I know I may take some heat for going after the trend direction indicator as a useful technical analysis tool but the fact is that they can do more harm than good for most traders.
Indicators get a bad rap and the reason is not so much in the indicator themselves…but in how traders use them. Because most traders get handcuffed by the indicator and fail to see what price is really doing.
Before I go on, I know some people are never going to give them up so here is a trend indicator for mt4 that you can download and use for free.
Just apply it to your weekly or 4 hour MT4 charts if you are day trading according to the installation video and you will see how it works. Depending on your settings, especially the look-back period, you may be a little behind the turn if using a short period or be miles behind. Also keep in mind that Forex does not trade through an exchange so getting a valid volume number is impossible.
If you are only keeping your eyes on the indicator, you are missing the story that price is telling you. Price will clue you in to a change in direction long before any trend indicator will.
No doubt one of the most popular tool used today is the moving average not only to identify zones where a short term trend reversal may take place as in trading pullbacks — but there is no magic there but also as trend direction indicator. What is the most popular? Usually the 50 period, the sma, the sma and the 20 sma. You could swap out the sma for an ema but it makes little difference. There is nothing special except the bigger ones will be further away from current price which will lag the turns much more.
Of course there are others including CCI, MACD, Stochs and other trading indicators so out of all them, is one of them ranked as the best trend indicator? Since they all depend on some mathematical calculation of the same initial input price there is not one that is better than the others. There is some school of thought that an individual candlestick can help define the current trend or trend reversal.
I am going to generalize here but it depends on where they form on the chart and what pattern candlestick we are looking at. Where I take notice are candlesticks that are out of the ordinary from recent price action. For example, if this bearish engulfing candlestick takes place at a prominent resistance zone, could that suggest long before an indicator does, that a new trend direction is occurring?
And that is how a trend indicator can help drain your trading account if you only focus on the indicator. It can draw your eyes away from what is really important. You can see that price was telling a story long before that short trade set up. The bear candle after entry would have late traders jumping into what they deemed to be a move down. Moving average are not all bad though. Simply due to their calculations, you can see when a market is actually trending or consolidating.
Make no mistake…there is no magic in those pullback trades after the upside turn. If you think about how the calculations work, you can fully understand why it can not only show a turn but also meet price at points on the chart. You can use a moving average as a quick scan however to see if you are looking at a chart that is moving or one that is consolidating.
Price always tells a story and sometimes the story can be a little confusing. If it is, pick another chart. Seeing momentum candles in one direction along with weaker candles in the opposite direction can be a great indicator of the current trend of price.
We also can never forget the standard higher high and higher low for an uptrend and lower highs and lows for a downtrend either. Regardless, due to the strong up trend that happened after the higher low, the area with the white box, if broken, would signal to me a true trend change. You want to help save your account? Learn some price acting trading strategies which are really great for swing trading from my free course and learn to listen to what the chart is telling you.
Mail will not be published required. How A Trend Direction Indicator Can Help You Lose Money Fast I know I may take some heat for going after the trend direction indicator as a useful technical analysis tool but the fact is that they can do more harm than good for most traders.
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