In the forex faq today, we have a question from one of our fellow traders asking me to recommend him forex indicators that can be used to find the trend and reversal.
Below is the question
What indicators do you used to find the trend and its reversal?
As a trader, it is very important for us to know the current market trend as we try our best no to trade against the trend. You will find that it is much more easier to make profits trading in the direction of the trend than against it.
Therefore I hope that you guys can try out these indicators that I am using to tell the trend.
1) 200EMA – The 200 EMA is a very good trend identifier. When you see that the 200 EMA is sloping upwards with good gradient, it is a sign of a strong up trend.
When you see that the 200 EMA is sloping downwards with good gradient, it is a sign of a strong down trend.
However when you see that it is flat, it is a sign of side way movement.
If you want to use this indicator to tell a reversal, it can only do so when the trend actually has reversed. The 200 EMA cannot be used to predict a reversal in advance but it is a very tool to identify the current trend.
2) Multiple EMAs – You can also use the multiple EMAs technique to tell the trend. What you can do is to plot a 50 EMA, 100 EMA and 200 EMA on the same chart.
When all the 3 EMAs are sloping upwards with good angle and separation, it is a sign of very strong up trend.
When all the 3 EMAs are sloping downwards with good angle and separation, it is a sign of very strong down trend.
When you see that the 3 EMAs are clustered together, it is a sign that the market is in consolidation.
Similarly, these multiple EMAs cannot be used to predict the reversal in advance.
3) Fibonacci Indicator – In contrast, the Fibonacci indicator cannot be used to identify a trend but it can predict a reversal in advance.
Personally, I do not know of any other way to predict a reversal other than using the Fibonacci indicator. For those of you who are a student of my Forex Street University course, you should know how it works.
However I am really sorry that I can’t tell you how to predict the reversal using this indicator as it will be unfair to my students who had taken the course.
However knowing how to identify a trend is equally important and I really hope that you can try out these 2 methods that I have taught you in the above to tell the trend so that you will not be getting into trades that are opposite to the trend.