Technical analysts often say the trend is your friend. In other words, a stock going up in price will likely keep going up. Alternatively, one going down in price is likelier to keep going down. You can decide whether to buy, sell, or hold a position by clearly viewing the trend. However, determining a trend can sometimes be difficult. So, how does one befriend the trend to make money? This blog post on market trend technical indicators has the answer.
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Market Trend Technical Indicators Introduction
Today, I will discuss the five top technical indicators of market trends that traders need to know. Whether this is your first day trading stocks, options, futures, or cryptocurrency, these indicators are a good starting point. But first, let’s break down what exactly a technical indicator is.
A technical indicator shows up on your trading platform as a pattern. The pattern is derived from a mathematical formula based on historical data such as price, volume, and open interest.
More importantly, technical traders use these indicators to predict future price trends to make trading decisions.
I want to emphasize that this is not a blog where I’ll tell you the secret market trend technical indicators to make you millions. Instead, let me tell you a little secret: It doesn’t exist.
When I was new to trading, I struggled. But, looking back, it wasn’t for lack of energy or determination to succeed that I had. I lacked focus; I was overwhelmed with the seemingly hundreds of indicators. I wished someone had sat me down and told me what to focus on. That’s why I’m here today.
Solid Foundation or House of Cards
Which would you prefer, living in a house built on a solid foundation or one built of cards? You don’t need to answer that, but I hope the metaphor resonates with you. Trading is like building a house; you don’t start with the roof.
Instead, by building a solid foundation of knowledge, you’ve got a solid home by the time you get to the roof. It’s so solid that not even a hurricane will stop you.
Alternatively, you may get to the roof by jumping from one fancy technical indicator to another. Still, it’s haphazardly held up by cards ready to blow over even the slightest gust of wind.
Top 3 Market Trend Technical Indicators
A quick disclaimer: The first indicator I will talk about isn’t an indicator. It’s vital because all other indicators are based on them and use their data in their calculations.
1. Volume
Volume is a measurement of how much interest there is in a stock. It measures how many people buy and sell the stock back and forth. Likewise, if people are not buying the stock, they don’t care about it.
Because of this, it will be hard to make money when there’s little interest in it. Sure, you can always buy it, but remember, you must also sell it to make money. You must ensure that there will be someone who wants to buy it from you.
How do you know there is someone? You look at the volume. Volume is so crucial that every platform automatically puts volume on your chart. You don’t have a choice; it will be there because it’s important.
The volume also verifies market trends. More specifically, volume confirms everything from uptrends, downtrends, sideways trends, breakouts, and chart patterns. And for momentum traders, volume is like fuel for a race car. Without it, you won’t even get out of the gate.
A volume surge is mandatory for those who trade breakouts to confirm that it’s a breakout. Likewise, any price movement with a relatively high volume is seen as stronger and more relevant than a similar move with a weak volume.
2. Moving Averages (MA)
A simple moving average is a market trend technical indicator used to determine the direction of a trend. It is called a “moving” average because it is continually recalculated based on the latest price data.
We have two different types of moving averages: simple and exponential. Firstly, the simple moving average (SMA) is obtained by summing the recent data points in a given set and dividing the total by the number of periods. Secondly, the exponential moving average (EMA) gives more weight to the most recent price points.
Depending on your trading style, you may prefer the 50 and 200 SMA or the 10 and 20 EMA. I have been day-trading the one-minute chart and like using the ten and 20-moving averages.
More specifically, I watch for the 10 EMA to cross under the 20 EMA.
3. VWAP
Next to volume, the Volume Weighted Average Price (VWAP) is probably one of the most important day trading technical indicators. The volume-weighted average price (VWAP) appears as a single line on intraday charts (1 minute, 15 minutes, and so on), quite similar to how a moving average looks on your chart.
Unlike other moving averages, which only use the stock’s price, VWAP considers both price and volume. This is important as it lets you know if the buyers or sellers are in control.
I know of some traders who only use VWAP and Volume to confirm their entry and exit points. I make sure that the candlesticks are above VWAP before I go long.
Alternatively, the opposite is true; if I want to short, the candlesticks must be below VWAP. Some platforms like Trade Ideas even have built-in VWAP crossover scanners; this shows the weight this indicator throws around.
Did you know that VWAP and moving averages may look similar on your chart? However, these two indicators calculate different things. VWAP calculates the sum of price multiplied by volume and divided by total volume.
A simple moving average is calculated by summing up closing prices over a certain period (say 10) and dividing it by how many periods (10); volume isn’t factored in.
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What Is Your Situation?
You need to figure out what combination of indicators works best for you and your situation. So, for example, somebody who works a 9 to 5 job will need a little bit of a different strategy than someone who has all the time in the world to dedicate to day trading.
Neither strategy is right or wrong; it’s what works for your situation. Regardless, we all need to build a foundation whether or not you’re a day trader, swing trader, or investor.
Final Thoughts: Market Trend Technical Indicators
Please don’t be fooled by someone selling the latest and greatest “strategy” to beat the market. There are many different ways to build your solid foundation. The common thread among all successful traders is that they took the time to build it. We all start from nothing and build.
It would be best if you didn’t think that these are the only five indicators you should use and always stay with. However, these five will give you a firm foundation for building and making money. As I mentioned above, there’s no such thing as the one perfect indicator or magic indicator algorithm.
If there were, we would all be rich, and you wouldn’t be reading this blog post. Until that day comes, you’d be wise to get building. What better place to start than with our free courses at Bullish Bears?
