Are you the type of trader that is always struggling to identify the direction of the trend?
This will help you! 5 trend Indicators, starting with:
1. Line Chart
For example, if you look at the first picture, that is a normal, typical candlestick chart. And for those of you who are seasoned professionals, you might probably guess already, the trend is towards the upside. But for the newer traders who are struggling, a great tool to use is a line chart which will help you to visualize it better. On the second picture, you can see a line chart. And because you’re only focusing on the lines, the trend now becomes more apparent. So, if you’re often, struggling to identify the direction of the trend, try changing it to a line chart, and it might help you see better.
2. Price Action
How can you use price action to identify the direction of the trend? It’s quite simple. What you’re trying to do is to locate the swing-high and swing-lows in a market, because you know, in an uptrend, it consists of higher highs and higher lows. So in this example, in the first picture, you can see that you have a series of higher lows. And this tells you that the general trend is toward the upside. And vice versa, on the second picture you can see a series of lower highs and in this case, a series of lower highs tells you that the trend is towards the downside.
3. Moving Average
The moving average is a simple indicator that pretty much sums up the historical price on the charts. So for example, a 200-period moving average takes the closing price over the last 200 candles, and plop it as a line on your chart. You can see that on the first picture. And in this case, this black line is the 200-period moving average. Moving average is a very simple technique that you can use. If the price is above the 200-period moving average, then the long term trend is up. So this means, you don’t have to note the swing-high and swing-lows into account in a market.
And on top of it, it can also help you define different types of trends. The 200-period moving average can help you define the long term trend, and as well the 50-period moving average. So the 50-period moving average can help you define the medium-term trend. And If you want to define a shorter-term trend you can use the 20-period moving average, and the concept is the same. If the price is above the 20-period moving average, then the short term trend is up. So the concept is the same, it’s just the number of moving average that you are using to define the different types of trade.
4. Trend Line
The trend line is something like support and resistance, but the only difference is that a trend line is diagonal. It’s pointing towards a direction. So you can see that a trend line on this picture tells you the direction of the trend as well because if the trend line is pointing higher, it’s slanting upwards, it tells you that the trend is towards the upside. And also, just like the moving average, the steepness of the trend, the angle of it, tells you the strength of a trend. If you see a trend, that is very steep, almost parabolic, and it’s telling you that the trend is really strong. the trend line is another way that can help you identify the direction of the trend, and gauge the strength of it.
5. Trend Channel
Another variation of a trend line is what we call a trend channel. A trend channel is like a trend line. The only difference is, as you can see on the picture that you have this upward boundary. So if you remove this upward boundary, this is just a typical trend line that you see. But now with this upward boundary, it gives you a cap, to tell you where the price, where the market may potentially find resistance.
And one extra tip is If you’re trading trend line it is very useful to draw the area because often people think that you know the moment price breaks the trend line, it means the reversal is about to come. That is not true because a trend line is an area on your chart even though it’s called trend line it should be called trend area. So, you can draw another parallel line under the bottom line of your channel. Just because the price breaks the trend line, that doesn’t mean the trend is about to reverse. The trend is an area more often than not. You would see that the area would hold up the price and reverse back into its original direction.