Trend Indicators

Trend Indicators

Trend Indicators

There is no such a thing as a 100% sure way to predict a trade’s outcome. Nevertheless, there are always some elements that can help you make a better decision. A collection of mathematically derived technical analysis tools is used to summarize the past and current direction of price movements, and these tools are called trend indicators. This is something every trader should be aware of, so we advise you to read our article and improve your chances of correctly predicting the market’s movement!

Trend Indicators | Moving Average Trend Indicators

Trend indicators are statistical parameters used to predict price patterns or changes in stock trends of any asset on the market. They are usually presented by lines or dots and are projected on a chart and updated as new prices appear.

The most important trend indicator is probably the Moving Average. Moving average creates a single flowing line that represents the average price over a period of time. The moving average a trader uses is determined by the time frame on which he or she trades. You can use it in several ways. You can look at the angle of the moving average – if it’s moving horizontally, the price is ranging, and if it’s angled up, it’s probably an uptrend. Keep in mind, though, that moving averages don’t predict: they only show what the price is doing on average over a certain period of time.

Trend Indicators | Ichimoku Cloud

Another of the important trend indicators is the Ichimoku Cloud. It is a chart used for technical analysis that shows support, resistance, momentum and trend indicators for an asset. It is designed to provide relevant information using the tenkan-sen and kijun-sen moving averages. The “clouds” are formed between these two averages. Tenkan-sen line is the mid-point between the highest high and lowest low of a particular security calculated over the past nine periods. Kijun-sen differs in the quantity of time periods used in the calculation (26 periods to provide the long-term prediction, which is similar to Oscillators). These help you identify the trend of current price in relation to past price action. To put it differently, the cloud helps you to place stops and recognize when a trend is bullish or bearish, so that you can react accordingly. In a bullish trend, the tenkan-sen line is always above kijun-sen line and the cloud is green, signaling e need to trade call options. If the trend is bearish, any spike is the opportunity to trade put options.

Trend Indicators | Conclusion

As already said, trend indicators can be really helpful. Although they can’t guarantee a safe trade because there are no such things as guarantees when it comes to trading, they can help you decide on potential price direction for an asset. There are many different types of indicators available, and most traders will combine different ones in order to find instances where unrelated indicators show the same signals. If so, you will have bigger chances of forecasting future price movements. Trend indicators are among the most important tools in this process.

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FURTHER READING:

1. The Ultimate Trading Guide (J. Hill, G. Pruitt, L. Hill, 2010)
2. Liar’s Poker (M. Lewis, 2010)
3. The Essays Of Warren Buffett: Lessons For Corporate America (W. E. Buffett, L. A. Cunningham, 1997)
4. Patterns of Investment Strategy and Behavior Among Individual Investors (Wilbur G. Lewellen, Ronald C. Lease and Gary G. Schlarbaum-1977)
5. Trading By The Minute (J. Ross, 1994)

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Author: Ben Prescott
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