A Technical Indicator That You Should Master!

Every day you will come across a new trending indicator

. The number of trending indicators now available is mind boggling. Almost all these trending indicators use price and volume in their charts. So using many will not give you an advantage. What you need to do it to use only one trending indicator and combine it with candlestick patterns to generate accurate trading signals.First, you need to eyeball the chart to determine if the market is in a trend. You can also use the ADX ( Average Directional Index) Indicator to determine the trend. Unlike the oscillators that have a range between which they oscillate, a trending indicator has no upper or lower bound. The higher the trending indicators reading, the stronger the underlying trend!Now these trending indicators can be applied to almost all markers stocks, futures, currencies, commodities, ETFs and so on. So mastering one trending indicator can give you the edge to trade different markets. The three major trending indicators are: 1) Moving Averages, 2) Directional Movement Index (DMI) and 3) Moving Average Convergence Divergence (MACD).Directional Movement Index (DMI) is a powerful trending indicator. DMI not only reveals the direction of the trend but also tells whether it's strength is increasing and when it is about to end.DMI is composed of three charts or plots.ADX, and +DMI, -DMI. +DMI oscillates between 0 and 100. +Mi tells you how the bulls are doing the market and are they successful in pushing the prices higher than last day's close. -DMI also oscillates between the two numbers 0 and 100. -DMI shows how effective the bears were in the market. Were the bears effective in pushing prices below last days's low. ADX plot measures the difference between +DMI and -DMI at any point of time. ADX tells ou about the strength of the trend. If it is less than 20, the market is ranging strongly and if it is above 30, the market is trending strongly.Most traders use +DMI and -DMI crossovers as trading signals. When the +DMI crosses above the -DMI, it signals that buyers are now in control of the market. When the -DMI crosses above the +DMI, it signals that the sellers are now in control of the market. You must master this technical indicator if you are a serious trader.But if both +DMI and -DMI cross each other frequently, it is an indication that neither the bulls are strong nor the bear. Both are wrestling with each other and are unable to overcome the other. In other words, what this means is that the market is ranging or consolidation.


A Technical Indicator That You Should Master!

By: Ahmad Hassam

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