trading signals. By identifying potential entry and exit points, traders can make better-informed decisions and potentially maximize their profits.
However, traders should note that the Gann HiLo Activator is a lagging indicator that may not always provide accurate signals in real-time market conditions. False signals can occur, and traders should confirm signals with other indicators or analysis before making trading decisions. Additionally, this indicator may not be suitable for all market conditions or assets, and traders should adjust their strategies accordingly. The interpretation of the Gann HiLo Activator can also vary between traders and may be subjective, so consistency in approach is crucial.
