Identifying price shifts and capitalising on them is a crucial part of trend trading, which requires constant market observation.
Although theoretically appealing, in practise this strategy requires extensive research and familiarity with market dynamics. Accurate analysis of price actions and market movements is of utmost importance. Otherwise, you risk losing your investment because you rode the incorrect trend and lost your position.
However, trend trading indicators make this process smoother, and you will be more likely to determine the right entry and exit points. Let’s discuss some of these important tools.
Trend Trading Strategy
Market trends are steady price movements that continue growing in the same direction for a given period of time, which represent excellent opportunities to execute market orders and gain as long as the price moves in the same direction.
Top 3 Trend Indicators You Can Use
You can use these trend trading indicators to mark the right moment to execute a particular market order.
RSI Indicator
This tool calculates the relative strength index using different timestamps to compare price change frequencies to derive estimations of current and potential price actions.
The calculated RSI gives a value from 0 to 100, and depending on the given number, you can make the right market decision.
- If the RSI is more than 70, the asset is overbought, and a sell order is recommended because it is more likely to lose some of its value.
- If the RSI is less than 30, the asset is oversold, and a buy order is recommended because it is more likely to pick up some value.
BB Indicator
The Bollinger bands indicator draws three lines (bands) across the market price, limiting the price trend by an upper limit and a lower limit.
- If the market price moves towards the upper limit, the asset is being overbought, and a sell order is recommended.
- If the market price moves towards the lower limit, the asset is being oversold, and a buy order is recommended.
EMA Indicator
One technical indicator used to forecast market moves by comparing price changes across several time periods is the moving average convergence divergence (MACD) indicator, which includes the exponential moving average.
If the price line for 10 days moves over the price line for 50 days or 200 days, for instance, it may be an indication of an upward trend. Note that crossing over a nearer time period gives more weight to the trend possibility than crossing over older time periods.
Conclusion
Trend trading is a popular approach that identifies and takes advantage of these occurrences. When the price trend picks up an upward direction, a trade can execute a buy order, while a downward direction encourages opening a sell order. These indicators help you identify a certain trend correctly because it is easy to underestimate or overestimate a certain trend.
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