Price movement is an incredibly complex puzzle that traders around the world are trying to solve. The most interesting thing is that there are an incredible number of reasons that could affect the price. Economic data, investor expectations, monetary policy, rumors, conflicts and even political alignments - all this can lead to price changes in one direction or the other. However, despite all the reasons, only two actions can make it move - buying or selling. Therefore, the appearance of trends is a pattern that cannot disappear! Therefore, it is quite logical that all technical analysis, one way or another, revolves around trend trading. Starting from its identification and ending with the timely fixation of a reversal. And trend indicators help us in this, which will be discussed in today's article.
Trend indicators are the largest group of technical analysis tools that are aimed at identifying, filtering and fixing trend reversals in a timely manner. It must be understood that, as a rule, this is achieved through visual price optimization. Thus, about 90% of the instruments deal with market noise using one or another approach. For the most part, this is nothing more than averaging the data, which can take place taking into account the features that the trader and the developer see. Scope of trend indicators As we have already noted, trend indicators are the most common type of tools that are aimed at working with the main market pattern. Therefore, if we talk about the scope, it can be noted that there are no restrictions. Initially, the first trend indicators were used on the stock and commodity exchanges.
Today, their use can be found in the foreign exchange market, and in some cases even in binary options trading. Since the trend is formed under the active action of the crowd and the majority, it is absolutely on any assets, timeframes. Therefore, trend indicators in theory can be effective absolutely everywhere where classical exchange trading is conducted (by the way, this also applies to cryptocurrencies). Functions of trend indicators. Application Variations The biggest mistake of beginners is an attempt to mold a full-fledged strategy from one technical indicator. In fact, this is a very difficult undertaking, because one tool is not able to equalize its shortcomings and emphasize its strengths. Therefore, trend indicators can be used as part of a strategy, but nothing more.
Among the functions that they can perform, we highlight the following: 1.Filter and confirmation function. 2. Signal function. 3. The function of determining the exit point from the transaction. Filter function and confirmation of trend indicators We noted above that the main goal of any trend indicator is to provide optimized and easy-to-understand information regarding price movement.
Naturally, thanks to simple averaging, this type of indicator is practically created in order to identify a trend and build signals of your strategy only in its direction. In practice, this type of indicator is introduced into the strategy in order to weed out false signals from oscillators and other sources that are not taken into account in the trend. For example, the most common MA is combined with RSI, Stochastic and other oscillators in order to cut off a huge number of false signals during the active phase of the market movement. By the way, it is worth noting that in trading it is practiced to use several trend indicators at the same time, but the averaging period changes. Thus, you get a filter that is able to see the medium-term and global trend. Signal function Trend indicators do an excellent job of fixing a trend change, due to which traders very often practice using them to find an entry point precisely for breaking a trend. However, it is worth noting that the algorithm of most of them is based on averaging, which means an incredible delay of signals.
That is why when it comes to trending instruments, the definition of "Fixation" is used, which implies a certain statement of fact, and not a leading ability. It should be noted that due to the delay, we recommend that you adhere to the following tips: Do not use trend indicators on small timeframes. Price movement in a narrow price range and strong volatility leads to a large number of false signals. Do not underestimate the calculation periods, as the global noise cutoff function is thus nullified. The older the graph, the higher the efficiency. Choose the settings so that your tools cover large price passes. When using to find an entry point, it is very important to keep a balance between the number of signals and their quality.
The fact is that understating the periods irreversibly leads to an increase in the number of signals and a decrease in their quality. While large periods allow you to find global trend changes, which occur very rarely. Deal exit point function Another function of the trend indicator that you can use in the TS is to exit and close the trade early when the opposite signal appears. Simply put, if you use Take Profit, but the trend indicator indicates a reversal has formed, positions should be closed ahead of schedule! By the way, it is with this approach that the reduction of calculation periods is practiced in order to reduce the delay. In conclusion, it is worth noting that trend indicators are a reliable basis for a huge number of strategies. However, they do best with the filter function, since the delay of signals imposes a number of restrictions on the trading process. .