Trading Both Sides Of The Chart – Down Trends

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What are the best Forex trend indicators?

I use mainly price action and a bit of SMA’s and CCI.

The SMA’s I won’t really use 90% of the time and the CCI certain times. For most of my trades both only come necessary to figure out when buyers and sellers are coming in and when to move the stop loss and when not too. It helps determine buy and sell zones. When I expect 15 min chart, 5 min chart, 1 hours chart, daily chart, 4 hour chart traders to come in. The CCI covers me on that since it’s closes related to many other indicators they’re very alike.

The SMA’s expresses the bounces better. The SMA at least for my use is just easier to s.

The 5 Best Trend Indicators That Work

Last Updated on March 16, 2020

One of the most common questions I get from traders is this…

“Hey Rayner, how do I identify the direction of the trend?”

However, it’s not as simple as it seems — even if you use trend indicators.

The Daily chart is in an uptrend.

But when you go down to the hourly chart, it’s a downtrend.

And if you go down to the 5-minute chart, it’s chopping all over the place.

So what should you do?

Well, you’ll know the answer after reading this post because you’ll learn:

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Then let’s begin…

This is the most important thing before you can identify the direction of the trend (and it’s not an indicator)

The trend is an illusion.

You read me right. I said the trend is an illusion.

Because you can manipulate the trend and see what you want to believe in.

You might be wondering:

“How do you manipulate a trend?”

A trend is meaningless without knowing your timeframe.

Here’s the thing:

You can have two traders looking at the same market and one says it’s an uptrend, and the other, a downtrend — because they are looking at different timeframes.

Here’s what I mean:

Daily chart:

15minutes chart:

Before you attempt to identify the direction of the trend, you must know your timeframe.

You’re probably wondering:

“So Rayner, which timeframe should I use?”

This depends on your trading approach, whether you’re a day trader, swing trader, or position trader.

But as a general guideline:

  • Day traders are on the 30minutes timeframe and below
  • Swing traders are on the 1 – 4-hour timeframe
  • Position traders are on the 4-hour timeframe and above

Once you’ve defined your timeframe, focus on it 100% because the other timeframes are “noise” to your trading.

Next, let’s look at the 5 trend indicators that work…

Trend Indicators #1: How to use Price Action and identify the direction of the trend

Price action refers to reading market structure, momentum, and sentiment to identify trading opportunities.

It’s one of the most important things you can learn because it gives you a valuable insight of the market you’re trading (that may not be found on trading indicators).

  • Where will losing traders puke?
  • Where are traders placing their stops?
  • Where will new traders enter the market?

Now that you’ve understood the importance of price action, let’s learn how to read it and identify the direction of the trend.

Here are 3 things to remember:

  1. An uptrend consists of higher highs and lows
  2. A downtrend consists of lower highs and lows
  3. A range is contained between the highs and lows

Here’s what I mean…

Uptrend:

Downtrend:

Range:

Sometimes it’s difficult to identify the direction of the trend based especially when the candlesticks are “flying” all over the place.

So in the next section, you’ll learn how to identify the direction of the trend without using candlestick charts.

Trend indicators #2: How to tell the direction of the trend without using a candlestick chart

Here’s the thing:

Candlestick charts can get messy if the wicks are long which makes it difficult to identify the trend (especially for new traders).

And a simple solution to it is…

You’re probably wondering:

“What is a line chart?”

It shows the price on your chart by taking the price at the close and then connects the closing prices together via a line.

So, you’ll see a squiggly line on your chart which makes it easier to identify the trend.

Here’s what I mean…

Candlestick chart:

Line chart:

See the difference?

And here’s how you can interpret line charts:

  • If the line is pointing higher, it’s an uptrend
  • If the line is pointing lower, it’s a downtrend
  • If the line is flat, it’s a range

Simple stuff, right?

You must know that line chart only considers the closing price. This means you won’t know what the high/low of the candle is — and this will hamper your trading decisions.

In my opinion, a line chart is useful to identify the direction of the trend. But for precise entries, exits and trade management, it’s best to stick with candlestick or bar charts.

Trend indicators #3: How to use moving average to identify the direction of the trend and the strength of it

The moving average is an indicator that “summarizes” past prices and is plotted as a line on your chart.

Yes, it’s a lagging indicator but…

…it doesn’t mean it’s useless because the moving average indicator can help you identify the direction of the trend — and the strength of it.

How to use moving average to identify the direction of the trend

Here’s a simple technique that works:

  • If the price is above the 200MA, then it’s a long-term uptrend
  • If the price is below the 200MA, then it’s a long-term downtrend

How to use moving averages to identify the strength of the trend

Besides the 200MA, you can use the shorter-term moving average to identify the strength of a trend.

  • In a strong trend, the price tends to stay above the 20MA
  • In a healthy trend, the price tends to stay above the 50MA

Moving average works best in trending markets (whether it’s a strong, healthy, or weak trend).

But if the market is in a range, the moving average has little significance and it’s best to ignore it.

If you’re curious to discover my “secret” moving average trading strategy (that you can use), then check out this video…

Trend indicators #4: Trendlines

A Trendline is a tool you draw on your charts. It can help you identify the direction and the strength of a trend.

But before I get to it, you must learn how to draw trendlines the correct way.

How to draw trendlines like a pro

Here’s my 3-step technique:

  1. Look for at least 2 swing points (it could be a higher low or lower high)
  2. Connect the swing points using a trendline
  3. Get as many “touches” as possible on the trendline

How to identify a trend and the strength of it with trendlines

Here’s how to interpret the trend:

  • If the trendline is pointing higher, it’s an uptrend
  • If the trendline is pointing lower, it’s a downtrend

If you want to determine the strength of a trend, then pay attention to the angle of the trendline.

As a general rule:

  • The steeper the trendline, the stronger the trend
  • The flatter the trendline, the weaker the trend

Here’s what I mean:

Now you’ve gotten a glimpse of how to use trendlines to define a trend.

But if you want to discover my trendline trading strategy using proven techniques that work, then check out this video here…

Trend indicators #5: How to trade with Channels and find “sweet spot” for your entries & exits

In case you’re wondering:

“What’s a Channel?”

A Channel is a variation of the Trendline.

The way you draw and interpretation it is the same as Trendline.

The only difference is… Channel has an extra line that’s parallel to the Trendline.

Here’s an example:

Channel helps you identify where opposing pressure could come in. This means you can take profit ahead of time — before the price has a high probability of reversal.

Not sure what the trend is? This little-known technique will give you clarity

Here’s the thing:

If you look only at the water, you’ll miss the ocean.

If you look only at the trees, you’ll miss the forest.

If you look only at the current price, you’ll miss the long-term trend.

So what’s my point?

Stop being fixated on what the market is doing each and every moment.

Instead, zoom out your charts.

Zoom out your charts and see the big picture.

Here’s what I mean:

Zoom in view:

Zoom out view:

See how much of a difference it makes when you’re looking at the big picture?

A mistake made by many traders is they become so involved in trying to catch the minor market swings that they miss the major price moves. —Jack Schwager

My personal method: How to identify and trade with the trend

As I’ve shared with you earlier…

There are different ways to identify the trend and there’s no right or wrong or best approach.

But if you ask me, these are the 2 things I ask myself:

  1. What’s the long-term trend?
  2. What type of trend is this?

1. What’s the long-term trend?

I’ll use the 200-period MA to define the long-term trend.

If the price is above it, the market is likely to be in a long-term uptrend and I want to have a long bias.

If the price is below it, the market is possibly in a long-term downtrend and I want to have a short bias.

2. What type of trend is this?

Not all trends are created equal.

After many years of trading, I’ve realized most trends can be broken down into 1 of 3 categories…

  • Strong trend
  • Healthy trend
  • Weak trend

Strong trend

A strong trend is when the price has little to no pullback and remains above the 20MA.

In such a scenario, the pullback may never come as the price keeps breaking higher. Thus, in strong trending markets, the best entry is usually breakout trades.

Healthy trend

A healthy trend is when the market has a healthy pullback and remains above the 50MA.

In such market conditions, it’s possible to trade the pullback. Possibly towards the 50MA or, previous Resistance turned Support (in an uptrend).

Here’s what I mean:

Weak trend

A weak trend is when the market has steep pullbacks but remains above the 200MA.

In such a scenario, you can trade from the 200MA or an area of Support (in an uptrend).

If you want to learn more about trends, go read The Trend Trading Strategy Guide.

Frequently asked questions

#1: Which timeframe should I use to identify the trend?

The timeframe should be relevant to your trading:

  • If you’re a day trader, then you’ll identify the trend on the lower timeframe like the 1-hour or 30-minutes timeframe.
  • If you’re a swing or position trader, then you’ll identify the trend on the daily or the weekly timeframe.

#2: Do I have to adjust the moving average settings to suit different timeframes?

There are no best settings out there because it depends on the type of trend that the market is in.

If the market is in a:

  • Strong trend, it will tend to respect the 20 MA
  • Healthy trend, it will tend to respect the 50 MA
  • Weak trend, it will tend to respect the 200 MA

Personally, I’ll use whichever of these 3 moving averages that the market is respecting more, for the timeframe I’m trading on.

If you want to discover more on moving averages, then check this out:

Summary

Here’s what you’ve learned today:

  • Why a trend is meaningless without looking at the timeframe behind it
  • How to use price action and identify the direction of the trend
  • How to identify a trend without using candlestick charts
  • An easy way to tell the direction of the trend using Moving Average
  • How to draw Trendlines and identify the strength of a trend
  • How to use Channels to better time your entries & exits
  • My personal method to identify and trade with the trend

So, here’s a question for you…

How do you identify the direction of the trend?

Leave a comment below and let me know your thoughts…

Top 5 Forex trading strategies

Successful Forex traders stand out from others by the portfolio of Forex trading strategies they use in different situations. Seasoned traders know that a single system is not enough to produce the right number of successful trades every time. Therefore, knowing how to apply and adapt a trading strategy in accordance with all the market conditions is a key factor in becoming a profitable trader, as is an understanding of the fundamentals of economics.

There are many Forex trading strategies in existence which differ in levels of complexity. Some of these rely on the use of technical charts while others rely on a fundamental understanding of the market in relation to current events. This article examines 5 of the top Forex trading strategies.

1. Support & Resistance Trading Strategy

All Forex traders should find out how to spot support and resistance levels on the charts, regardless of the asset they are trading. As their names suggest, support and resistance act as barriers within Forex markets and are easily spotted on price charts, as they prevent the price from moving either higher or lower. They can be seen on any Forex chart and across all timeframes. Trading Forex using support and resistance can be one of the most effective ways to successfully predict future price movements. Not only do areas of support and resistance show traders the sentiment of the market as a whole, they can also highlight where not to enter a trade. Support and resistance therefore creates a map of the price chart, indicating where price has previously reversed or bounced. Having the ability to predict future price movements is a powerful tool which can be mastered using the simple analysis of any Forex chart.

2. Trend Trading Strategy

The basis of this popular trading strategy is that price historically tends to move in a trend and the idea behind it is picking a top or a bottom. A typical trend trading strategy involves identifying pairs that are trending either up or down so the trader knows which direction they should be looking to trade. The next step is to find trade entries using a trending indicator of which there are a huge number to choose from. One which has stood the test of time is the RSI (Relative Strength Index) which moves up and down between a scale of 0 and 100, tracking the strength of a currency pair’s movement. If the RSI reaches above 70 or falls below 30, it may be set for a price reversal. The exit plan for this strategy is setting a stop and limit with support and resistance. Learning the trend trading strategy is a must for every trader as it can be one of the most financially lucrative of all strategies.

3. Fibonacci Trading Strategy

One of the most famous and popular Forex trading strategies is the Fibonacci which is named after the famous Italian mathematician. Considered as a medium to long term trading strategy, it is used to follow repeating support and resistance levels. As we have seen, the markets historically move in trends and the Fibonacci tool works best when the market is trending. The idea behind using this strategy is to go long (buy) on a retracement at a Fibonacci support level when the market is trending up and to go short (sell) on a retracement at a Fibonacci resistance level when the market is trending down. If the price is moving in the Fibonacci patterns, traders will find that it will be supported by key 0.328, 0.5 or 0.618 levels and this is usually where they can take their trades waiting for reversal. Whilst the Fibonacci trading strategy is used by many traders, it should be noted that grasping this technique can take some practice.

4. Scalping Trading Strategy

Scalping is a very useful technique, especially where novice traders are concerned as it is a low-risk strategy, although strong traders still have the potential to make attractive profits. Scalping is a trading strategy which specializes in taking profits on small price changes soon after a trade has been entered into and becomes profitable. Scalping achieves results by increasing the number of winning trades but by sacrificing the size of the wins. It is not uncommon for a trader of a longer time frame to achieve positive results by winning only half or even less of their trades but the wins are much bigger than the losses. Successful scalpers have a much higher ratio of winning compared with losing trades whilst keeping profits about equal or slightly larger than losses. This strategy requires traders to have a strict exit strategy as one large loss could eliminate the many small gains that they have achieved. Scalping requires a great amount of patience and awareness but it can be highly effective.

5. Candlestick Trading Strategy

Candlestick charts are the most common chart types used by Forex traders. Although there are other kinds of charts like line charts and bar charts, they don’t reveal as much about past price action as candlesticks do and when trading is based on technical analysis, the decisions for future price action are made based on how the price has reacted in the past. Candlesticks are the price movement/action for a certain period of time, from as little as 1 minute to a week or a month and candlestick formations are a very useful tool for indicating possibilities for entries and exits. For this reason, they are many traders’ favorite indicators. They work almost perfectly during times of volatility but are still effective in less volatile times, if used in combination with one or more other indicators.

In summary, there are many Forex trading strategies that traders can consider utilizing and the most appropriate one to use will depend on the individual. Forex involves trial and error so trying out one or more of our top 5 trading strategies is an ideal way of familiarizing yourself with some of the most effective techniques available.

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