In technical analysis, the primary purpose of a trend indicator is to objectively identify the direction of a trend by smoothing out the volatile nature of the price action. There are a whole range of different trend indicators that can be used for technical analysis but these indicators tend to be lagging indicators as they are usually based on past price action. Hence they follow price action rather than lead it. Some trend indicators, such as the MACD, also measure the strength of the trend.
By far the most used trend indicator is the moving average (MA). Other popular trend indicators include: Average Directional Index (ADX) of the Directional Movement Index (DMI), Parabolic SAR, Price Oscillator, Zig Zag, and trend lines. These indicators are widely used to develop trend following trade systems, and to augment chart pattern and spread volume analysis.
As a rule of thumb, lengthening the period for a non-oscillating trend indicator will give a clearer indication for the trend. However, for an oscillator a shorter period is preferred as a shorter period oscillator will be more sensitive to price changes and will signal turning points quicker.
Average Directional Index
The Average Directional Index (ADX) is a lagging trend indicator designed by J Welles Wilder and indicates the strength of a trend. In other words, when a stock is moving strongly in an up swing or down swing, or whether it's moving in a trading range. ADX is part of an indicator system called Wilder's DMI, which consists of three lines: the +DI line, the -DI line and ADX line but it can also be used on its own to help determine key turning points in the market.
The ADX indicates the strength of the current trend rather than the direction of the trend and ...
The Moving Average Convergence/Divergence (MACD) is an indicator that was developed by Gerald Appel in the 1970s. The difference between two exponential moving averages (EMAs) is used to calculate the MACD and then a signal line, which is an EMA of the MACD is drawn.
The MACD is both a trend indicator as it uses trend indicating EMAs and a momentum indicator. However, the MACD and its EMA can be plotted as two lines that fluctuates above and below a zero line, or as a MACD histogram indicating the distance between the two EMAs. The ...
The Trend is your friend 'till it ends...