May 21, 2024


Business – Your Game

Trend Detection – How to Spot the Best Trends and Trade Them For Profit

Markets trend, we can all see this in hindsight but how to do you decide if a trend is getting stronger and is worth trading? In this article, I will give some simple ideas on how to get in on the best trends and make big trading gains.

One of the best ways to get into trends and find the best ones is the simple moving average. A simple moving average, can be over any time period and is simply the price divided by the number of days.

What a moving average does is give you a clear view of the longer term trend and filters out the short term noise but what are the best moving averages to use?

The first point to keep in mind is moving averages don’t work in short time frames and I have seen many people use them in day trading off the 30 minute chart, don’t do this – they don’t work.

The moving average can only be used in longer term time frames so let’s look at some good ones to use.
In terms of trends there are 3 moving averages I Like the 40 and 20 day MA’s.

In a bear market, the trend will very often change when the 40 day MA is broken to the upside and as the trend progresses, the 20 day moving average will act a support and is an excellent average to buy back too. If you want to be sure the trend is in motion wait for the 40 day average to give way and then wait for the first pull back to the 20 day to get long.

This sounds very simple and it is and you can see how effective it is on any currency chart.

When trading a bull trend you would look to get in at the 20 day MA and put your stop behind the 40 day MA. If you look at the big trends they will last for many weeks and these averages will help you get into trends and hold them. Trends last a lot longer than most traders think and if the averages show you there is a trend in motion get into it and stay with it.

There are other ways to measure trends and a great indicator is the Average Directional Movement Indicator which was developed by Welles Wilder and allows you to see the strength of the trend visually and its a great back up to moving averages.

When you are using the above trend detection tools, you should always use some momentum oscillators to see how strong momentum is to enter trends with the best market timing. Trading trends is very lucrative and the above tools will help you make bigger currency trading profits.