Make trend your friend and always trade with the trend!
Any trend in any timeframe represents a trading opportunity in that timeframe. The most difficult part is identifying a trend - especially in multiple timeframes.
Trend indicators are the most basic and widely used indicators for; Validating existing trends, Identifying upcoming trends and Generating trading signals.
The direction of trend is best described by;
Uptrend: each successive high is higher than the previous high.
Downtrend: each successive low is lower than the previous low.
Trend indicators can be broadly categorized as;
1. The Directional Movement Indicator System (DMI)
2. Moving Averages (MA’s)
a) Simple moving averages (SMA)
b) Exponential moving averages (EMA)
c) Weighted moving averages (WMA)
The periods over which the moving averages are calculated are important as they must relate to the chart and trading timeframe. Traders must experiment to find what bests suits their trading rules and system.
The two basic principles of using moving averages for trend identification are:
1. In an uptrend, prices are above the moving average,
2. In a downtrend, prices are below the moving average.
Again, charts for different timeframes will show different moving average values (and trends). For example: a daily chart may show a strong uptrend, whilst a shorter timeframe may show a downtrend or a ranging market. The trend on the trading chart timeframe is the important factor.
The cross-over points of two different moving averages can be a valuable trading tool. For example: combine a ten-period (fast) and a 20-period (slow) moving average on a chart. In theory, when the fast moving average crosses up through the slow one, it is a buy signal; conversely, when the fast crosses down through the slow it is a sell signal.
The predictive window (and usefulness) of moving averages is directly related to their timeframe; very short timeframes have a very short predictive value. As always, only use any indicator in conjunction with others and always use the price as the final guide. No indicator is perfect or 100% reliable – especially with short timeframes.
|Trend Indicators||Useful in Forex?|
|DiNapoli MACD Predictor||Yes|
|Directional Movement ADX||Yes|
|Linear Regression Slope||Yes|
|Moving Average Exponential||Yes|
|Moving Average Modified||Yes|
|Moving Average Simple||Yes|
|Moving Average Triangular||No|
|Moving Average Weighted||Yes|
|Polarised Fractal Efficiency||No|
|Raff Regression Channel||No|
|RCI (Rank Correlation Index)||No|
|Standard Deviation Channel||No|
|Standard Error Bands||No|
|Standard Error Channel||No|
|Time Series Forecast||Yes|
|Vertical Horizontal Filter||No|
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