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We can use MetaStock to rate trends using the trendscore method . In MetaStock's formula builder, we use the ref function to refer to past data:

TrendScore =
if(c,>=,ref(c,-11),1,-1)+if(c,>=,ref(c,-
12),1,-1)+if(c,>=,ref(c,-13),1,-
1)+if(c,>=,ref(c,-14),1,-
1)+if(c,>=,ref(c,-15),1,-
1)+if(c,>=,ref(c,-16),1,-
1)+if(c,>=,ref(c,-17),1,-
1)+if(c,>=,ref(c,-18),1,-
1)+if(c,>=,ref(c,-19),1,-
1)+if(c,>=,ref(c,-20),1,-1)

Figure 1 shows the trendscore for General Electric (GE) common stock for 1987. Note how the score vacillated during the sideways period from April to June. GE's trendscore remained close to or at +10 from early June through mid-August, falling off close to the top. It rallied to +10 briefly in late September and early October. However, it quickly settled to -10 well before the October 1987 crash. In more recent price action, GE'S score moved quickly but smoothly to catch the major trends (Figure 2). The score was at +10 during each upward trend. The brief corrections were enough to send the score down to -10 for short periods. Intel (INTC) had a big upward move in 1992-93 before entering a broad sideways period (Figure 3). The trendscore was pinned to +10 during major portions of the upward move, and it was quick to change directions during sideways periods. You can get a closer look at the trading range action in Figure 4. The trendscore came off its +10 reading in late January 1993 and rallied back up to +10 in February through March. However, it settled down in the -10 area on March 22. The -10 reading of April 15 caught the break through 110 to the 90 area.

We would expect a loss in momentum as Intel enters the sideways range. You can verify this in Figure 5, which displays the moving average convergence/divergence indicator (MACD). The MACD peaked in early January and trended lower through April. Other long-range momentum indicators would confirm this drop in momentum.

Figure 6 shows the 28-day vertical/horizontal filter. This trend indicator displays similar behavior in early January, coming off its highs at almost the same time as the trendscore. VHF formed a double bottom between February and early April and has trended higher since. The trendscore flattened out at -10 somewhat before the VHF. Note how the VHF indicates neither the sign nor the direction of the trend, while the trendscore indicates both the trend direction and trend strength (+ 10 or -10).

A MATTER OF STYLE

You could trade the trendscore many ways. You could use the zero crossing as an early signal. You would then buy when the trendscore becomes positive and sell when it becomes negative. Or you could wait one to three days after the trendscore reaches +10 or -10 before buying (+ 10) or selling (-10) . Or you could combine the trendscore with a moving average, trading an upward or downward cross over. Another variation would be to go long after the trendscore crosses from -10 to above +5 and go short after the trendscore falls from +10 to below 5. The approach you choose depends on your trading style. You could also smooth the trendscore with more or fewer days than I used in my calculations. You could, for example, use fewer than 10 days for short-term and 20 to 30 days for intermediate-term trading. You could also combine trendscore with other indicators of trend strength. For example, if you combined it with the VHF indicator, trendscore would provide an indication of direction, while the VHF could provide additional information about the trend's strength.

You could also substitute intraday data in the trendscore method for short-term trading, using hourly data to calculate a trend's score instead of daily data.

Trendscore is a simple way to rate trend strength. It indicates both the direction and strength of the trend and can be easily combined with various trend-following strategies.

FIGURE 1: TRENDSCORE, GE, 1987. Figure 1 shows the trendscore for General Electric (GE) common stock for 1987. Note how the score vacillated during the sideways period from April to June. GE's trendscore remained close to or at +10 from early June through mid-August, falling off close to the top. It rallied to +10 briefly, in late September and early October. However, it quickly settled to -10 well before the October 1987 crash.

FIGURE 2: TRENDSCORE, GE, 1992-93. In more recent price action, GE's score moved quickly but smoothly to catch the major trends. The score was at +10 during each upward trend. The brief corrections were enough to send the score down to -10 for short periods.

FIGURE 3: TRENDSCORE, INTC, 1992-93. Intel had a big upward move in 1992-93 before entering a broad sideways period. The trendscore was pinned to +10 during major portions of the upward move, and it was quick to change directions during sideways periods.

FIGURE 4: TRENDSCORE, INTC, EARLY 1993. You can get a closer look at the trading range action. The trendscore came off its +10 reading in late January 1993 and rallied back up to + 10 in February through March. However, it settled down in the -10 area on March 22. The -10 reading of April 15 caught the break through 110 to the 90 area.

FIGURE 5: INTC, WITH MACD, EARLY 1993. We would expect a loss in momentum as Intel enters the sideways range. You can verify this here, where the moving average convergence/divergence indicator(Macd) is displayed. The MACD peaked in early January and trended lower through April. Other long-range momentum indicators would confirm this drop in momentum.

FIGURE 6: VHF WITH 28-DAY FILTER, EARLY 1993. Figure 6 shows the 28-day vertical/horizontal filter. This trend indicator displays similar behavior in early January coming off its highs at almost the same time as the trendscore. VHF formed a double bottom between February and early April and has trended higher since. The trendscore flattened out at -10 somewhat before the VHF. Note how the VHF indicates neither the sign nor the direction of the trend, while the trendscore indicates both the trend direction and trend strength (+10 or -10).