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Yes, Give it to me

The 5 Best Trend Indicators That Work 

Last Updated: March 16, 2020

By Rayner

One of the most common questions I get from traders is this…

“Hey Rayner, how do I identify the direction of the trend?”

However, it’s not as simple as it seems — even if you use trend indicators.

For example:

The Daily chart is in an uptrend.

But when you go down to the hourly chart, it’s a downtrend.

And if you go down to the 5-minute chart, it’s chopping all over the place.

So what should you do?

Well, you’ll know the answer after reading this post because you’ll learn:

Sounds good?

Then let’s begin…

This is the most important thing before you can identify the direction of the trend (and it’s not an indicator)

The trend is an illusion.

Yup.

You read me right. I said the trend is an illusion.

Why?

Because you can manipulate the trend and see what you want to believe in.

You might be wondering:

“How do you manipulate a trend?”

The answer is…

Timeframe.

A trend is meaningless without knowing your timeframe.

Here’s the thing:

You can have two traders looking at the same market and one says it’s an uptrend, and the other, a downtrend — because they are looking at different timeframes.

Here’s what I mean:

Daily chart:

15minutes chart:

Get my point?

So…

Before you attempt to identify the direction of the trend, you must know your timeframe.

You’re probably wondering:

“So Rayner, which timeframe should I use?”

This depends on your trading approach, whether you’re a day trader, swing trader, or position trader.

But as a general guideline:

Once you’ve defined your timeframe, focus on it 100% because the other timeframes are “noise” to your trading.

Next, let’s look at the 5 trend indicators that work…

Trend Indicators #1: How to use Price Action and identify the direction of the trend

Price action refers to reading market structure, momentum, and sentiment to identify trading opportunities.

It’s one of the most important things you can learn because it gives you a valuable insight of the market you’re trading (that may not be found on trading indicators).

For example:

  • Where will losing traders puke?
  • Where are traders placing their stops?
  • Where will new traders enter the market?

If you want to learn more, go read The Price Action Trading Strategy Guide.

Now that you’ve understood the importance of price action, let’s learn how to read it and identify the direction of the trend.

Here are 3 things to remember:

  1. An uptrend consists of higher highs and lows
  2. A downtrend consists of lower highs and lows
  3. A range is contained between the highs and lows

Here’s what I mean…

Uptrend:

Downtrend:

 

Range:

I’ll admit.

Sometimes it’s difficult to identify the direction of the trend based especially when the candlesticks are “flying” all over the place.

So in the next section, you’ll learn how to identify the direction of the trend without using candlestick charts.

Let’s move on…

Trend indicators #2: How to tell the direction of the trend without using a candlestick chart

Here’s the thing:

Candlestick charts can get messy if the wicks are long which makes it difficult to identify the trend (especially for new traders).

And a simple solution to it is…

Line chart.

You’re probably wondering:

“What is a line chart?”

It shows the price on your chart by taking the price at the close and then connects the closing prices together via a line.

So, you’ll see a squiggly line on your chart which makes it easier to identify the trend.

Here’s what I mean…

Candlestick chart:

Line chart:

trend indicator - line chart

See the difference?

And here’s how you can interpret line charts:

  • If the line is pointing higher, it’s an uptrend
  • If the line is pointing lower, it’s a downtrend
  • If the line is flat, it’s a range

Simple stuff, right?

However…

You must know that line chart only considers the closing price. This means you won’t know what the high/low of the candle is — and this will hamper your trading decisions.

In my opinion, a line chart is useful to identify the direction of the trend. But for precise entries, exits and trade management, it’s best to stick with candlestick or bar charts.

Trend indicators #3: How to use moving average to identify the direction of the trend and the strength of it

The moving average is an indicator that “summarizes” past prices and is plotted as a line on your chart.

Yes, it’s a lagging indicator but…

…it doesn’t mean it’s useless because the moving average indicator can help you identify the direction of the trend — and the strength of it.

How to use moving average to identify the direction of the trend

Here’s a simple technique that works:

  • If the price is above the 200MA, then it’s a long-term uptrend
  • If the price is below the 200MA, then it’s a long-term downtrend

An example:

How to use moving averages to identify the strength of the trend

Now…

Besides the 200MA, you can use the shorter-term moving average to identify the strength of a trend.

Here’s how…

  • In a strong trend, the price tends to stay above the 20MA
  • In a healthy trend, the price tends to stay above the 50MA

A few examples…

Now:

Moving average works best in trending markets (whether it’s a strong, healthy, or weak trend).

But if the market is in a range, the moving average has little significance and it’s best to ignore it.

If you’re curious to discover my “secret” moving average trading strategy (that you can use), then check out this video…

Trend indicators #4: Trendlines

A Trendline is a tool you draw on your charts. It can help you identify the direction and the strength of a trend.

But before I get to it, you must learn how to draw trendlines the correct way.

How to draw trendlines like a pro

Here’s my 3-step technique:

  1. Look for at least 2 swing points (it could be a higher low or lower high)
  2. Connect the swing points using a trendline
  3. Get as many “touches” as possible on the trendline

An example:

Simple right?

How to identify a trend and the strength of it with trendlines

Here’s how to interpret the trend:

  • If the trendline is pointing higher, it’s an uptrend
  • If the trendline is pointing lower, it’s a downtrend

However…

If you want to determine the strength of a trend, then pay attention to the angle of the trendline.

As a general rule:

  • The steeper the trendline, the stronger the trend
  • The flatter the trendline, the weaker the trend

Here’s what I mean:

Make sense?

Good.

Now you’ve gotten a glimpse of how to use trendlines to define a trend.

But if you want to discover my trendline trading strategy using proven techniques that work, then check out this video here…

Next…

Trend indicators #5: How to trade with Channels and find “sweet spot” for your entries & exits

In case you’re wondering:

“What’s a Channel?”

A Channel is a variation of the Trendline.

The way you draw and interpretation it is the same as Trendline.

The only difference is… Channel has an extra line that’s parallel to the Trendline.

Here’s an example:

trend indicators

As you can see…

Channel helps you identify where opposing pressure could come in. This means you can take profit ahead of time — before the price has a high probability of reversal.

Not sure what the trend is? This little-known technique will give you clarity

Here’s the thing:

If you look only at the water, you’ll miss the ocean.

If you look only at the trees, you’ll miss the forest.

If you look only at the current price, you’ll miss the long-term trend.

So what’s my point?

Stop being fixated on what the market is doing each and every moment.

Instead, zoom out your charts.

Yes.

Zoom out your charts and see the big picture.

Here’s what I mean:

Zoom in view:

Zoom out view:

See how much of a difference it makes when you’re looking at the big picture?

A mistake made by many traders is they become so involved in trying to catch the minor market swings that they miss the major price moves. —Jack Schwager

My personal method: How to identify and trade with the trend

As I’ve shared with you earlier…

There are different ways to identify the trend and there’s no right or wrong or best approach.

But if you ask me, these are the 2 things I ask myself:

  1. What’s the long-term trend?
  2. What type of trend is this?

Let me explain…

1. What’s the long-term trend?

I’ll use the 200-period MA to define the long-term trend.

If the price is above it, the market is likely to be in a long-term uptrend and I want to have a long bias.

If the price is below it, the market is possibly in a long-term downtrend and I want to have a short bias.

Next…

2. What type of trend is this?

Here’s the deal:

Not all trends are created equal.

After many years of trading, I’ve realized most trends can be broken down into 1 of 3 categories…

  • Strong trend
  • Healthy trend
  • Weak trend

Strong trend

A strong trend is when the price has little to no pullback and remains above the 20MA.

In such a scenario, the pullback may never come as the price keeps breaking higher. Thus, in strong trending markets, the best entry is usually breakout trades.

An example:

trend indicators

Healthy trend

A healthy trend is when the market has a healthy pullback and remains above the 50MA.

In such market conditions, it’s possible to trade the pullback. Possibly towards the 50MA or, previous Resistance turned Support (in an uptrend).

Here’s what I mean:

trend indicators

And lastly…

Weak trend

A weak trend is when the market has steep pullbacks but remains above the 200MA.

In such a scenario, you can trade from the 200MA or an area of Support (in an uptrend).

An example:

If you want to learn more about trends, go read The Trend Trading Strategy Guide.

Frequently asked questions

#1: Which timeframe should I use to identify the trend?

The timeframe should be relevant to your trading:

  • If you’re a day trader, then you’ll identify the trend on the lower timeframe like the 1-hour or 30-minutes timeframe.
  • If you’re a swing or position trader, then you’ll identify the trend on the daily or the weekly timeframe.

#2: Do I have to adjust the moving average settings to suit different timeframes?

There are no best settings out there because it depends on the type of trend that the market is in.

If the market is in a:

  • Strong trend, it will tend to respect the 20 MA
  • Healthy trend, it will tend to respect the 50 MA
  • Weak trend, it will tend to respect the 200 MA

Personally, I’ll use whichever of these 3 moving averages that the market is respecting more, for the timeframe I’m trading on.

If you want to discover more on moving averages, then check this out:

The Moving Average Trading Strategy Guide

Summary

Here’s what you’ve learned today:

  • Why a trend is meaningless without looking at the timeframe behind it
  • How to use price action and identify the direction of the trend
  • How to identify a trend without using candlestick charts
  • An easy way to tell the direction of the trend using Moving Average
  • How to draw Trendlines and identify the strength of a trend
  • How to use Channels to better time your entries & exits
  • My personal method to identify and trade with the trend

So, here’s a question for you…

How do you identify the direction of the trend?

Leave a comment below and let me know your thoughts…

  • Rayner, you explain everything in such a great way it’s so easy to understand.
    Thank you and keep it coming.
    Regards
    Haydn Jones

  • What about the 200 MA.On wich time frame.If you use daily chart the 200 MA is above and when you use 5 minute is below?

    Best regards

    Davy

  • Hey Rayner,

    Thanks for explaining and showing us what is your strategy. I have started to employ a trading plan and with the EMA20, EMA50, EMA200 with my preferred timeframe, I felt that I am more in control in my trading with risk:reward ratio. Although none can get 100% winning ratio but the risk:reward ratio is a good risk management. Thanks for all the education.

  • Hi Rayner,
    Thanks for revision.
    I learn and understand good method from you, which help me a lot during trading.
    Great work…

  • Hi Rayner,
    Thank you very much for your time and explaining!
    It’s easy to understand.
    I think that it is much better for me to identify now.
    It is wonderful and helpful!

  • Excellent post Rayner! Thanks for sharing. I try not to use too many indicators in my trading (mostly focused on price action). But this list of ideas definitely helps confirm those trading signals that are worth paying attention to. Thanks again!

  • Hi Rayner, thanks a lot for the article. Will implement some of the techniques into my own.

    Though there’s still one thing bugging me. It’s all good knowing to use MAs only in trending markets. The question is how do you know you’re about to ‘get in’ and ‘get out’ of a ‘ranging market’ so you’ll know when to use it and when not?

    I’m familiar with people using ADX and others but I often experience coming too late into the trend if I waited for their confirmations. I’m thinking may be there are tested indicators or oscillators (with their setups) of your choice that you could share to help us out with it?

    Thanks in advance. Cheers.

    • Hey Rena

      That’s a good question.

      I rely on market structure to tell me that. For example, if the price breaks out of a long-term range… the market could be moving into a trending stage.

  • Thanks Rayner for your educational posts. I can see that you are using the 20&50MA trading the daily timeframe, if I am trading the hourly timeframes should I lower my MA or they work the same on each timeframes?

  • You made life simple. You are a blessing. Now I understand trend identification better than before using a combination of techniques explained here.
    Thanks Rayner.

  • My demo trading is getting on pace so does the education level as I could perceive these easily and polish up my mindset and boost my confidence. Wish to take a moment to say a big THANK YOU not to mention you all the extra guidance through long-winded personal emails. It’s more than what money can buy. Great is your reward to help people in the disorganised trading world. May God bless your family!

  • Hi Rayner , thank you very much. It is very helpful for me. Even I saw bigger time frame’s trend. Everything is solved in shorter time frames as for me. I am trying to follow the trend on shorter time frames through using the 20 MA. When I decide about my entry and exit I realize the support and resistance areas. I want to learn to go with a trend till it ends.

  • Dear Rayner,

    Thanks for great supporting us with giving more knowledge. As a new comer and loser this is very useful and it encourage us. Appropriate if you can train me from A as self learner I do not know where I should start..

  • Hello Rayner can u elaborate more on the transition of the market from range to trend identification using markert again the point of using line graph for trend identification is not well seeping into ma mind with good interpretation can u elaborate it more,
    thanks in advance

  • Dear Rayner, is it better to just use the 20, 50 MA on the hourly because the 200 MA is to large to use on the hourly?

    Rayner, I just want to say Thank You for taking the time out to help you are a God send.

    May you be Bless

  • Thank you for the good article.
    In your definition of price above 200 MA, it will be good to differentiate between the ones that are in a trend versus one that are ranging while still being above 200 MA.

    • Hi John

      It’s not a foolproof thing and there will be times the market is in a range while above/below the 200ma.

      But generally, it keeps you on the right side of the long-term trend.

  • Great article.
    I am assuming that this is applicable to any timeframe (like trend in 60 mins) / any instrument?
    What about stocks that has gaps?

    Thanks

  • For a day trader, how do you handle when one timeframe is in uptrend (say daily) and another in downtrend (say 60 mins).

    Thank you for the nice post.

  • The problem is we never know it’s a strong trend or weak trend in the early stage until it’s already developed and by that point we can see the degree of pullbacks to determine. So take losses is inevitable and it’s just part of the game

  • Hey Rayner,
    This information was very much helpful. Keep up good work bro. And yes, can you try to write or make a video on RSI, MACD or any other which you find useful that would really help.

  • Great thanks for improving my understanding.

    1. Trading from the 4H chart, is it too restrictive to apply 65day EMA > 200day EMA as the bull for long only criteria. I would trigger my entry from the value zones in the 4H chart ?
    2. Further, when in a strong trend (>20EMA in the 4H chart), support/resistance my remain the trigger for entry in the 4H chart. Is it acceptable to optimize the price move in 1H charts to trigger the entry?
    -> Or is this the definition for the chaos you start this article with?

  • As a beginner, this is great stuff! Just a quick one, do u sell signals? Or better still, do u mentor beginners to make daily profits? Pls advice. I’m keen to know.

  • Hey Rayner!

    I use the trend-line angle tool defining strong healthy and weak trends, there’s one in MT4 but I think it’s best used in Trading View.

    Strong Trend: 50 Degrees to 80 Degrees Trend-Line Angle
    Healthy Trend: 30 Degrees to 49 Degrees Trend-Line Angle
    Weak Trend: 10 Degrees to 29 Degrees Trend-Line Angle

    The limitation of this is that the angles are skewed on lower timeframes and scale of chart, so some may have different results 🙂

  • Hi Raynor,
    Great information! I typically use 2 time-frames to get a better perspective of the market. Since I mostly use price action, I use the weekly for trend (Higher lows & lower highs) and a daily to find entries. But, I am interested in using EMA but I am not sure if I should place it on the weekly chart or the daily chart. I think the time-frame difference will cause in-accurate trend if I place on weekly and do entries on daily. Should I use smaller numbers on the EMA and if so, what do you think would be good numbers?
    Your thoughts?

  • I’m confuse. You said zoom out an see the whole picture but then you said to stick to 1 chart.

    I read that we need to keep track with multiples chart instead of focusing on one. Cre to explain. ?

  • Hey Rayner u do very noble work by sharing ur thoughts from time to time . It’s very very useful for recently joined trader. God bless you.
    I don’t enter trade without 3 time frame analysis and start noting trend on each time frame. But not in as detailed understanding as u mentioned above. I will add up to my checklist now. Thanks tons

  • Hi sir,,,, it’s me Honnayya I m from India….. Really really hatsup sir…. What kind of techniques u have sir… Really I m very happy to see your all YouTube videos….. After watching your all videos… I m on profit…. No loss……

  • by stepping back and viewing the chart on 1D if there are higher highs and higher lows then it is uptrend and I need to trade with the trend. If there are lower highs and lows then it is downtrend.

  • Thanks Rayner for being my friend and mentor without charges. I’ve really learnt a whole lot for free from you. Thanks once more

  • Hello Rayner,
    I am using 15min timeframe for Intraday trading. But which timeframe is best for analyse the intraday stocks. Thanks in Advance.

  • Am looking for a mentor sir.
    Am new to this trend of forex trading.
    How can i get into contact with you sir?
    Thanks though for the good work

  • Dear Rayner

    I have seen so many forex training videos in the last six months. I am a new comer to the world of forex.
    Last week I am lucky to come across your website and seen a video on Trend finding using MA. Now only I know the power of Moving Average like MA 10, MA50 etc. Every words of you give confidence.

    Now I decided to go through your study materials only .
    Thank you your excellent free coaching.

    Dr.R.Ponraj
    Coimbatore Tamil Nadu India.

  • You’re a great mentor I’ve been having issue understanding the MA’s and I thought I would never know it , thank you for breaking it down for me I think this post was made for me thanks you so much I just finish writing and drawing things down in my note so I can always go back to it and read it when ever I’m lost thanks so much

  • Thank you Rayner,

    Well, i still need to ask though. The highers time frames will show an uptrend, meaning a buy, while lower time frames will show a down trend meaning a sell. If i opt to use the lower time frames which are showing a sell to make a trade, are these lower time frames going to eventually align themselves with the higher time frames?

  • Rayner am having problems with the MA entry… Am using EMA 20 and 50..but I still don’t get it… Is there any simpler way or method you can use to explain more about how I can use EMA 20 and EMA 50 to trade

  • It is generally not an easy exercise to determine a trend, however, by zooming out you notice that a trend has been in existence for a long time. The big question how do you recognise it from the beginning?
    Yes, there are clues as you have outlined above. Thanks

  • Rayner thanks,I identity the trend using various of method 1:price action(higher highs and lower lows)
    2: 200 period MA and thank you for that
    3 : trendlines

  • Rayner, Is there an easy way of finding good healthy trending stocks, commodities, FOREX, or is trawling through charts the only way to identify them? I’m looking for EMA20, 50 & 200 Trends to get into and trade.

    • I manually scan through the charts. Haven’t come up with an automated way to do it.

      But you can filter for stocks above 200 and 50MA to reduce the number of manual screenings.

  • To identify the direction of trend, we first of all look at longer time frame, switch to line chart to confirm, then go to our supposed shorter time frame, confirm the trend to be same with longer time, then apply MA 200 for confirm if the price is in confirmation by being above or below the MA.
    We can also identify the direction of trend by drawing trend lines and channels.

  • Thanks for your clear explanation on how to identify the direction of the trend. I now have a different perspective on the matter. I found the tips very useful.

  • Hello Rayner,

    First off, thank you for all the free education you share on Forex trading. It has been of immense benefit to me and my friends who just started trading Forex a few months ago.

    I have 2 questions.

    1.Would you mind sharing your recommended settings for the 20, 50 and 200MAs..?

    2. What’s your take on scalping.., do you have any advice / strategy for it..?

    Many thanks.

    .

  • Thank you reyner. You have opened my understanding about a number tricks in forex trading which I never knew before. I’m grateful for you taking the time to share. You are the best mentor in this business that I know of.

  • I always able to identify the trend and make a profit but always confuse when to close the deal, sometimes I missed the big strong trend and next time when I hold my deal which initially in profit, later end up with lost, Please help with any advice will improve my strategy, I always love to watch your videos and read the article.

  • Rayner, I am new to trading and really like what I see about you. I am looking for a mentor and wondering if you can help me?

  • Thanks for sharing your story on the Forex market, it really inspired me.
    Though am barely 3months into Forex trading and I’ve crashed my account like twice and would possible need help to improve my trading.

  • Hi Rayner, you are a great teacher, very simple to understand, your teachings has opened my eyes to more understanding in this business. May God bless you real good. Tumbs up.

  • i have been wiatching for 2 yrs , definitely yours videos, writes up are far superior and of highquality , than those of early days when you are relying more on indicators now explaining most of these things just with help of price, pls. make one videos on price and volume interplay… where we shud ignore volume and where nothing without volume….thx and kudos for such selfless and valuable service.

  • Rayner, thanks a lot for the knowledge you share. Your way of teaching is excellent. You explain everything in a easiest way to understand. God bless you.

  • I am glad to be part of your telegram channel. You really explained the information that I’ve been looking for. Thank you very much

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