Skip to content

Trend Trading: The 4 Most Common Indicators

These patterns can occur at virtually any timescale. The line represents the average price over a period of time. Trends, Channels, Supports and Resistance In renko charts, price movements are reduced to a few simple patterns and that makes them effective We use a range of cookies to give you the best possible browsing experience. With most ranges, the pattern is not obvious on first sight. These are sometimes a result of program trades when automated systems enter on the first response to a data release. To contact Tyler, email tyell fxcm.

Technical indicators can help a trader profitably navigate through a period of range-bound trading, i.e., a period in which a stock oscillates between an upper resistance level and a lower support level.

Almost sold out! Get your ticket to the All Markets Summit on Sept 20 in NYC.

But certain indicators have stood the test of time and remain popular among trend traders. In this article, we provide general guidelines and prospective strategies for each of the four common indicators.

Use these or tweak them to create your own personal strategy. Moving averages "smooth" price data by creating a single flowing line. The line represents the average price over a period of time. Which moving average the trader decides to use is determined by the time frame in which he or she trades. For investors and long-term trend followers, the day, day and day simple moving average are popular choices. There are several ways to utilize the moving average. The first is to look at the angle of the moving average.

If it is mostly moving horizontally for an extended amount of time, then the price isn't trending , it is ranging. If the moving average line is angled up, an uptrend is underway. Moving averages don't predict though; they simply show what the price is doing, on average, over a period of time. Crossovers are another way to utilize moving averages.

By plotting a day and day moving average on your chart, a buy signal occurs when the day crosses above the day. A sell signal occurs when the day drops below the day. The time frames can be altered to suit your individual trading time frame. When the price crosses above a moving average, it can also be used as a buy signal, and when the price crosses below a moving average, it can be used as a sell signal. Since price is more volatile than the moving average, this method is prone to more false signals , as the chart above shows.

Moving averages can also provide support or resistance to the price. The chart below shows a day moving average acting as support i. It is both a trend-following and momentum indicator. Above zero for a sustained period of time, and the trend is likely up; below zero for a sustained period of time, and the trend is likely down.

Potential buy signals occur when the MACD moves above zero, and potential sell signals when it crosses below zero. The ATR is calculated by comparing three values — the current high minus the current low price, the current high minus the previous closing candlestick price, and the current low minus the previous closing candlestick price.

It appears as a single line, in a separate window below the main chart area, and shows the range of values on the right-hand side — if you just move your cursor to any point on the line, it should show you the ATR value for that point in time.

So what can you do with this thing anyway? It gives a solid indication of what the average trading range currently is for the hourly, daily, 30 minute or whatever time frame you choose. Secondly, it provides an indication of whether the average trading range is narrowing or increasing. Very narrow trading ranges over an extended period of time often proceed strong, extended moves in one direction or the other, up or down. At both those points the ATR indicator is about mid-way between the two values shown on the right-hand side of the ATR window — 9 and 37 — so the ATR at each of those points is approximately So you put a take profit target in somewhere around 1.

Also read How currency pairs work in Forex. Okay, now where do you put your stop? Well, many traders would place it at or just below the low of that blue candle that they entered the trade on. Initially, the market moves up a bit, but then it just sort of stalls out for several hours. Then it gets interesting…but not really in a good way.

Working with Ranges

Most technical indicators fall into one of two categories: trend-following or range-based. Trend-following indicators, as the name indicates, are designed to take advantage of trends in the market or an individual stock. Range trading is one of many viable trading strategies available to Forex traders. These strategies are generally associated with lack of market direction and can be a handy tool to have in the absence of a trend. We look at what range trading is, and how traders can utilize this strategy. Technical indicators are some of the most important quantitative tools used by active traders. Trading Indicators Choosing the Right Type of Technical Indicators. Aaron Levitt Aug 08,