MAST indicator

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MAST Indicator

Moving average is a basic and popular indicator. Let us do a case study
with a simple 5-period moving average. Have a look at the example below.
This a simple average of 5 prices.

When the next price is printed, we drop the first price and the average is
calculated for last 5 prices that includes the newly printed price. Hence,
this is known as a moving average.


In the above example, a new price is printed at 25. We drop the first price
that is 10 and calculate the average of last 5 prices. The average of the
last five prices is at 18 now.
Have a look at the next example below. The price remains at 25 but the
moving average rises.
Why?


Because the first price was dropped from the calculation and the last five
or the most recent 5 prices are taken for calculation. The second price
which is 10 was dropped, and the last or new price of 25 added. This is
known as a drop-off impact and applicable to all indicators.
You may wonder how different is moving average from super trend.
Moving average plots average of price while the supertrend is volatility
based average line. A 10-day moving average represents average price of
last 10 bars. A 10,3 supertrend line would show value based on average
volatility of last 10 bars.
Did you ever wonder what would it show, if we plot both on the charts?

If
Price above moving average: Bullish


Price above super trend = Bullish

When the price is trading below moving average, but above the super
trend, it is highly likely that the super trend will be flat in that scenario.
Because there is a correction in the short-term as indicated by the price
dropping below moving average and with rising volatility against the trend
which is reflected by the flat trend in the Supertrend.

During strong trends, price tend to stay afloat above or below the super
trend line.


Let’s amalgamate the moving average indicator with supertrend to
develop a new indicator called the MAST. MA-for moving average and ST
for Supertrend.
We combine both these indicators and plot them together on the chart.
Default parameters are 10 for Moving average and 10, 3 for Super trend.
Both the indicators plotted together creates a band.

Band is coloured green when price is above super trend and turns red
when price is below super trend. When the price is within the green band,
it means price is below the moving average but above the super trend.
When price is within the red band, it means it is trading above the moving
average but below super trend.
From a trading perspective, here is what you can do with the MAST

indicator:
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When the price is above the MAST band, look for bullish continuation price
patterns

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When the price is within the green band, look for bullish reversal patterns

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When the price is below the band, look for bearish continuation patterns


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When the price is within the red band, then look for bearish reversal
patterns

Study both the indicators and you will discover many possibilities from a trading
perspective. Remember, objective price patterns can help you plan and execute
the trades in conjunction with the MAST indicator.
MAST Indicator can be plotted on all charts and above rules are applicable to all
types charts.


Because of the unique basis of plotting Renko charts (diagonal plotting), I think
MAST indicator is a potent force in Renko charts.
As explained earlier, combine objective patterns of each charting method with

this indicator.
Trade continuation patterns when above bands, reversal patterns when within
bands. Trade next continuation pattern when MAST indicator cloud becomes
narrow.
When does the difference between MAST bands becomes narrow? What does it
mean? - this you have to think. I have explained the logic of these indicators.
Spend time on understanding behaviour of indicator. You may get ideas from
that. Trading comes later. Purpose of my posts is to promote logical
understanding of indicators and make you think beyond buy-sell nature of
indicators.