Chartmill Value Indicator

Dirk Vandycke created the Chartmill Value Indicator (CMVI) and published it in Stocks and Commodities Magazine in January 2013. To determine adjusted open, high, low, and closing prices, the CMVI employs Moving Averages of True Range and the Midpoint price. On a separate graph, these corrected values are displayed as price bars. The method (SMA), period length, and price bar type can all be changed by the user. The definition of this indicator is also given in condensed code.

What is the Chartmill Value Indicator?

The Chartmill Value Indicator was created to address some of the shortcomings of traditional indicators. Its strength is that it swiftly adapts to new price formation realities and strives to signal price formation extremes. Signals, like the Dynamic RSI, often last only one day. You need to know for practical purposes that readings below -8 indicate oversold circumstances and readings over +8 suggest overbought situations. It is always beneficial to have a thorough comprehension of the indicators you are employing.

Setting up the Chartmill Value Indicator
Setting up the Chartmill Value Indicator

Chartmill Value Strategy

The Chartmill Value Strategy is a technical system that represents a standard deviation from a moving average and may be used on any price series over any time period. The idea is straightforward. Prices will eventually rise above a moving average as they rise. The moving average will eventually begin to rise as well. At this stage, prices must climb further to widen the gap between the current price and the underlying moving average. When prices begin to level out or consolidate, the spread begins to narrow as the moving average rises.

This may sound similar to a simple price spread from a moving average, but with CVI, the spread is divided by the average real range, making its value dependent on both the underlying security’s price level and volatility. This algorithm makes it very difficult for the deviation from a moving average to remain in the overbought or oversold zones for long periods of time.

Buy Signal

The following could be your checklist for a buy trade:

  • When the current trend is bullish.
  • When the signal line crosses above the zero level.

Once these two events occur:

  • You could open a buy position once the bullish crossover happens and after you confirm your entry with bullish candlestick patterns.
  • You could set your stop loss just below the nearest swing low.
  • You could set your take profit at the nearest resistance zone, or you could exit trade when the signal line crosses below the zero level.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Chartmill Value Indicator Buy Setup
Chartmill Value Indicator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:

  • When the current trend is bearish.
  • When the signal line crosses below the zero level.

Once these two events occur:

  • You could open a sell position once the bearish crossover happens and after you confirm your entry with bearish candlestick patterns.
  • You could set your stop loss just above the nearest swing high.
  • You could set your take profit at the nearest support zone, or you could exit trade when the signal line crosses above the zero level.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Chartmill Value Indicator Sell Setup
Chartmill Value Indicator Sell Setup

Chartmill Value Pros & Cons

Pros

  • The Chartmill Value Indicator signals when there are overbought and oversold situations in the market so that the trader could act accordingly.
  • This indicator quickly adapts to new realities in price formation and attempts to signal extremes in price formation.

Cons

  • The Chartmill Value Indicator could have a stickiness issue, which is the tendency to stay to the minimum or maximum of their interval during strong trends in order to fit trends of varying lengths within the same tight range.
  • The need for parameters makes the indicator exposed to a great deal of subjectivity in its use and interpretation.

Conclusion

The Chartmill Value indicator is worth adding to your trading arsenal, but keep your expectations in check. It, like any other technical analysis tool, is not capable of generating 100% correct indications. As a result, this forex indicator occasionally generates erroneous signals. Its performance will be highly variable depending on market conditions. You are free to create your own trading method based on it.