Trend Indicators

In technical analysis, the primary purpose of a trend indicator is to objectively identify the direction of a trend by smoothing out the volatile nature of the price action. There are a whole range of different trend indicators that can be used for technical analysis but these indicators tend to be lagging indicators as they are usually based on past price action. Hence they follow price action rather than lead it. Some trend indicators, such as the MACD, also measure the strength of the trend.

By far the most used trend indicator is the Moving Average (MA). Other popular trend indicators include: Average Directional Index (ADX) of the Directional Movement Index (DMI), Parabolic SAR, Price Oscillator, Zig Zag, and trendlines. These indicators are widely used to develop trend following trade systems, and to augment chart pattern and spread volume analysis.

As a rule of thumb, lengthening the period for a non-oscillating trend indicator will give a clearer indication for the trend. However, for an oscillator a shorter period is preferred as a shorter period oscillator will be more sensitive to price changes and will signal turning points quicker.