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Saturday, April 18, 2015

Using the Slope of an Indicator to define the Trend

Using the Slope of an Indicator to define the Trend

One of the most used techniques to define the Trend of a Market is looking at the Slope of an Indicator.

Usually a Moving Average like HMA, EMA, SMA provide a good idea of the trend, having the first one ( HMA ) the fastest, and the last one ( SMA ) the slowest reaction.

On this Chart we can see an example of 3 Indicators using the same Period :

If we look at the Trend Changes, then the signals on each Indicator happens on the shown points :

We can even look at combinations of Indicators to define the trend.
For example, looking at a fast EMA to produce the quickest results may also produce too much signals, most of them not good, as we can see on this Chart :

Here I apply an HMA(8) to get the fastest response :

But to avoid so many signals, we can Average this line, using an EMA(8) of the HMA(8) and it looks like this :

On all type of moving average types, using a small period offers more response, less delay but more fake signals, so it is always a good idea to average the line several times using a small period ; Example : EMA(EMA(Close)) 

The Donchian Channel is also very useful, it has 3 lines : the upper, the lower and the median ( average between upper and lower ).

On this example I will use the Median of a 12 Bars Donchian:

These example Charts were generated with the TIS_Slope_Color Indicator for Ninjatrader, which allows to detect the Slope of any Indicator or combination of them as seen on this YouTube Video :

Hope you find these basic concepts useful to add or enhance your Trade Setups.

Please share and post any questions !

Best Regards,
Pablo Maglio

Skype Skype id : pmaglio