As Alan Hull himself explains: the Hull Moving Average solves the age old dilemma of making a moving average more responsive to current price activity while maintaining curve smoothness. In fact the HMA almost eliminates lag altogether and manages to improve smoothing at the same time. The smoothed curve can be used for example to signal broad changes in direction. The smoothing function takes the most recent half of the period average and adds the difference between it and the full period average. The resultant totals are then again smoothed with a period equal to the square root of the input smoothing period value. Exponential smoothing is used instead of arithmetic averaging to get the tightest possible fit.
As you can see in the above chart, there are three curves, the original (grey) VAMI return curve for a hypothetical investment, the traditional (green) smoothed of a smoothed line for a period of 20 data points, and the corresponding HMA (pink) smoothed line for the same 20 point period. Changing the smoothing period in the box results in an immediate shift of the curves responding to the new period length. As advertised, the pink HMA line is smooth but tracks the underlying curve fairly closely.
The SmartPortTools Financial Tools add-in provides the datapoints to plot the smoothed curve in a single column using the Excel array functionality.
SmartPortTools Financial tools add-In for MS Excel 2007+ HMA calculator