It is clear that, depending on the method of determining the trend, they also take into account different criteria, but in the end they will determine the general trend correctly. Themselves, these methods or methods not only differ from each other, but are also characterized by certain features, disadvantages, advantages.
This method shows the change in the market trend by the change in the values of the price high / low levels – extreme points (High / Low):
- If there is a consistent increase in the High / Low points on the chart, when each new extremum lies above the previous one, we consider an uptrend.
- If there is a consistent decrease in the values of the High / Low points, when each subsequent extreme is below the previous one, we consider the downtrend direction.
- A trend reversal point is most often a price rebound / rebound from one of the trend resistance / support levels . At the same time, the levels can change their quality depending on the price behavior.
To draw trend lines on the chart, a trader does not need to invent anything, he can use ready-made trading tools built into the MT4 terminal for this . The principle of plotting them on the chart should also not cause any difficulties. Select the “Drawing trend lines” tool (it looks like a slash on the MT4 toolbar) and draw the line through at least two of the highest High points and through the two lowest Low points. The line that passes:
- The High points are called the Resistance line .
- Through the Low points – the Support line.
Experienced traders successfully use not two, but one line to determine the trend. Depending on how the price curve is located relative to it, this line can be both support and resistance at the same time.
A break of the trend line, both in the first and in the second case, may mean that the price will move in one of three directions:
- Wave-like price movement along the trend line, periodically crossing it from top to bottom, then from bottom to top.
- The price breaks the trend line up or down, followed by its confident movement towards the breakout.
So, a change in the values of the High / Low points with their redrawing relative to the trend lines indicates a change in the direction of the trend. This circumstance forces the trader to consider the price movement in a new perspective and be ready to open positions in the direction of a new movement.
From the very name of this class of instruments, the specifics of their use are clear – they serve to determine the direction of price movement. It is these simple tools that give the trader a primary objective characteristic of the state of the market. The most popular trend indicators are included in the standard package of instruments of any trading terminal, including MT4. The most famous and popular among them are indicators such as Moving Average, Parabolic SAR , Bollinger Bands . There are trend indicators in the “Custom” class as well, for example, the ZigZag indicator . Let’s take a look at one indicator from both of these classes.
Moving Average indicator (MA)
This tool can be found in the “Trending” folder, it is also called ” moving average “. It is used as a simple trend indicator with default settings.
If it is an element of any trading strategy, then in accordance with the specifics of its algorithm, its properties can be changed. To get rid of unnecessary market “noise” and get “pure” price movement dynamics, it is recommended to set the MA period value equal to “25”.
As an independent tool, the moving average shows the presence / absence of directional price movement on the chart. This is the easiest way not only to determine the trend, but also who dominates the market – “bulls” or “bears”. The slope of the MA curve shows the strength of the dominant side.
To increase the efficiency of using MA and improve the visual analysis of the chart, it is recommended to add a regular horizontal line to the moving average. It should be positioned on the chart so that it crosses the moving average:
- below the breaking point (or horizontal line) when the uptrend changes to the downtrend;
- above this point (or horizontal line) if the downtrend becomes upward.
Article indicates that:
- The segment of this line to the tipping point is designated as “1 – 2”, where 2 is the tipping point.
- This segment itself indicates a certain direction of the trend before its change.
- The segment “2 – 3” shows the direction of the trend after the price passes the breakpoint (2). Here we see another trend trend.
- The number “4” denotes a section of the horizontal line, which makes a certain angle with the segment “2 – 3”. We are interested in its value, since it can be used to judge whether there is a flat or directional price movement in the market:
- a small angle indicates a flat (or “sideways”) price movement;
- a large angle indicates a good up / down trend direction.
There is no special tool for measuring the magnitude of this angle in degrees, so the trader’s conclusion in this case is always subjective.
It will be more convenient to determine the trend by the slope of the Moving Average curve relative to this horizontal line. You can easily identify a trend with its specific directional vector or flat.
It is believed that MA is only able to determine the direction of the trend, the relevance of its further movement, as they say, time will tell. Earlier and more precisely, this can be found out using market analysis using other tools. It should be noted, however, that Moving Average does an excellent job of showing not only determining the trend, but also showing the trader the strength of its movement.
This tool belongs to the “Custom” class and is more informative in comparison with the Moving Average indicator. ZigZag as an independent tool works on all timeframes. In the settings, you can leave all the “default” values. On the chart, this instrument looks like this:
This indicates a fall in the market. If we are talking about an uptrend, then all the rules that we considered regarding the definition of a downtrend will be relevant here, but with a “mirror” effect.
In the case when the ZigZag does not show a unidirectional fall / rise in prices, one speaks of a “sideways” trend or its “fading” trend. In such a situation, at the end of dying price fluctuations, one should expect a sharp movement in one of the directions. This is a good time to place pending orders in both directions.
As a rule, the solution to this problem is a rapid up / down price rise. In the first case, to get potential points of entry into the market, you need to draw price levels relative to the last two extrema:
- The first one lies in the odd row High.
- The second is in the even row Low.
The resulting levels are good points for placing Stop orders. Level 9 is the level for placing Buy Stop orders, and level 10 is used for placing Sell Stop orders.
We have just considered several ways to determine the trend. Let’s remind that TS “Sniper”, which can be obtained free of charge by e-mail, takes into account support / resistance levels in its algorithm. The practice of many professional traders shows that the profit from trading by “Sniper” is more than 57% monthly. You also have a chance to start profitable trading today:
The trader has no problem identifying the trend in the market. He has more than one way and method to do it quickly and efficiently. It is important that, depending on his choice, he can not only find out the direction of the market and its strength, but also correctly differentiate the trend and flat price movement.