March 23, 2010
Forex Trends - 10 Indicators You Can Use To Help Identify New Trends
The Supertrend indicator is one of the best indicators you can use to spot new forex trends in my opinion. It is very easy to use because a green line indicates a bullish trend and a red line indicates a bearish trend, so all you need to do is wait for it to change colour. It's not so effective on the shorter time frames, but on the longer time frames it works a treat, which is why it's one of the main components of my 4 hour trading system.
2. Smoothed Repulse
This is another indicator that I like to use on the 4 hour charts. When the EMAs cross upwards at the same time as the Smoothed Repulse indicator moves above 0, you know you've found a high probability set-up (and vice versa for a short position).
3. TEMA (Triple Exponential Moving Average)
This is an indicator that I use a lot on the short-term charts. Basically a rising TEMA indicates a bullish trend and a falling TEMA obviously indicates a bearish trend. So if you use different colours such as blue and red, like I do, you can quickly and easily spot new trends.
4. Parabolic SAR
The Parabolic SAR indicator is displayed through a series of dots which closely track the price action. These dots are below the price when the price is rising and above the price when it's falling. As soon as the current trend is over the price will hit one of these dots and trigger a new trend in the opposite direction.
5. Heikin Ashi
Strictly speaking Heikin Ashi isn't really a technical indicator, it's just an alternative way to display the price data. However it's very useful because if the price is falling this will be displayed by a series of red candles and if it's rising you will see a series of green candles. So quite simply, a change in trend will be indicated by the Heikin Ashi candles changing colour.
6. Bollinger Bands
Bollinger Bands are best used for spotting breakouts in my opinion, but you can also use them to spot new trends. Basically you want to keep an eye on the middle line, ie the line in the middle of the two outer bands, because if the price heads above this line you have a new upward trend, and vice versa if the price falls below this line.
The MACD indicator is one of the most common indicators and it's another good way to spot changes in trend. You can either trade divergence patterns or trade the MACD crossovers. Alternatively you can simply wait for the MACD to cross above 0 (to indicate a bullish trend) or below 0 (to indicate a bearish trend) - you can make some huge profits trading long-term markets using this simple method.
The TRIX indicator can be used to spot new trends in much the same way as the MACD indicator. You can trade short-term trends when you get a crossover on this indicator, but long-term trends are based on whether this indicator is above or below 0, so it's worth watching to see when this key level is breached because it may signal the start of a new trend.
The RSI is often used to show when the market is overbought or oversold but you can use it to spot new trends as well. The key is to draw a line at the 50 level because a move above 50 often confirms a new upward trend, and conversely a fall below 50 often confirms a new downward trend.
This indicator can be used to spot new trends in much the same way as the RSI. Look for the price to move above or below the 50 level.