Forex trend indicators

Forex Trend Indicators


The direction and intensity of the price movements are measured by the trend indicators. As the name literally explains, the trend indicators are used to analyze the market, particularly the sensitive Forex market, to avoid the chances of false decisions regarding the entry and exit positions.


Trend following has been established as the popular methods of technical analysis over many years, and it has benefited many Forex traders in earning good profits.


The trend following is basically an identification of recurring trends and take decisions regarding the entry and exit positions based on the trends with or without combining it with other technical information. The traders try to identify a trend matching to the prevailing price movement and maintain their position to ride the trend until the exit point is reached.


The major events and economic changes can have a very long effect on the price movement, and once the traders successfully identify and make the decisions in harmony with economic growth; they can gain profit from economic growth. Even though when the traders have no idea as to what is causing the powerful drive, they might still get the benefit by simply adhering to the trends as the economic events most often reinforce each other causing long-term price movement.


It is very important to consider the factors that are sustaining the price movements besides identifying the trends. When the traders are unwilling, or find it difficult, to analyze the fundamental growth Sustainers, they can still use the indicators shown by technical analysis to enter the positions during the initial or intermediate stages of the trend.


However, the traders should be very cautious when maintaining their position at the final stages because there might be greater fluctuations during the final stages of the cycle. As a precaution, the final stage entry positions should be avoided unless the traders are confident about their decision.

Now we will see various indicators that are used to match prevailing price movements and explain these trends.

Moving Average

The simplest and common trend-following indicator is the moving average. The simple moving average gives equal significance to all periods, while the exponential moving average gives greater importance to the most-recent price movements. Therefore, the exponential moving average is more susceptible to recent price movements.

Moving Average

The strength of moving average lies in its simplicity. In most of the cases, hundred day average movement can effectively serve as a valuable trend indicator. However, the delayed indication can be considered as the basic drawback of the moving averages. But this slow response in indication is compensated by providing more reliable trends.

Moving Average

Even though moving averages don’t provide quick trends, they can be the quiet and reliable indicator in deciding the entry and exit positions in the most challenging situations. It can be very safe for beginners maintain their position based on the moving averages direction.

Bollinger Bands

The Bollinger Bands are known after the name of financial analyst John Bollinger, who introduced the concept during the 1980s. The techniques use the moving average along with the two bands indicating the upper and lower ranges of the moving averages.

Bollinger Bands

When the price movements fluctuate beyond the Bollinger bands in any direction, returning and then reversing again to break out, it provides ideal situations for making decisions regarding entry or exit positions. The fluctuations beyond Bollinger bands indicate high volatility and even shift in the trends, but the experienced technical analysts confirm any such breakout by the movements showing a return and then a reversal.

Bollinger Bands

Besides providing a sign of trend changes, Bollinger bands clearly reflect the volatility of the price movements. The bands considerably expand as the price movement volatility becomes high and remains low when volatility is low.

Bollinger Bands

The traders can use the band to access their positions and decide whether they can tolerate the instability of price movements at the prevailing market conditions. You can successfully use the Bollinger bands to evaluate the stability of the market if your leverage ratio or trading style doesn’t allow you to trade during highly unstable conditions.

ADX

The ADX was used as an indicator in 1978 by J. Welles Wilder, who happened to be a trader and mechanical engineer by profession. The high and low values of successive periods are measured using the terms +DM and –DM, and the difference between the two values are used as the ADX indicator.

ADX

The strength of the trends is measured using ADX indicator. The ADX value range between 0 - 100 scale and trends showing a value of more than 40 is considered as relatively strong while a value of less than 20 shows weak trends. The traders can use this indicator to decide whether they want to enter or exit positions according to the strength of the trends.

ADXIn fact, ADX function as the lagging indicator implying that it can be used to measure the strength of the trends once they have already set in. Without the prevailing trends, the ADX indicators are known to give false measures, and therefore, the traders use other indicators such as moving averages to detect the undergoing trends and then only use this indicator to measure the strength of the trend.

Economy & Finance

Forex trend indicators