Trading in financial markets has never been easier and committing even a small mistake can result in loss of your money. Hence it is important for any person to be knowledgeable in trading activities.
You might have heard about many people who have successful in trading but for you to declare victory, you have to learn winning strategies in first place. To start with there are many strategies and techniques, people use in trading. But in this article we will limit ourselves to trend indicators.
By using trend indicators one can know how to trade stocks. It is a strategy that will help you assess the performance of the stock based on how it has performed in the past and how it will do in the future as well.
It is basically a way of following the markets and analyzes to invest. There are many types of trend indicators. In this article we will know what the different types of trend indicators are and how they are useful.
Moving average indicator: it provides a trend direction usually by smoothing price data. It is normally calculated based on the closing price of the stock. The time frame of the moving average can be shorter as well as longer. The shorter term moving averages are more sensitive and at the same time identify new trends quickly but also give more false alarms. Longer term moving averages are more reliable compared to shorter term moving averages but are less responsive.
MACD indicator: it is basically an enhancement of the moving average indicator. It helps the trader by measuring the distance between the two moving average lines. This indicator signals are used when MACD crosses its signal line and calculated as a 9 day exponential moving average of MACD.
MACD histogram: with MACD indicators, the signals tend to lag the price movements. To overcome this problem, MACD histogram is used to signal trend changes well in advance. But they are less reliable and should be confirmed by other indicators.
TRIX indicator: it is basically designed as an oscillator for trading trends. It provides you trends that are shorter or equal to window period.
Smoothed rate of change: it performs similar to momentum and rate of change indicators but at the same time it overcome some of the weakness like it is less erratic and gives fewer false signals and it ensure that the indicator will only bark once.
Price envelops: this indicators are triggered when set percentage is above or below the moving average. They are used to determine the overbought and oversold levels.
Bollinger Bands: this indicator is used to confirm trading signals to indicate the overbought and oversold levels relative to moving average.
Directional movement: it helps you to analyze the ability of bulls or bears to move price outside the previous day trading range.
Parabolic SAR: when it is employed in trending market, it provides entry and exit points of the stock under observation.
Commodity channel index: it helps you to measure the position of the price in relation to its moving average. It is used to signal the overbought or oversold position of the market or to signal when the market is weakening.
Please note that this article is for educational purposes only and should not be considered financial advice.
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