Make the trend as a friend, you often hear this sentence, but what is the best trend following indicator? Forex trading seems very simple. How to get profit, traders only need to follow the price trend. If the trend is uptrend hence open Buy and if it is downtrend open Sell.
The fact is that forex trading is not that simple. The conditions will be more complicated when the emotions of traders are involved in trading.
Therefore indicators become very important for most traders. Well, in this article, we will discuss the trend following indicator.
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Contents
What is a trend following indicator?
Trend following indicator is a tool to perform technical analysis that is useful to measure the strength of a bullish or bearish trend, reversal, or continuation of a trend at a certain timeframe.
There are many sorts of indicators that exist in forex trading as a trader’s tool. There are trend-following indicators in the price chart, and some are separated from the price chart or under the price chart panel in a new window.
The trend-following indicators on the price panel chart usually show bullish and bearish signals. If the price is above an indicator it’s the bullish trend. On the contrary, if the price is below an indicator it’s the bearish trend.
While the trend following indicator is separate from the price panel chart. Usually in a new window under the price panel. Most trend-following indicators that are located in the new window use the 0-100 level for scaling.
Most trends following indicators are lagging
The trend-following indicator serves to measure the direction of the trend. But this indicator is lagging, which means that it gives a signal after the trend is formed.
It is a general view of trend-following indicators. However, because the type of trend-following indicator is not just one. Say moving average and Parabolic Sar, both are trend-following indicators but provide different signal sensitivity.
Therefore, choosing an indicator requires further research on the performance of the indicator, whether it gives more accurate signals or vice versa.
Trend following indicators list
We have collected several kinds of trend indicators and compiled them in the following list.
The most common trend-following indicators
- Simple moving average ( SMA)
- Exponential moving average (EMA).
- Moving average divergence convergence (MACD)
- Parabolic SAR (PSAR).
- Bollinger band.
- Average Directional Movement Index (ADX)
- Ichimoku Kinko Hyo.
- Envelopes.
- Standard Deviation.
Additional trend following indicator
- Accumulative Swing Index.
- Alligator.
- Aroon.
- Aroon oscillator.
- Elder Ray Index.
- Gator oscillator.
- Guppy indicator.
- #Linear regression forecast.
- Linear regression intercept.
- #Linear regression R2.
- Linear regression slope.
- Qstick.
- Rainbow Moving Average.
- Rainbow Oscillator.
- Random Walk Index.
- Range Action Verification Index (RAVI).
- Schaff Trend Cycle.
- Shinohara Intensity Ratio.
- Supertrend.
- Swing Index.
- Time series forecast.
- Trend Intensity Index.
- TRIX.
- Typical price.
- Vertical Horisontal filer.
- Weighted Close.
- ZigZag.
Trend following indicator for mt4
By default, Metatrader 4 already provides a variety of useful tools. Traders can choose the indicators available on the platform.
From the list of trend-following indicators above, some of them are already available on the Metatrader 4 platform. For example Moving Average, Bollinger bands, MACD, ADX, Parabolic SAR, etc.
However, many indicators are created by third-party programmers, and they are not available directly in Metatrader 4. The only way is to download the indicator file and then embed it in the indicators folder.
Simple Moving Average
You can call the Simple moving average indicator in MetaTrader 4 via the menu Insert->>Indicator–>>Trend–>>Moving average. Select the MA method box in Simple. You can adjust the period and line color and thickness in the settings box.
Different settings give different signals on the timeframe, for example, the 200 period is suitable for long-term trend analysis, and the Simple Moving Average line serves as dynamic support resistance at the daily timeframe.
Exponential Moving Average (EMA)
The exponential moving average is the second type of moving average, the EMA signal line is more responsive to price, allowing for faster reversal signals than the SMA.
The period setting affects the EMA line, the shorter the period the more responsive it is, because it takes shorter data. Traders can use the two EMA indicators combination with 33 and 55 periods to looking for signal line crossovers.
EMA 33 and EMA 55 corssover
Average directional index (ADX)
ADX is used to measure the strength of the trend, this indicator will appear in a new window below the price chart and has three lines.
- ADX line is useful to measure the strength of the trend.
- +DI is an uptrend signal line.
- -DI is a downtrend signaling line.
When the +DI line is above the -DI line, it indicates a bullish trend, and ADX measures the strength of the trend on a scale of 0-56 (you can set fixed maximum to 100 or else number) the higher the value indicates a strong trend.
Conversely, when the -DI line is above the +DI line, it indicates a bearish trend, and ADX measures the strength of the trend by looking at the scaling level.
Parabolic SAR
Parabolic SAR (Parabolic Stop and Reverse) is usually to look for trend reversals through SAR points that appear. A trader usually needs three dots for a reversal signal before he opens a trade.
The SAR point that appears from below the price is an indication of a reversal from bearish to bullish. Likewise, if the SAR point appears from above the price, it is an indication of a reversal from bullish to bearish.
Moving Average Divergence Convergence (MACD)
To call the MACD indicator through the menu Insert–>>Indicator–>>Oscillator–>> MACD and it will appear in a new window under the price chart.
The concept of using indicators is quite simple by looking at the histogram line to analyze market trends. If the histogram is above level 0 it is an indication of a bullish trend, otherwise, if it is below level 0 it is an indication of a bearish trend.
While the line signal becomes a trading signal when it crosses the 0 levels. The bottom-up cross becomes a Buy signal, the top-down cross becomes a Sell signal.
Advanced users sometimes use divergence signals generated from the histogram line with the price line. If the price line is sloping down and the histogram line is rising, it indicates a trend reversal from bearish to bullish.
Bollinger band
You may learn BBMA Oma Ally, which is a famous trading strategy for Malaysian traders using the Bollinger band indicator.
To call Bollinger band following on the list of Trend indicators. Bollinger bands are useful for measuring price volatility, expanding band lines are an indication of increasing volatility.
Flat band lines indicate a sideways trend, traders often use the upper and lower bands as support and resistance for trigger trading references when the market is sideways.
When the Bollinger bands shrink, price volatility is weak, but some traders use Bollinger Band squeezes to look for breakout signals.
Envelopes
This is the next trend indicator, when you call it it will appear on the price panel. It has two lines, the lower envelope and the upper envelope.
At first glance, this is similar to Bollinger bands but does not have a centerline.
The upper envelope line becomes the resistance area and the lower envelope becomes the support area. To find the appropriate support and resistance you may need to set the deviation, for example, a 0.50% deviation makes the line wider than a 0.10% deviation.
Ichimoku Kinko Hyo
This indicator made by the Japanese is a complete indicator and is one of the best trends following indicators.
This indicator has several lines drawn using a certain formula.
- Blueline is Kijun Sen.
- Red line is Tenkan Sen.
- Chikou span.
- Cloud (Kumo).
Trading signals use a cross between Tenkan Sen and Kijun Sen, while Kumo gives a forward signal, Kumo above the price indicates a bearish indication, Kumo below the price chart indicates a bullish indication.
Trend-following momentum indicator
Before going further on indicators, let us explain first that trend following and momentum indicators are two completely different things.
Trend following indicators put more emphasis on the market response based on demand and supply. While the momentum indicator emphasizes market fundamentals by using range levels. This is commonly called an indicator oscillator, where the indicator gives a signal before the trend is formed.
However, some oscillator indicators can function as trend-following indicators.
Relative Strength Index (RSI)
RSI included oscillator indicator mainly for measuring overbought and oversold. RSI indicates overbought when the indicator line is above the 70 levels. Meanwhile, it indicates oversold when the indicator line is below the 30 levels
How to make the RSI a trend signal, traders can add 50 levels in the levels setting. Simply click Add button and write the number 50 in the box, click Ok.
The signal is with RSI level 50, if the indicator line is above level 50, it means that the trend tends to be an uptrend, while if the indicator is below level 50, it means that the trend tends to be a downtrend.
Bears Power and Bulls power indicator
Although traders rarely use this indicator, this is an oscillator indicator that can also be useful as a trend following indicator signal.
This indicator uses a histogram, using a minimum fixed level of -1.5312 and a fixed maximum of 2.4005. Using level 0 for trend following analysis.
If the histogram is above level 0 then the bullish trend dominates, and if it is below level 0 then the bearish trend dominates.
Relative Vigor Index (RVI)
The Relative Vigor Index (RVI) indicator, developed by John Ehlers, is an oscillator indicator useful for analyzing price trends. The underlying logic is the assumption that closing prices tend to be higher than opening prices in bullish conditions and lower in bearish conditions.
RVI has two lines, green and red lines, the green line is thinner than the red line and serves to signal a cross between the two lines for buy and sell signals.
When the green line crosses from the bottom up is a buy signal, otherwise when the green line crosses from the top down is a sell signal.
Trend following indicator arrow
Various trend following arrow indicators is created for trading tools. Unfortunately, the arrow indicator is not available by default in MetaTrader 4. You need to download and install it manually.
In this writing, we will provide an arrow indicator namely is Supertrend v3d. This indicator is free and widely distributed in the forex community forums. You may have found it.
Supertrend v3d
Supertrend signal indicator will appear when a new signal is confirmed, by providing an alert on the mt4 platform.
How to use is also very simple because it only waits for arrow signals and alerts to notify buy and sell signals. If the arrow appears above the price, it gives a sell signal, otherwise, if the arrow appears below the price it gives a buy signal.
This indicator may look perfect, but it is a repaint of the indicator, so you should also pay attention to support and resistance when the signal gives an alert.
Supertrend indicator works quite well for upswing and downswing on the H1 or H4 timeframe, suitable for intraday traders. Here you will see a display of the Supertrend indicator.
You may be interested to try Super Signal v3d you can download the file here.
Trend following indicator free download
- ema-trend-indicator
- magic-fx-formula-system.
- on-balance-volume-obv-mtf.
- trend-magic.
- trend-following indicator.
- trend-following system-2.
You can download the trend following indicator zip file, but maybe not all indicators work to use in Metatrader 4 because maybe the indicator is only for specific versions.
Volatility based trend following indicator
Measuring a trend using indicators allows traders to make trades in highly volatile markets. While this increases risk, by overcoming fear, high volatility provides an opportunity for profit.
In forex, indicators that can measure volatility are Bollinger bands, and Average True Range. There is also the Cboe Volatility Index, but it’s a lot for stock trading, it’s not available on the default mt4.
What is the best trend following indicator?
You may need to backtest an indicator to find the best one. Although we say that the best indicator in the trend following system is the Ichimoku, in practice you may have different views in this regard. Because Ichimoku is a complete indicator that provides signals and possible future prices.
Conclusion
Trend following indicator is a trading tool mainly used for intraday trading. Take advantage of the upswing and downswing of the reversal and trend going on.
However, there is no perfect indicator, the dynamics of the market sometimes make the indicator signal appear to be false. Therefore making a trading plan with risk management is how to maintain existence in forex trading.
Note: This article is for informational purposes only and does not constitute investment advice, each investor and trader is responsible for all their own investments.
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