Chart-Formations.com

Trend Indicators

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 trendlines. 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

ADX Indicator

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. It accomplishes this by oscillating between 0 and 100, with values above 25 generally indicating a strong, sustainable trend and values below 20 indicating a weak trend or a flat trading range ...

Wealth Warning

Trading equities, options, derivatives, currencies and cryptocurrencies, commodities or any other financial security can offer significant returns BUT it can also result in significant losses if the market moves against your position. It requires a strong commitment to skill development, knowledge acquisition, and emotional control. It should be treated as a business with a clear business plan, proper risk analysis, and a defined set of attainable goals. The risk associated with trading the vagaries of the stock markets is probably the most important consideration as it has a profound effect on a trader's emotional control. You should not trade the stock markets with money you cannot afford to lose as there is considerable exposure to risk in any stock market transaction.

Furthermore, the past success of any trading method, strategy, or system is only indicative of future success. Under no circumstances should past success be misconstrued as a guarantee of future success!

Unless otherwise specified, the trading systems and strategies discussed on this website are intended for educational purposes only and are not meant to recommend or promote any trading system or strategy. You are expected to do your own research and testing to determine the validity of a trading method, system, or strategy on the market and instrument you wish to trade.