How you ever wondered how the investment market works. Yes, traders buy and sell shares, commodities, currencies, etc., but they base their trades after analysing several factors, including charts, candlestick patterns, and trend indicators. These tools help traders analyse the market movements and the risks of investing. Traders generally use several different indicators but here are the best ones.
Top 5 Best Trend Indicators
The following indicators are regarded as the best trend indicators:
- The Bollinger Band Indicator
The Bollinger band is one of the most widely used trend indicators, especially among retail traders. Introduced by the American Financial analyst, John Bollinger, these indicators have two uses – they show traders the trending conditions and they help measure market volatility. The Bollinger band indicator comprises of three bands, which closely follow the assets’ price, with the middle band serving as a moving average, for instance, an Exponential Moving Average. The edges of the indicator follow the asset’s price while reflecting its volatility. The volatility reduces as the bands move closer, making a breakout imminent.
- The Moving Average Convergence Divergence Indicator
The Moving Average Convergence Divergence Indicator, also known as the MACD indicator is one of the top trend indicators. This oscillating indicator fluctuates around zero and helps measure both trend and momentum. While the MACD indicator follows the simple moving average for calculations, it also incorporates several additional features that help you analyse the recent moving averages as compared to the older ones. It is better to combine the MACD indicator with other technical indicators, instead of using it as a standalone trend trading indicator.
- The Relative Strength Index Indicator
The Relative Strength Index Indicator is another oscillating trend indicator that helps measure the excessive market sentiments for stocks that are trending. On the RSI indicator, assets are considered as overbought and oversold in the market, causing a trend to form. So if the indicator reads 70 out of 100, it means that an asset has been overbought, and a market correction is imminent. Conversely, if the indicator reaches a range below 30, the asset is deemed as oversold.
- The Average Directional Index Indicator
The Average Directional Index trend trading indicator helps analyse trends and momentum. This indicator predominantly measures the strength of a specific trend, while allowing traders to assess the price strength of the asset being traded. The estimation is done in both positive and negative directions. The ADX indicator comprises a line which fluctuates between zero and 100. If it indicates values between 25 and 100, you can say that a strong trend is occurring. Conversely, if the value of the asset falls below 25, a trend is said to be falling weak.
- The On Balance Volume Indicator
The On Balance Volume indicator, also known as the OBV trend indicator, is another popular tool that assists in measuring a security’s volume trend. Volume is considered a significant complementary measure used for confirming price trends by determining if the trends are occurring on a low or high number of trades. Typically, if a high or low volume of trades is accompanied by an upward or downtrend, respectively, it is considered a supporting signal for that particular trend.
Most beginners make the mistake of following a herd mentality while trading. They take trading advice from friends and relatives. However, if you wish to make your investment worthwhile, you should approach experts like Angel One. At Angel One, we provide you with the necessary charts, data and trend indicators, which enable you to make informed investment decisions.