March 23, 2010

Forex Trends - 10 Indicators You Can Use To Help Identify New Trends

1. Supertrend

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.

7. MACD

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.

8. TRIX

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.

9. RSI

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.

10. Stochastics

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.

 

 

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11 Comments on Forex Trends - 10 Indicators You Can Use To Help Identify New Trends »

March 23, 2010

Brian Campbell @ 5:31 pm:

Thanks for this post.

I haven't seen a supertrend indicator before. It looks interesting, is that a proprietary indicator only available on a special forex charting software?

You mentioned some cool other indicators that I haven't used much. I'll be looking for them on my charts later today.

Aloha ~ Brian Campbell

March 24, 2010

Frank Page @ 5:46 am:

Hi James, I also use proreal charts so have access to the same indicators you use. However for now I have stopped using any indicators including moving averages. For me this was a big break thro as I long felt indicators only tell you what is clearly visible on the charts anyway!
For me a good way of checking the trend direction is a visual check of the daily charts. i.e. an uptrend will have higher highs and higher lows. A downtrend will have lower highs and lower lows, anything else and the trend is ranging. This works well for me.
The only time I use indicators now is occasionly to check for divergence signals.
These changes have brought a big improvement to my trading and my charts are no longer cluttered up!

TradingDiary @ 8:47 pm:

Hi, thanks for the list. Like Brian I'd like to know more about the supertrend indicator you are using. What charting software is it available on? Cheers.

March 25, 2010

Frank Page @ 5:12 am:

Dear James, Thanks for your articles which I always find interesting and "food for thought". However in my opinion I can't imagine RSI or Stochastics been of much use to predict a new trend. These indicators are oscillators and best used in range trading. They will quickly move to overbought or oversold on a relatively small movement in the price. Any thoughts welcome on this!
One indicator I would say is excellent at spotting new trends is ADX. When this indicator is say around 15 or less the trend is generally trading in a small range. When the indicator turns upwards it means the price is going into a trend (up or down). Above 20 is usually the onset of a trend. At 35 to 45 the trend is in full stride. From here you can expect to see the indicator turning down which indicates (momentuum exhaustion) either consolidation (pause) or a change in direction.
I personally have not used this in my trading as I now rely (after a personal intensive study) only on price action which I find suits my needs (no time lags and crystal clear signals!).
Good luck guys & girls with your trading!!

James Woolley @ 9:14 am:

The Supertrend is available via ProRealTime, and any of the spreadbetting firms that use their charting software such as IGIndex.

You can also download it to the MT4 platform. You can find some download links from this page:

http://theforexarticles.com/2009/07/23/supertrend-indicator-metatrader4-mt4-download-links/

Frank, the RSI is actually quite useful at determining new trends. Just take a look at the 5 minute chart of the GBP/USD from earlier today.

The pair was drifting sideways and then at 6.50 the price broke upwards at the same time as the RSI moved through the 50 level. The price then rose from 1.4891 to 1.4958.

Also, thanks for reminding me about the ADX indicator. You're absolutely right. I completely forgot about this indicator, even though I'm currently using it to great effect on one of my short-term trading methods.

Forex @ 10:49 am:

Hi,
Its a great informational post, I have used many indicators for trend analysis and assess the market inflows but you have mentioned some really interesting indicators other than generally used indicators.
I would like to hear more on those indicators like heikin ashi as i have gone through supertrend and assessed its trend framing outline.

March 26, 2010

FX @ 1:41 am:

I like using a combination of indicators. Like for example, a moving average applied on the RSI. Gives more stability to the analysis.

March 28, 2010

sandy sunday @ 9:27 am:

am gratefull we ve somebody like U who want others to learn
am MT4 platform trader pls ineed those indicators most of those which are not in my platform thanks

March 31, 2010

Adeel Sami @ 4:29 am:

Thanks for writing this helpful article for the beginners just like me. Since I'm new to this Forex market, reading such good stuffs seem helpful for me ..
The first day was a headache for me as I clearly didn't see what's really happening within the market but now going through the reading about these indicators, hopeful will assist me to place orders ..
Thanks again .

April 7, 2010

Forex Coach @ 2:33 am:

For forex newbies, it may be important to not that while it may be benficial to know how each of these indicators work, using all of them at the same time is not really the way to go. Just find which indicators you are most comfortable using, and try to master that with the currencies that you intend to specialize in.

July 16, 2010

Anna @ 6:49 pm:

I think its the best blog post ever to identifuy new forex trends. I was searching something like this for a long time. I am now using stochasitic and macd indicator for identifying new trends and after reading your blog, planning to use supertrend indicator and parabolic SAR.

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