we add a 3rd (longer length, slower) Moving Average line that acts as a trend filter - so whenever we are ("we" = the price and the 2 other MAs) are above that filter line, we consider ourselves to be in the up-trend territory, and vica versa .. so the calculation here - that is represented by the main (reg/green) line in the plot - will represent the distance between the slow MA and the filter MA - when that line crosses the zero axis up or down, that represents the trand reversing from one direction to the other.
A signal line (a smoothed version of that line) is still added for 2 reasons
1 - the signal line makes it easy to see if an eminent trend reversal is to be expected
2 - to stay visually-consistent with the classic :)
the distance (or delta) between the other 2 MAs continues to reflect an indication of the short-term momentum and is what the histogram represents.
we still have the benefit of the convergence/diversion between the price itself and the histogram similar to the classic
this version will also clearly show how price and momentum action will lead the trend -- i know that's a big discussion topic :)
i added a classic at the bottom panel, and used the same length settings (fast / slow) for side-by-side comparison
i coded this when i found that i use 3 moving averages all the time during my chart analysis, and while i'm a big fan of the classic , i wanted to find a simple way to get my to reflect what the 3 MAs on the price chart show. turned out to be insightful - i hope other fellow traders may find this useful
the code is simple and i started it from the built-in in TradingView. Other annotations are added to the chart here as i believe this will better explain how the eXtended works
- there are 4 reversals that occur in that chart, and i chose to show one in step-by-step fashion.
if more explanation is needed to how this can be used, pls let me know in the comments.
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.