How To Determine The Direction Of The Trend

Table of contents:

How To Determine The Direction Of The Trend
How To Determine The Direction Of The Trend
Anonim

Trend indicators include moving averages, directional movement system, indicator of convergence / divergence of moving averages, and others. An exponential moving average - EMA or exponential moving average - is good to use for making strategic decisions on a long-term chart.

How to determine the direction of the trend
How to determine the direction of the trend

Instructions

Step 1

To identify an uptrend, draw a line across the troughs on the price chart, because the peaks in an uptrend are uneven. To find a downtrend, draw a line across the peaks. Do not draw trend lines exactly through the highs or lows of the chart because they reflect panic among traders.

Step 2

If the rate of price change increases, the slope of the trend line changes, so draw the line again. To identify a long-term trend and act in its direction, use two time frames, as in Alexander Elder's “System of Three Screens”.

Step 3

Choose a medium and long term time frame. Call the medium-term chart on which you are looking for entry points. The long-term scale is about five times the medium-term. If you usually work with daily charts, the long-term ones will be weekly, because there are five exchange working days in a week.

Step 4

Use trend indicators on a long-term chart to make a strategic decision. It is necessary to understand: play the game up, down, or wait without taking any action. Use the 26-week EMA to track how the market has been performing over a six-month period. Test other indicator settings as well: if the 22-week EMA is better at identifying trends in a particular market, use it.

Step 5

If the exponential moving average rises, you can play bullish or wait on the mid-term chart. An uptrend is observed.

Step 6

If the EMA falls, there is a signal to play bearish on the medium-term chart or to wait. A downtrend has been identified.

Step 7

To identify a strong trend, additionally look at the MACD-Histogram on a long-term chart. If it confirms the EMA data, you can open larger positions.

Step 8

If the EMA is swinging up and down, there is no clear trend because the market is volatile. In this case, it is better to exit the market. Another option is to play short-term without relying on a long-term trend.

Recommended: