Summary on Chart Trend Indicators.

Knowing how to use any or all of these indicators when combined together will help you to identify viable trading opportunities.When used correctly, these indicators are able to tell you the strength, volatility and the direction of the price trend but above all helps you to identify trade signal setups.

With these indicators, you are be able to know when to take a position and where to set your stop levels and take profit targets. This is what every trader desires to have.

let’s have a  simple recap on the most commonly used indicators.

Average directional index ADX

 ADX is used to determine the strength of the market trend.

It fluctuates from 0 to 100%. Readings below 20 indicate a weak trend and above 50 indicate a strong trend.

ADX does not show whether the trend is bullish or bearish therefore it doesn’t give the trend direction, just tell the strength.

Some charts provide ADX indicator with other two indicators that helps traders in determining the direction of trend while using ADX. Therefore appears with three lines which represent:

The ADX line

The +DI, the positive directional movement indicator that measures how strongly prices move upwards (strength of buyers).

The -DI, the negative directional movement indicator measures the strength of sellers in a downtrend.

When +D line crosses above the –D line and the ADX line is above 50, it indicates the buyers are stronger than the sellers giving you a buy signal. If the –D line crosses above the +D line and the ADX line is above 50, it indicates that the sellers are stronger than the buyers. If below 20 that would be a weak trend for either the buyers or sellers depending on the positions of the –D or +D line.

The Bollinger Bands

The Bollinger bands are used to measure market volatility

They are represented by two lines following price movement both on the lower and the upper side of price with the Moving Average in between.

When the bands expand, it signals an increase in the market volatility and when they contract it shows a fall in the market volatility.

The two bands act as price channel and can also be used as support and resistance levels to trade. A bounce on the upper band gives a signal to sell and on a lower band gives a signal to buy.

The Bollinger bands work better when trading ranging markets.

As the bands come together or start to contract, it a signal that price is a approaching its consolidation time or its moving in the sideways direction . As it continues to contract price is likely to beak the band either on the upper side or lower side.

When the bands are used correctly, you can be able to identify entry and exit levels. They can also be used to set stop and target profit levels by reading the market volatility.

High volatility big targets, low volatility close targets from the entry point.

Parabolic SAR (Stops and Reverse)

 Like the name suggests, parabolic stop and reverse indicator is used to identify reversal points in a trend.

It is simple and funny. You just have to follow the dots as they follow price movements.

When the dots are above the candlesticks it indicates a downtrend, if the dots crossover to the opposite side below the candlesticks that gives a signal for a probable trend reversal, giving a buy signal.

If the dots are below the candlesticks, it indicates and upward movements. When the dots crossover above the price, expect a change in trend direction. This is a sell signal.

Ichimoku kinko hyo (glance at the chart in equilibrium).

Is an indicator that defines future areas of support and resistance, identifies a true trend direction, gauges momentum and provides trading signals.

This indicator gives all you ever need as a trader to trade successfully.

Just one look on the market chart and you identify the trend and the potential signals with in that trend.

Ichimoku kinko hyo is made up of five plot lines in different colors each representing a different role on the chart.

The Tenkan San known as the conversion line in blue, Kinjun Sen (base line) in red, Chikou Span  in green line, Senkou Span A in green dotted and Senkou span B in orange dotted line.

The senkou spans and the cloud are used to identify the trend direction of the market. When senkou span A (green) moves above senkou span B(orange) forming a green cloud and price is above the cloud, it signals a strong uptrend hence buy signal.

When the senkou span B moves above senkou span A forming a orange cloud and price moves below the cloud, it signals a strong downtrend, sell signal.

Price moves within the cloud,during consolidation and as price breaks out of the cloud it signals a change in trend.

For bullish signals

The buy signal must fulfill all these conditions;

  • Price moves above the cloud
  • The cloud colour turns from orange to green
  • The Tenkan Sen crosses above the Kinjun Sen
  • Chikou span above the price on the upper side

For bearish signals

The sell signal must fulfill this conditions

  • Price move below the cloud
  • The cloud colour changes from green to orange
  • The Tenkan Sen crosses below the Kinjun Sen
  • Chikou span below the price on the down side

Take profit/Exit levels

For a buy

  • The Tenkan Sen crosses below the Kinjun Sen
  • Chikou span below the price on the down side

For a sell

  • The Tenkan Sen crosses above the Kinjun Sen
  • Chikou span above the price on the upper side

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