Trend indicators are the tools that help trader to identify the asset trends formed on the financial markets.

What is a price trend on the market?

Price trend of the asset is a sustainable direction in which the price of a trading asset is changing. When the trading asset price increases, the trend is called the upward trend, and when it decreases, it called respectively the downward price trend.

Learning in what direction the price will move allows traders to open the trading position on time and get the maximum possible profit. For this reason, many pro traders creates their own algorithms for identifying the market price trends.

Advantages and disadventages of the trend technical indicators

Most popular trend indicators

Moving average

This is the most popular trend algorithm that is used by the traders both independently and as the algorithm work part of the many other technical indicators. The moving average is a line on a chart that passes close to fluctuating price values and shows the average value of a trading asset.

The accuracy of this indicator depends on the time period selected for the market analysis. If the chosen time period is a short one, the indicator becomes more flexible, but at the same time most of the trading signals given by it turn out to be false. If a long period of time is chosen for analysis, the number of inccorect trading signals is reduced, however, the line of the chart also becomes smoother. This means that the price trends will be shown with a delay.

Bollinger bands

This is one of those technical indicators based on the principle of the moving average. In addition to the fact that this technical indicator correctly reflects the price market trend, it also shows how volatile the market is for the selected trading asset at the current point in time.

The average directional index (ADX)

This technical ndicator include three (3) curve lines, with which a trader can identify not only the direction but also the strength of the price trend. The market trend is identified by using the first two lines, and the third one shows how strong it is. Although this technical indicator has an absolute advantage, if you select too large time period, it can provide the false signals for trading. But this disadvantage is easy to remove by using the different “filters” in the form of the other technical indicators that may be used simultaneously with the ADX.

The popular among the traders phrase “trend is your friend” is not in vain. Learning the right direction in which the price of a trading asset changes, allows the traders to get the greatest benefit when working in the financial markets.