Forex Indicators For Trend Analysis, Moving Averages
In this article we will show traders some forex trend indicators that are simple but powerful. These forex indicators can be used for daily market analysis, trend analysis of any pair, as well as trade entries. Our trend based trading system works for 28 currency pairs. There are several types of forex indicators for monitoring market trends like Bollinger Bands, MACD, Average Directional Index, RSI trend indicator, SAR and moving averages. Our focus will be examining moving averages in more detail. Moving averages are widely used by forex traders and are great for verifying if a currency pair is trending, not trending or consolidating, early in a trend cycle or deep into a trend on the time frame of choice.
There is an old saying traders have and that is «the trend is your friend». We trade with the trends and larger time frames at Forexearlywarning, and we actively look for existing trends and brand new trends to follow. We define a trend as a long series of movements on an individual pair that favors one direction. Using multiple time frame analysis by individual currency, our analytical technique for our trading system, we can identify new and existing trends on 28 pairs every day.
Different Types Of Moving Averages
There are several kinds of moving averages. Simple moving averages (SMAs), weighted moving averages, exponential moving averages (EMAs). A weighted moving average gives more emphasis to the latest data. It smooths out a price curve, while making the average more responsive to recent price changes. An exponential moving average weighs more recent price data in a different way. An exponential moving average multiplies a percentage of the most recent price by the previous period’s average price. Compared to SMAs, the EMA gives more weight to the most recent price action which means that when price changes direction, the EMA recognizes this sooner. This is one reason why we choose exponential moving averages as our forex trend indicators for our trading system.
Time Periods For Trend Indicators
It can take a while to find the most optimal time period length for your moving averages setup. We use a 5 time period for the green line and a 12 time period for the red line, using the closing price on each bar to create the average for plotting the colors. This is based on successfully imitating some expensive and powerful forex trend software and systems for multiple time frame analysis that are currently on the market. We suggest using these moving averages rather than endless experimenting, they are tried and true. We can also provide any forex traders with specific instructions on how to utilize these indicators for multiple time frame analysis. These 5/12 time periods will make the trend you’re looking for clearly visible, as it develops. If you use a time period of 5 remember only the most 5 recent time period values will be used at each point to create the moving average. Using these moving averages gives you a consistent approach for all 28 pairs. Here is what these forex indicators look like, they look the same on any time frame:
Using moving averages on top of a basic barchart, which is an open-high-low-close chart, is simple and easy to understand, not like the complicated layers of technical indicators most forex traders use. Compare these simple indicators to what most forex traders use. Usually, traders start by comparing a few time frames for their moving averages over a historical chart. Then you can compare how well and how early each time frame signaled changes in the price data as they developed, then make adjustments accordingly. If a certain pair or currency is choppy you can move to another pair or currency, looking for potential trades. At Forexearlywarning we trade 8 currencies and 28 pairs, so this is easy to move past a choppy or non-trending pair to another pair looking for a trend.
Here are the instructions for setting up the free forex trend indicators. There is a video that accompanies the instructions. These free forex indicators can be set up on any Metatrader platform from any forex broker, and they are absolutely free. The Metatrader charting systems also have a built in price alarm system which works very well with the Forexearlywarning trading plans. Installing the free forex trend indicators on a Metatrader platform will provide any forex trader with a basic, functional system for conducting multiple time frame analysis of trends as well as giving any trader the ability to follow the trading plans from Forexearlywarning.com. The images in this article show how the free trend indicators look on a Metatrader platform. .
Once a trader gets used to using these moving averages for your forex trend indicators they can start to analyze any pair or even the entire market. You can use multiple time frame analysis for your analysis, and eventually start preparing your own trend based trading plans. As you drill down the charts across the various time frames, you can also write down critical areas of support and resistance on each pair you are analyzing.
Now that you understand the basic trend indicator setup we use, we can introduce you to a powerful charting system using the metatrader profiles. With this charting system you can view 7 charts at a time on any time frame by pressing hotkeys on your keyboard. If the CAD/JPY is moving up in the D1 time frame like the example above, you can see what is driving the movement. You can videw the CAD or JPY pairs on one screen and navigate quickly back and forth. Very powerful! We want all forex traders to set up their charts this way.
Why Are Forex Trend Indicators Important?
Following the trends of any financial market is highly beneficial. Trading with the trend will always give you some type of advantage and much better risk/reward criteria. The Forexearlywarning system is a trend based system, with emphasis on the higher time frames. Having easy to set up and interpret trend indicators will facilitate using the system. We are promoting forex traders having a mindset of trading in the direction of the trends and trend evaluation, day after day. A trend is a series of long movements in an individual pair that favors one direction.
Longer-term moving averages define a trend, but shorter-term moving averages can signal its shift faster. That’s why many traders watch moving averages with different time frames at once. If a short-term moving averages crosses, it can signal your trend is ending, and time to pare back your position or scale out lots. Smaller time frame moving averages can signal end of larger time frame trends.
Forex trend indicators can indicate up trends, downtrends, or consolidation phases with sideways movement. An uptrend, or bullish trend, means that the price is moving higher. A downtrend, or bearish trend, means the price is moving lower. A great example of an uptrend is the image of the CAD/JPY D1 time frame uptrend, shown above. Moving averages make trends stand out and obvious. Depending on your trading style you can alter your time frame to suit. Swing traders can move to the H4 time frames. For all trades, the smaller time frames and The Forex Heatmap® can be used for trade entries into the higher time frames.
So many advantages to using forex indicators like moving averages: They are easy to set up, easy to interpret, can be used to analyze individual currencies or any pair, can be used for multiple time frame analysis, easy to spot consolidation phases compared to other types of trend indicators, they can be used to follow our trend based trading plans or to develop your own trading plans, can be use with multiple time frames for support and resistance level identification, and can be used with our forex market analysis spreadsheet to analyze currencies like a professional trader.
Forex Trend Indicators, Consolidations
When a currency pair is consolidating or going sideways, using moving averages will highlight the sideways movement with the red and green colors on the lines. Consolidations are easier to spot with moving averages and they stand out well on the chart. A sideways trend, where the price is moving sideways. Sideways trends and consolidations are good, because you can prepare to enter the next movement when a new trend forms and ride the new trend up or down.
Sideways trends and consolidations mean that the pair you are looking to trade is «getting ready» to move, the pair is not trending now but it could be soon. When you combine moving averages with our other trading system components, like price alerts, news drivers, and The Forex Heatmap®, traders can spot new trends or new movements week after week, and start to create a powerful trading system. If a currency pair is consolidating and moving sideways you can set a price alert looking for a breakout in either direction. Since consolidation phases always precede movements and new trends, price alerts are extremely valuable as part of any moving average system. When the price alerts hit you can also confirm the entry with The Forex Heatmap® forex heatmap, if you confirm a new trend after a consolidation, you can enter a new trend and now ride the trend for several days or possibly much longer.
In this example above you can see that the AUD/USD is consolidating and then it starts to move because the USD starts to weaken and this is detected by our on our real time trading indicator, The Forex Heatmap ® . This movement may be the start of a new up trend, or possibly a resistance breakout.
Forex Trend Indicators, New Trends
One powerful reason for using trend indicators is to locate the beginning of the trend and enter trades there, so as a trader you can ride the trend up or down and do less work while still making a lot of pips. This is especially true on the higher time frames. Let’s look at the example below. At point number 1 and 2, this is the beginning of the trend or near the beginning of the trend. If you enter at these points, your risk to reward ratio is very low and the potential pips you can make is high. At point number 2 the trend is more established and you can still buy the pair, but your risk to reward ratio is lower. At point number three the pairs start to consolidate and the trend is most likely over. In these cases, using moving averages for your forex trend indicators is validated to know where you are in the overall trend. Using moving average crossovers on the higher time frames is also validated, and this technique can be used on all 28 pairs we follow.
How do you enter a trade in the direction of the trend? Once you have identified the direction of the primary trend, you can enter trades by monitoring the pairs for movement with an audible price alert, then confirming the buy or sell with excellent tools like The Forex Heatmap®. In the example above, if you are near points number 1 or 2, you can enter a buy on the CAD/JPY if the CAD is strong or if the JPY is weak, or both. The heatmap will confirm this market condition.
Forex Broker Charts
Forexearlywarning provides the free trend indicators to its clients, however if you are currently using a high quality forex charting system you can set up the free forex indicators for monitoring market trends on your favorite charting system as well. The free trend indicators are just exponential moving averages and in most cases can be set up on any high quality broker charting platform. Just make sure you have at least 9 customizable time frames and the charting platform you use also has price alarms/alerts. They work fine as forex trading indicators for trends. We can show you various options for setting up your forex trend indicators to match our trading system.
All forex brokers provide their clients with some type of charting system, some charting systems are pretty bad and some are fantastic. Using Metatrader is not a requirement but Metatrader, although basic, is a forex industry standard. We would never discourage a trader from abandoning their favorite charting platform as long as the free trend indicators can be mimicked and installed on that particular platform. You may wish to set up a few additional time frames (more than 9) if the charting platform you use will allow for that.
Conclusions About Forex Trend Indicators — Exponential moving averages are great for forex trend following. We provide a set of free trend indicators to any forex trader to get started with trend analysis and to have all of the basic functions you need to follow the trends of the forex market along with our trading plans. A ny charting package you choose should have at least 9 time frames and price alerts. If you have a basic charting system, moving averages, price alerts and access to The Forex Heatmap ®, you now have some solid components for finding new trends, notification of price movement, and buy or sell trade confirmation across 28 pairs.