Trend Indicators
Bar chart signals often conflict and it is difficult to separate the trend from the surrounding 'noise'. Trend indicators attempt to provide an objective measure of the direction of the trend. Price data is smoothed and the trend is represented by a single line, as in the case of a moving average. Because of the smoothing process the indicators tend to lag price changes and are often called trend following indicators.
Trending v. Ranging Markets
Most trend indicators lose money during a ranging market as fluctuations in a narrow price band tend to whipsaw traders in and out of their positions.
It is important to identify whether the market is trending or ranging and to employ indicators suited to the purpose: trend indicators for trending markets and the faster momentum indicators for ranging markets.
Types of Trend Indicators
Moving Average Systems
- Moving average
- Two Moving Averages
- Three Moving Averages
- Multiple Moving Averages (MMA)
- Rainbow 3D Moving Averages