Trading indicators have long been useful tools for traders. This article outlines seven well-known indicators that aid in defining the direction of trend and identify the best signals for entry.
1. The Moving Average
Moving Average displays the fluctuations in the price of assets over a specific time. It is one of the most simple and straightforward indicators of trend, and is often employed in conjunction with more complex indicators. There are many methods for Calculating Moving Averages: Simple Expanential, Smoothed, and Weighted.
An automatic Moving Average drawing is displayed onto the chart in an colored line (the width and color are adjustable). The moderate growth of Moving Average Moving Average indicates an uptrend while a decline is a sign to a downtrend. If an MA that has a lengthy duration (such like 200) crosses the price chart from below, it signifies that a downward trend is shifting to an uptrend If the crossing occurs top-down, it means that an uptrend is reversed and turning into an downtrend.
2. The Average Directional Movement Index (ADX)
It is the ADX trading indicator allows you know if the market is in a trend or flat. The indicator is based on two indicators that are simpler that are it is the Positive Directional Index (+DI) and the Negative Directional Index (-DI).
The indicator is shown in a separate window beneath the price chart. It is comprised of three colored line: ADX, +DI, and +DI. The start of a trend is shown through the ADX line that is moving upwards as it crosses the 2 Directional lines. If the increase in the ADX line is steady it means that this trend has remained stable and the two other lines represent what direction it is taking, either ascending or decending.
3. Ichimoku Kinko Hyo
Ichimoku Kinko is a well-known indicator of trends created by Japanese analyst Goichi Hosoda. His name is his pen name Sanjin Ichimoku. It is made up of five lines using different calculation techniques; two of them form an Ichimoku Cloud. Ichimoku is a trend indicator that indicates the direction and the potential that the present trend may have.
The indicator can be seen directly on the price chart The lines are used as levels of support and resistance, and provide signals for closing and opening markets. This indicator is usually suggested for weekly and daily timeframes. It is also useful for candlestick analysis. But, you can also configure the indicator for shorter timeframes, like H4 and H1.
4. Bollinger Bands
The trend indicator was developed in the hands of the American investor John Bollinger. This indicator was based on the Moving Average. It has 3 lines, the principal (central) one and the third one, the Moving Average and the two regular fluctuations that go up and down.
Bollinger Bands are displayed at the top of the price graph. The lower and upper lines make up an active price channel within which quotations fluctuate. It is possible to trade bounces off the lines of indicator or even exits from its borders. Bollinger Bands show the beginning of a new trend when the price breaks from a flat.
5. Alligator
Alligator is a very popular indicator of trend created and promoted by the famous market expert Bill Williams. Alligator is comprised of three MAs having different time periods. The name was given to it because the diverging MAs are a little similar to an alligator’s jaw open.
This indicator appears directly onto the graph of the price. After the price has consolidated within a narrow interval (flat) before it begins an upward trend then the Alligator expands its jaw and all three lines begin to move to the right direction, slowly diverging. If the jaw is opened upwards, it indicates that it is in an uptrend. Conversely, an open jaw points to a downtrend.
6. The Envelopes indicator
This indicator of trend contains two lines that are upwards and downwards movements from a typical MA which is used as the basis. This means that basing itself on a fixed MA ( that has a predetermined period and averaging technique) and the fluctuation (in percent) it creates two lines, which form an underlying price channel.
In this price channel, which is highly dynamic The lower line acts as the support line, and the higher line is the resistance. If the fluctuations are correctly set the price chart stays within the envelopes channel for the majority often. This allows the use of these borders as a reference point to determine the position.
7. The Parabolic Sar
Parabolic Sar is an extremely well-known indicator of trend created by the renowned US specialist J. Welles Wilder. Sar means the words Stop And Reverse, which means that the current position is closed and a fresh one is open with the reverse direction. The indicator displays how the trends are moving, and signifies the beginning of the correction or reversal.
The Parabolic Sar is displayed on the price chart in color dots. If the price chart is below the dots, this indicates a downward trend, whereas If the quotations are over the dots, then the trend is upwards. Most traders employ Parabolic dots to place Stop Losses. Once you open a trade in the direction of your trend line, you are able to move the SL through to the Parabolic dots till the trade has closed.
Thoughts for closing
This article has highlighted the most well-known trend indicators that traders use in Forex stocks, Forex, and commodities markets. It is possible to backtest these indicators and select the ones that best suit your style of trading better than other indicators.
I suggest indicator of trends to determine the direction of the trend as well as displaying local levels of support and resistance in the charts.