What you trade is what you see; how different indicators tell trend
In Forex, what you trade is what you see
Even in a single time frame, ‘what is trend?‘ can fetch many different answers as we can see here from a few commonly used trading indicators when overlaid with the AUDUSD currency pair. Which one to use? Depends on your trading plan with consideration also to the fact that trading indicators have settings which can be personalised. What works for me need not work for you.
MACD line and zero line determines trend
MACD is a momentum indicator derived from exponential moving average of prices. There are a few elements but what we are interested here is the MACD line and zero Line. When they intersect, trend changes. When MACD line is above zero, trend is up. When MACD line is below zero, trend is down.
Bollinger bands users read trend in 3 ways
Moving average in centre
Many people associate Bollinger bands with indicators that tell when prices are overbought, oversold. A moving average in the middle can be used to tell trend besides support and resistance. Loosely used, when the gradient of the line is pointing up and price is above, trend is up. When the gradient is down and price is below, trend is down.
Adding a second moving average
Some users incorporate another moving average with a higher period setting. When the shorter moving average cuts upwards across the longer moving average, a golden cross is created. This signals the beginning of the up trend. When the shorter cuts the longer from higher to lower, a death cross signals the start of a down trend.
Using the outer bands
Although the outer bands are associated with overbought-oversold by virtue that they indicate outliers, again it is a matter of perspective. Because the moment you realise that once price become fixated with the outside of those outer bands, they are no longer outliers but trending out-performers instead.
Moving averages create crosses to signal change of trend
Same concept as bollinger bands employing the additional moving average line. Used here are two exponential moving averages.
Commodity Channel Index or CCI uses the zero Line
Like MACD, the CCI users look at where CCI is in relation to its zero line. In this particular chart where I use a pretty low period setting of 14, too many signals are created. Without other indications, an individual trading signals here will be overcome shortly.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
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