Developed by Tim Tillson, the is considered superior -1.60% to traditional moving averages as it is smoother, more responsive and thus performs better in ranging market conditions as well. However, it bears the disadvantage of overshooting the price as it attempts to realign itself to current market conditions.
It incorporates a smoothing technique which allows it to plot curves more gradual than ordinary moving averages and with a smaller lag. Its smoothness is derived from the fact that it is a weighted sum of a single , , and so on. When a trend is formed, the price action will stay above or below the trend during most of its progression and will hardly be touched by any swings. Thus, a confirmed penetration of the and the lack of a following reversal often indicates the end of a trend.
The generally produces entry signals similar to other moving averages and thus is traded largely in the same manner. Here are several assumptions:
If the price action is above the and the indicator is headed upward, then we have a and should only enter long trades (advisable for novice/intermediate traders). If the price is below the and it is edging lower, then we have a and should limit entries to short. Below you can see it visualized in a trading platform.
Although the is considered as one of the best swing following indicators that can be used on all time frames and in any market, it is still not advisable for novice/intermediate traders to increase their risk level and enter the market during trading ranges (especially tight ones). Thus, for the purposes of this article we will limit our entry signals only to such in trending conditions.
Once the market is displaying trending behavior, we can place with-trend entry orders as soon as the price pulls back to the moving average (undershooting or overshooting it will also work). As we know, moving averages are strong resistance/support levels, thus the price is more likely to rebound from them and resume its with-trend direction instead of penetrating it and reversing the trend.
And so, in a bull trend, if the market pulls back to the moving average, we can fairly safely assume that it will bounce off the and resume upward momentum, thus we can go long. The same logic is in force during a .
And last but not least, the can be used to generate entry signals upon crossing with another with a longer trackback period (just like any other moving average crossover). When the fast T3 crosses the slower one from below and edges higher, this is called a Golden Cross and produces a entry signal. When the faster T3 crosses the slower one from above and declines further, the scenario is called a Death Cross and signifies conditions.
I Personally added a second T3 line with a factor of 0.618 (Fibonacci Ratio) and length of 3 (fibonacci number) which can be added by selecting the box in the input section. traders can combine the two lines to have Buy/Sell signals from the crosses.
Developed by Tim Tillson
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.