Whether you are just getting started into Technical Analysis, Trending Indicators, or are already an advanced technical trader you should be familiar this quote:

“The TREND is your FRIEND”

Using Trending Indicators to identify and follow a trend can be a very profitable trading plan, especially when markets trend in the same direction for a prolonged period of time.  Why is this you ask?  Because trading in the direction of the trend greatly increases an investors success ratio.  Do so increases the probabilities of success.

The important thing is that you must understand which time frame you are going to trade.  Are you looking to get in tomorrow and then get out before the week is out or are you looking to hold the security for the next 2 weeks to a year?  You must know what time frame you are trading and then understand that once you make that trade you don’t change the originally intended time frame.

The importance of using Trending Indicators is for you, the Technical Trader, to identify the trend so that you can trade in that direction.

Without further ado let’s take a look at 3 types of the Best Trending Indicators:

1.      Moving Averages

Moving averages are probably the most common trend indicators.  Like all indicators they can be adjusted to varying time frames.  You can look at an ultra short 5 minute moving average or a 200 day moving average depending on your trading time frame.  If the moving average you are looking at is moving up then you are looking at an uptrending stock or security.  If the moving average you are looking at is moving down then you are looking at a down trending stock or security.  A moving average that is moving up or down is called being “choppy,” and indicates that price is trendless.

Here is a picture of a chart with a 30 day, 50 day, 100 day, and 200 day moving average.  Can you identify the trend of this stock based on the directions of these moving averages?

Let these moving averages help show you the trend direction

2.      Moving Average Envelopes

Moving average Envelopes are effective market trend indicator and assist at showing the price trend as well as identifying areas of support and resistance.  This trending indicator consists of 2 sets of moving averages, one placed above the price and one placed below.  Like moving averages, moving average envelopes can be set to the parameters of your choice.  For instance, you get set the moving average to %5 above and below the price of the security.  That would look something like the example below.

As you can see applying a moving average envelope to your charts can help you visualize both the trend of the market as well as areas of support and resistance.

3.      Bollinger Bands

Bollinger bands are extremely similar to moving average envelopes with the exception of how they are calculated.  Moving average envelopes indicative of their name use moving averages to set the upper and lower boundaries.  With Bollinger Bands, the upper and lower boundaries are set by something called Volatility.  The concept of volatility is near and dear to an advanced technical trader but is a subject all to itself.  The short and sweet of volatility is that the more the price a security moves up and down the larger the volatility.  For example, take a stock like Google that may trade up $30 and down $40 dollars in one day compared to a stock like Microsoft that may move up $1 from one day to the next.  Google would have a much higher volatility as compared to Microsoft.  To illustrate this point look at these picture of a Bollinger Band set to 1 Standard Deviation.

Bollinger Band Chart Example Set To 2 Standard Deviations

Trending Indicators are extremely important to the technical trader looking to identify the trend.  Learn how to start applying some of these trend following indicators to your trading so that you can  improve your trading results.