Quick Guide: Identify the Direction of the Market Trends

The basic rule of the Swing Trading Strategies and many other  is:

Always trade with the Trend

You can systematically identify the direction of the market trends in 2 ways:

  • With the Moving Averages.
  • Using a Momentum Indicator.

Read the full article to learn all the steps.

 

Market Trends and Moving Averages

As you learned in the previous article:

The moving averages could or cross the cycle or follow its movement with a little delay.

Following this rule, the easiest way to know when a trend is bullish or bearish is to confront the position of the price compared to its Cyclical Moving Average:

When the price is above the moving average the cycle is bullish, when it’s below the cycle is bearish.

Example:

Eur/Aud weekly trend

The selected Moving Average has 192 periods and it represents the weekly cycle.

Momentum of the Market Trends

You already learnt how the Momentum Indicators reproduce the movement of the cycle by crossing down and over the zero line.

  • When a Momentum Indicator is above its Zero Line (0 for the ROC, 50 for Stoch and RSI) the Cycle Market Trend is Bullish.
  • When the value is below the Zero Line the trend is Bearish.

Example:

The indicator is the Slow Stochastic with 96 periods.
I've highlighted where the speed is above and below the zero.
The zero line is represented by the output 50

Eur/Aud momentum of the cycle

As you can see, even the momentum indicators are very helpful giving a clear signal of the cyclical trends.

The Best Trend Indicator

The final trick is to analyse the market trends using both the indicators in the same moment and follow the signal only when confirmed from both.

Here's the final result, following the formula:

IF Price > moving average and stoch(K) > 50 THEN
Trend = Bullish
ELSE
Trend = Bearish

Cyclical trend speed + moving average

These are the strategies to systematically identify a trend and trade in its direction, Remember:

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