FX trading can be at its most profitable when traders identify and ride screaming trends. As you would expect, it means that trend indicators are always in stark demand on every FX trading platform. In this article, we’ll look at some of the most popular FX trend indicators, and also tap into some tips for those looking to trade with the trend.
5 Things To Know About FX Trend Indicators
1. How Trend Indicators Work. in order to help us understand trends, trend indicators typically average out price data over a number of periods. In this way, we can see how price action has been trending over a particular period. Being able to visualize trends in this way can be a highly potent way for traders to better understand and trade the right FX trends.
2. Moving Averages Are Highly Popular FX Trend Indicators. There are a broad myriad of potential FX trend indicators to choose from, but one of the easiest to use are the moving averages. These come in various shapes and sizes – exponential moving averages, simple moving averages and weighted moving averages. In fact one of the most interesting signals that an FX trader will see is when a shorter term moving average crosses a longer term one. This indicates a possible trend change.
3. The Difference Between Moving Averages Are Also Important Pieces Of Trend Information. Just as moving averages themselves can help inform us of trends, the distance between two moving averages tell us a lot about the strength and direction of a trend.
4. Trends And Leading/Lagging Indicators. There are two major types of indicators that can help us decipher potential trend direction. One group is categorized as lagging indicators, and this includes the moving average. The other group is called leading indicators. A leading indicator will generate a signal that a trend is about to change before it actually does. A lagging indicator by contrast will only give a trend reversal signal after the event. While you might think it is better to use leading indicators in order to pick out trends before they happen, there’s a pretty big caveat when using them – they are very susceptible to false signals. Not the most reliable things in the world. Lagging indicators are far less vulnerable to false signals – however, their problem is that the trend is already considerable by the time they produce the signal.
5. How To Tap Into Trend Strength. We want to be on the right side of the trend. A strong trend. One of the most powerful trend strength indicators is the ADX – the Average Directional Index. This indicator does more than tell us about trend direction, it tells us directly how ferocious a trend is. The ADX is made up of three lines, the ADX, +DI and -DI. When the ADX line is above 20, the trend is said to be strong. Above 40, it is sensational. The +DI and -DI lines tell us if there is an uptrend (+DI above -DI) or a downtrend (-DI above +DI).
These tips should help any trader to understand and trade trend situations with better clarity.