Defining Trend Indicators

Trend indicators are technical analysis tools that use price action to identify price patterns and the direction of the price trend (trend continuation or reversal)...

What are Trend Indicators? Trend indicators are technical analysis tools that use price action to recognize price patterns and identify the true direction of the trend.

Trending/Ranging Financial Markets

(i) Trending Market: When the price of a Financial Asset or Market follows a particular trend during a long time period

(ii) Ranging Market: When the price of an asset or a market moves up or down without following a particular long-term trend (Trading within a range formed by an upper and a lower band)

Trend Indicators are Reliable only in Trending Markets

□ If a financial market is trending, the trend indicators can provide considerably reliable trading signals

□ If a financial market is ranging, trend indicators may mislead traders (In the case of a ranging market, traders should better use momentum indicators which are able to identify short-term price movements within the range)

Table: Trend Indicators at ExpertSignal.com

  UTILITY SETTINGS MORE
□ Standard Deviation (SD)
  • Measuring Volatility
  • Confirming Price Reversals
  • 20/21 Periods
► Standard Deviation
□ Moving Averages (MAs)
  • Evaluating Trends
  • Spotting Reversals (MA Crossovers)
  • 30-period
  • 50-period
  • 200-period
► Moving Averages
□ Parabolic SAR
  • Identifying Trends/Reversals
  • Catching a trend reversal and following it using a trailing stop
  • 2% acceleration factor
  • 20% maximum step
► Parabolic SAR

□ Bollinger Bands (BB)

  • Measuring Volatility
  • Identifying Reversals
  • Entry/Exit Triggers
  • 20 Periods SMA
  • 2 SDs
► Bollinger Bands
□ Ichimoku Kinko Hyo
  • Evaluating Trends
  • Overbought/Oversold
  • Spot Trends/Reversals
  • Tenkan-Sen (9)
  • Kijun-Sen (26)
  • Senkou Span (52)
► Ichimoku
□ Fibonacci Sequence
  • Calculating Support & Resistance Levels
  • 0.618 level
  • 0.382 level
  • 0.236 level
► Fibonacci Trading

Moving Averages

(MAs)

Usage: Evaluating Trends / Forecasting Trend Reversals

◙ Trading: Spotting reversals at Moving Average Crossovers

Combining: RSI, ADX, and other indicators

◙ Standard Settings: 10-period, 21-period, 30-period, 50-period, 200-period MAs

 

Introduction to Moving Averages

Moving Averages or else MAs constitute the most common tool of technical analysis. They are used to identify current trends and to forecast potential price reversals. The great advantage of an MA is its ability to eliminate the impact of ‘Market Noise’. The 'Market Noise' usually leads traders to false assumptions about the upcoming market conditions. If you compare the current price of a financial asset with the value of a moving average (for example a 50-day MA) you get in just a glance a clear picture regarding if that asset is trading in overbought or oversold levels.

Basic Features of Trading with Moving Averages

(1) The Moving Averages can eliminate the impact of Market Noise and produce smooth results

(2) An MA can analyze the trend of any financial market (Stocks, Forex, Indices, Bonds, Commodities) in any timeframe (intraday, daily, weekly, monthly)

(3) Can signal trades and confirm the results of other technical analysis tools (ADX, RSI etc)

(4) Moving averages can be sub-components of a technical analysis system, or to be used as components of an automated trading system (EA)

Trading with the Ichimoku Kinko Hyo

(一目均衡表)

Usage: Evaluating the Trend | Identifying Overbought/Oversold Levels

◙ Trading: Spot Strong Trends/Reversals

Standard Settings: Tenkan-Sen (9), Kijun-Sen (26), Senkou Span (52)

 

Introduction to Ichimoku Kinko Hyo

Many Forex professionals consider the Ichimoku Kinko Hyo as one of the best technical analysis tools to trade the Foreign Exchange Market. The Ichimoku Kinko Hyo was developed by the Japanese Goichi Hosoda back in late 1960. The indicator can be used in any financial market (Forex, stocks, etc).

What distinguishes the Ichimoku Kinko Hyo from other indicators is its ability to provide a complete and quick picture of the current market conditions via the Quick Equilibrium Chart. Ichimoku Kinko Hyo can also indentify strong trends and reversals at just a glance.

 What distinguishes the Ichimoku Kinko Hyo from other indicators is its ability to provide a complete and quick picture of the current market conditions via the Quick Equilibrium Chart

Fibonacci Numbers

Usage: Evaluating Trends/Reversals

◙ Trading: Calculating Support & Resistance Levels

◙ Standard Levels: 0.236 | 0.382 | 0.500 | 0.618 | 1.000 | 1.618 | 2.618 | 4.236

 

 Introduction to the Fibonacci Sequence

Leonardo Pisano or else Fibonacci was a famous Italian mathematician of the 12th century who introduced a revolutionary sequence of numbers that are called the Fibonacci numbers. The Fibonacci series of numbers is an infinite sequence of numbers with some unique characteristics. First of all, each number is the sum of the previous two numbers:

The General Rule is:

■ X(n) = X(n-1) + X(n-2)

0 | 1 | 1 | 2 | 3 | 5 | 8 | 13 | 21 | 34 | 55 | 89 | 144 | 233 etc

Where 3 = 2+1, 5=3+2, 8=5+3, 13=8+5, 21=13+8 etc

Chart: Using the Fibonacci Retracement to spot support and resistance levels

Bollinger Bands

(BB)

Usage: Measuring Volatility | Evaluating Oversold/Overbought Markets

◙ Trading: Identify Reversals (entry/exit triggers) in any Timeframe

Standard Settings: 20 Periods SMA and 2 Standard Deviations

 

 Introduction to Bollinger Bands

The indicator was created by the money manager and researcher John Bollinger.

Bollinger Bands are two (2) volatility bands that are placed above and below a moving average. The Bollinger Bands can be used to measure volatility but also to evaluate the strength of the trend.

When the distance between the two bands widens then the volatility increases

When the distance between the two bands is getting narrow then volatility decreases

Parabolic SAR

(Stop and Reverse system)

Usage: Evaluating Trends/Reversals

Trading: Catching a trend reversal and following it using a trailing stop

Standard Settings: 2% acceleration factor and 20% maximum step

 

Introduction to the Parabolic SAR

Parabolic SAR is an indicator that helps traders to identify where a trend might be ending. The indicator places dots on a chart that indicate potential price reversals.

-The Parabolic SAR is best used with trending markets (markets or assets that are moving in strong-trends)

-According to statistics, trending markets occur 30% of all times

-The Parabolic SAR will prove more effective if it is combined with another indicator

-It can be combined effectively with ADX