Search this website

Blog Academy Tools Telegram Chatroom Pro Traders Edge

October 5, 2017 By Rayner — 144 Comments

The 5 Best Trend Indicators That Work

Last Updated on August 19, 2019
Spin To Win!

620SHARES
Facebook Twitter Telegram

One of the most common questions I get from traders is this…

“Hey Rayner, how do I identify the direction of the trend?”

However, it’s not as simple as it seems — even if you use trend indicators.

For example:

The Daily chart is in an uptrend.

But when you go down to the hourly chart, it’s a downtrend.

And if you go down to the 5-minute chart, it’s chopping all over the place.
So what should you do?

Well, you’ll know the answer a er reading this post because you’ll learn:

The most important thing you need before identifying the direction of the trend
How to use price action and identify the direction of the trend
How to tell the direction of a trend without using candlestick chart
How to use Moving Average to identify the strength of a trend
How to use Trendlines the correct way
How to use Channels to better time your entries & exits
My personal method to identify and trade with the trend

Sounds good?

Then let’s begin…

This is the most important thing before you can

identify the direction of the trend (and it’s not
an indicator)
Spin To Win!
The trend is an illusion.

Yup.

You read me right. I said the trend is an illusion.

Why?

Because you can manipulate the trend and see what you want to believe in.

You might be wondering:

“How do you manipulate a trend?”

The answer is…

…Timeframe.

A trend is meaningless without knowing your timeframe.

Here’s the thing:

You can have two traders looking at the same market and one says it’s an uptrend,
and the other, a downtrend — because they are looking at di erent timeframes.

Here’s what I mean:

Daily chart:

Spin To Win!

15minutes chart:

Get my point?

So…
Before you attempt to identify the direction of the trend, you must know your
timeframe.

You’re probably wondering:

“So Rayner, which timeframe should I use?”

This depends on your trading approach, whether you’re a day trader, swing trader, or
position trader.

But as a general guideline:

Day traders are on the 30minutes timeframe and below

Swing traders are on the 1 – 4-hour timeframe
Position traders are on the 4-hour timeframe and above

Once you’ve defined your timeframe, focus on it 100% because the other timeframes
are “noise” to your trading.

Next, let’s look at the 5 trend indicators that work…

Spin To Win!

Trend Indicators #1: How to use Price Action and

identify the direction of the trend
Price action refers to reading market structure, momentum, and sentiment to identify
trading opportunities.

It’s one of the most important things you can learn because it gives you a valuable
insight of the market you’re trading (that may not be found on trading indicators).

For example:

Where will losing traders puke?

Where are traders placing their stops?
Where will new traders enter the market?

If you want to learn more, go read The Price Action Trading Strategy Guide.

Now that you’ve understood the importance of price action, let’s learn how to read it
and identify the direction of the trend.
Here are 3 things to remember:

1. An uptrend consists of higher highs and lows

2. A downtrend consists of lower highs and lows
3. A range is contained between the highs and lows

Here’s what I mean…

Uptrend:

Spin To Win!

Downtrend:

Range:
I’ll admit.

Sometimes it’s di icult to identify the direction of the trend based especially when the
candlesticks are “flying” all over the place.

So in the next section, you’ll learn how to identify the direction of the trend without
using candlestick charts.
Spin To Win!
Let’s move on…

Trend indicators #2: How to tell the direction of

the trend without using a candlestick chart
Here’s the thing:

Candlestick charts can get messy if the wicks are long which makes it di icult to
identify the trend (especially for new traders).

And a simple solution to it is…

Line chart.

You’re probably wondering:

“What is a line chart?”

It shows the price on your chart by taking the price at the close and then connects the
closing prices together via a line.
So, you’ll see a squiggly line on your chart which makes it easier to identify the trend.

Here’s what I mean…

Candlestick chart:

Line chart:

Spin To Win!

See the di erence?

And here’s how you can interpret line charts:

If the line is pointing higher, it’s an uptrend

If the line is pointing lower, it’s a downtrend
If the line is flat, it’s a range
Simple stu , right?

However…

You must know that line chart only considers the closing price. This means you won’t
know what the high/low of the candle is — and this will hamper your trading
decisions.

In my opinion, a line chart is useful to identify the direction of the trend. But for
precise entries, exits and trade management, it’s best to stick with candlestick or bar
charts.

Trend indicators #3: How to use moving average

to identify the direction of the trend and the
strength of it
The moving average is an indicator that “summarizes” past prices and is plotted as a
line on your chart.

Yes, it’s a lagging indicator but… Spin To Win!

…it doesn’t mean it’s useless because the moving average indicator can help you
identify the direction of the trend — and the strength of it.

How to use moving average to identify the direction of the

trend
Here’s a simple technique that works:

If the price is above the 200MA, then it’s a long-term uptrend

If the price is below the 200MA, then it’s a long-term downtrend

An example:
How to use moving averages to identify the strength of the
trend
Now…

Besides the 200MA, you can use the shorter-term moving average to identify the
strength of a trend.

Spin To Win!
Here’s how…

In a strong trend, the price tends to stay above the 20MA

In a healthy trend, the price tends to stay above the 50MA

A few examples…
Now:

Moving average works best in trending markets (whether it’s a strong, healthy, or weak
trend).

But if the market is in a range, the moving average has little significance and it’s best
to ignore it.

Spin To Win!
Trend indicators #4: Trendlines
A Trendline is a tool you draw on your charts. It can help you identify the direction and
the strength of a trend.

But before I get to it, you must learn how to draw trendlines the correct way.

How to draw trendlines like a pro

Here’s my 3-step technique:

1. Look for at least 2 swing points (it could be a higher low or lower high)
2. Connect the swing points using a trendline
3. Get as many “touches” as possible on the trendline

An example:
Simple right?

How to identify a trend and the strength of it with trendlines

Here’s how to interpret the trend:

If the trendline is pointing higher, it’s an uptrend

If the trendline is pointing lower, it’s a downtrend Spin To Win!

However…

If you want to determine the strength of a trend, then pay attention to the angle of
the trendline.

As a general rule:

The steeper the trendline, the stronger the trend

The flatter the trendline, the weaker the trend

Here’s what I mean:

Make sense?

Good. Then read on…

Trend indicators #5: How to trade with Channels

and find “sweet spot” for your entries & exits
In case you’re wondering: Spin To Win!

“What’s a Channel?”

A Channel is a variation of the Trendline.

The way you draw and interpretation it is the same as Trendline.

The only di erence is… Channel has an extra line that’s parallel to the Trendline.

Here’s an example:
As you can see…

Channel helps you identify where opposing pressure could come in. This means you
can take profit ahead of time — before the price has a high probability of reversal.

Not sure what the trend is? This little-known

technique will give you clarity
Spin To Win!
Here’s the thing:

If you look only at the water, you’ll miss the ocean.

If you look only at the trees, you’ll miss the forest.

If you look only at the current price, you’ll miss the long-term trend.

So what’s my point?

Stop being fixated on what the market is doing each and every moment.

Instead, zoom out your charts.

Yes.

Zoom out your charts and see the big picture.

Here’s what I mean:

Zoom in view:

Zoom out view:

Spin To Win!

See how much of a di erence it makes when you’re looking at the big picture?

A mistake made by many traders is they become so involved in trying to catch the
minor market swings that they miss the major price moves. —Jack Schwager

My personal method: How to identify and trade

with the trend
As I’ve shared with you earlier…
There are di erent ways to identify the trend and there’s no right or wrong or best
approach.

But if you ask me, these are the 2 things I ask myself:

1. What’s the long-term trend?

2. What type of trend is this?

Let me explain…

1. What’s the long-term trend?

I’ll use the 200-period MA to define the long-term trend.

If the price is above it, the market is likely to be in a long-term uptrend and I want to
have a long bias.

If the price is below it, the market is possibly in a long-term downtrend and I want to
have a short bias.

Next… Spin To Win!

2. What type of trend is this?

Here’s the deal:

Not all trends are created equal.

A er many years of trading, I’ve realized most trends can be broken down into 1 of 3
categories…

Strong trend
Healthy trend
Weak trend

Strong trend

A strong trend is when the price has little to no pullback and remains above the 20MA.

In such a scenario, the pullback may never come as the price keeps breaking higher.
Thus, in strong trending markets, the best entry is usually breakout trades.
An example:

Healthy trend

A healthy trend is when the market has a healthy pullback and remains above the
50MA.

In such market conditions, it’s possible to trade the pullback. Possibly towards theSpin To Win!
50MA or, previous Resistance turned Support (in an uptrend).

Here’s what I mean:

And lastly…

Weak trend
A weak trend is when the market has steep pullbacks but remains above the 200MA.

In such a scenario, you can trade from the 200MA or an area of Support (in an
uptrend).

An example:

If you want to learn more about trends, go read The Trend Trading Strategy Guide.
Spin To Win!

Summary
Here’s what you’ve learned today:

Why a trend is meaningless without looking at the timeframe behind it

How to use price action and identify the direction of the trend
How to identify a trend without using candlestick charts
An easy way to tell the direction of the trend using Moving Average
How to draw Trendlines and identify the strength of a trend
How to use Channels to better time your entries & exits
My personal method to identify and trade with the trend

So, here’s a question for you…

How do you identify the direction of the trend?

Leave a comment below and let me know your thoughts…

Trading Guides

The Monster Guide to Candlestick

Patterns

The Price Action Trading Strategy

Guide

The Best Trading Books of All Time

Spin To Win!
The 5 Best Trend Indicators That Work

The 5 Types of Forex Trading

Strategies That Work

The Support and Resistance Trading

Strategy Guide

The Moving Average Indicator Strategy

Guide

The Complete Guide to Finding High

Probability Trading Setups

How Much Money Can You Make from

Trading?

Swing Trading Strategies That Work

About Rayner Teo

Rayner Teo is an independent trader,

ex-prop trader, and founder of
TradingwithRayner.
Spin To Win!

He is the most followed trader in

Singapore with more than 100,000
traders reading his blog every month...

Continue reading

Discover Proven Trading

Techniques That Work So You
Can Level-Up Your Trading And
Finally Beat The Markets
 Get access to weekly trade alerts,
insider market insights, backtest
research lab, private trading
community, and much more!

Disclaimer Telegram Contact Members

© Copyright 2019 TradingwithRayner · All Rights Reserved ·

Spin To Win!