Understanding Henderson's Filter: A Key Trend Indicator for MetaTrader 5

What’s the Deal with Henderson Trend Filters?

Henderson Filters are popular tools among traders for identifying trends, but they have a fascinating background. Developed by Robert Henderson way back in 1916, these filters were originally intended for actuarial work and are also part of the X-11 family of seasonal adjustment tools, like X-12-ARIMA.

So, why should you consider using them? The Henderson Filters work wonders in smoothing out economic time series. They help maintain the natural cycles typical of trends while filtering out those pesky short-term fluctuations—specifically, variations that last six months or less.

What sets these filters apart is their ability to follow a local cubic polynomial without any distortion. By minimizing the sum of squares of the third difference in a moving average series, the Henderson Filters ensure that when applied to third-degree polynomials, the smoothed output aligns perfectly with these curves.

It’s worth noting that the filter weights used in the middle of a time series are symmetric, which is great. However, at the beginning and end of the series, the weights become asymmetric due to the standard end-point problem. This happens because there’s not enough data on either side of those points to create symmetric weights. But don’t worry; you can mitigate this issue by generating separate forecasts and applying symmetric weights using methods like ARIMA.

If you want to dive deeper into the technical aspects of Henderson's Filters, you can check out more information here.