• Trend Indicators
  • Momentum Indicators
  • Combining Indicators 

Trend Indicators

Trend Indicators are designed to show us the trend of a security, among the many indicators available we will discuss:

  • Moving Averages
  • MACD
  • Ichimoku Kinko Hyo
  • ADX

Moving Averages

  • The moving average is a trend following indicator
  • It does not predict future market action but follows it
  • Moving Averages are used to identify the direction of the trend and define potential support and resistance levels
  • It can be viewed as a curving trendline

Types of Moving Averages

  • The only significant difference between the various types of moving averages is the weight assigned to the data
  • Simple moving averages apply equal weight to all prices
  • Exponential and weighted averages apply more weight to recent prices
  • Triangular averages apply more weight to prices in the middle  of the time period
  • Variable moving averages change the weighting based on the volatility of prices

Interpretation - Bullish Price Crossover

  • Compare the relationship between the price and its moving average
  • A bullish signal is given when prices rise above the moving average

Interpretation - Bearish Price Crossover

  • Compare the relationship between the price and its moving average
  • A bearish signal is given when prices fall below the moving average

Moving Average Convergence/Divergence

  • Also known by traders as “M-A-C-D”
  • Developed by Gerald Appel in the late seventies, the MACD is considered one of our best mathematical tools
  • It is a hybrid indicator that can be used as a trend following or even momentum indicator

MACD - Calculation

  • The MACD is made up of two plots
  • MACD Line: (12-period EMA – 26-period EMA)
  • Signal Line: 9-period EMA of MACD Line

Interpretation - Centerline Crossover

  • Centerline Crossover – MACD Line VS Zero Line used for trend direction
  • Bullish centerline crossover occurs when the MACD moves above the zero line to turn positive
  • Bearish centerline crossover occurs when the MACD moves below the zero line to turn negative

Interpretation II - Signal Line Crossover

  • Signal Line Crossover – MACD Vs Signal Line  used for price corrections
  • Bullish crossover occurs when the MACD turns up and crosses above the signal line
  • Bearish crossover occurs when the MACD turns down and crosses below the signal line

Ichimoku kinko Hyo

  • The Ichimoku Kinko Hyo was developed by Goichi Hosoda and offered to the public when he published his book in 1969
  • Ichimoku translates as “a glance” or “one look”
  • Kinko Hyo translates as “the table of equilibrium” or “balance table”
  • Defines supports and resistances, identifies trend direction, reflects momentum, and provides trading signals
  • It is made of 5 different plots but these lines are interpreted together as a single indicator for signal generation

Ichimoku kinko Hyo Plots

  • Tenkan-sen
  • Kijun-sen
  • Senkou Span A
  • Senkou Span B
  • Chikou Span

Ichimoku kinko Hyo - Conclusion

  • Movements above or below the cloud define the overall direction
  • Within the trend, the cloud changes colour as the trend ebbs and flows
  • Crossover of Tenkan-Sen and Kijun-Sen generates signals
  • Movements above or below the Chikou Span can be used to generate signals
  • All 5 plots of the Ichimoku Kinko Hyo can be used as supports and resistances

Directional Movement System

  • Is it trending or is it not?
  • (ADX), (-DI) and (+DI) represent the “Directional Movement System”
  • Identifies whether the market is trending
  • Categorizes securities by their trending characteristics

Interpretation – Trend Strength

  • ADX determines if a security is trending or not
  • A strong trend is present when ADX is above 25
  • No trend is present when ADX below 20

Interpretation – Trend Direction

  • Plus DI and Minus DI determine trend direction
  • Bullish signal when +DI crosses above -DI
  • Bearish signal when +DI crosses below -DI

Momentum Indicators

  • “Momentum” refers to the velocity or the rate-of-change of a security’s price
  • Momentum indicators oscillates above or below an equilibrium line
  • All momentum indicators compare price changes
  • They measure if a rising trend is accelerating or decelerating or whether prices are declining at a faster or slower pace from a period to another

Three Dimensions Analysis

  • Direction – Bullish or Bearish
  • Area – Overbought or Oversold
  • Divergence – Bullish or Bearish

Direction - Bullish or Bearish

  • The same techniques that are used for analyzing price trends can be applied to momentum
  • When the indicator goes below its trendline we have a bearish signal
  • When the indicator goes below its moving average we have a bearish signal and vice versa
  • A trend reversal in momentum is not always associated with a similar reversal in the price – PRICE IS THE BOSS

Area - Overbought & Oversold

  • The financial markets are essentially driven by psychological forces
  • Our emotions move from one extreme to another, from fear to greed, from hope to despair
  • This is what causes momentum indicators to fluctuate from oversold to overbought levels
  • Momentum reflects crowd psychology and measures the intensity of the emotions of market participants
  • Banded oscillators fluctuate between 0% and 100%
  • For RSI and IMI extreme levels are those beyond 70% and 30%
  • For Stochastic extreme levels are those beyond 80% and 20%
  • Other oscillators are unbanded and traders must manually identify overbought and oversold lines
  • Extreme levels are manually determined and marked where the indicator previously toped or bottomed

Indicators Analysis

We will combine the above indicators to analyze three main aspects of a security:

  • Main Trend – Bullish or Bearish
  • Current Move – Bullish or Bearish
  • Extremes – Overbought or Oversold

Main Trend Analysis

  • If 5 Indicators are Bullish, Current Move is Strong Up and vice versa
  • If 4 Indicators are Bullish, Current Move is Up and vice versa
  • If 3 Indicators are Bullish, Current Move is Weak Up and vice versa

Main Trend Analysis - Example

  • Price > SMA 100 = Bullish Signal
  • Price > EMA 55 = Bullish Signal
  • MACD > Zero = Bullish Signal
  • Price > Ichimoku Cloud = Bullish Signal
  • Momentum > 100 = Bullish Signal

Current Move Analysis

  • If 5 Indicators are Bullish, Current Move is Strong Up and vice versa
  • If 4 Indicators are Bullish, Current Move is Up and vice versa
  • If 3 Indicators are Bullish, Current Move is Weak Up and vice versa

Current Move Analysis - Example

  • MACD < EMA 9 = Bearish Signal
  • RSI > SMA 8 = Bullish Signal
  • ROC < SMA 8 = Bearish Signal
  • %K > %D = Bullish Signal
  • +DI < -DI = Bearish Signal

Extremes Analysis

  • If 2 Indicators are Overbought, Price is Overbought
  • If 2 Indicators are Oversold, Price is Oversold
  • Else, Price is Neutral

Extremes Analysis - Example

  • 30 < IMI < 70 = Neutral
  • 30 < RSI < 70 = Neutral
  • -100 < CCI < 100 = Neutral

Example - Conclusion

The Story of Desmond Leong

Desmond is your average trader. He started off blowing up 7 (or more.. lost count) accounts amounting to more than 500k, tested over 30 Expert Advisors (EAs) to no success and spent over 10k on stupid useless courses.

Today he runs an award winning trading team and provides market analysis and webinars to some of the largest brokers such as IC Markets, XM, Axi, Tickmill, FXCM, VantageFX, easyMarkets and more.

He now has a simple goal: Creating an army of traders who trade profitably together and keep each other accountable. Guiding them with the most comprehensive no-BS free tutorials so that no one ever needs to go through the pain he went through himself to become a profitable trader.

My Trading Strategy


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