Trend spotting: how to spot the best trends and trade them for profit

Markets trend, we can all see this with hindsight, but how do you decide if a trend is strengthening and worth trading? In this article, I will give some simple ideas on how to participate in the best trends and make great trading profits.

One of the best ways to learn about trends and find the best ones is the simple moving average. A simple moving average can be over any time period and is simply the price divided by the number of days.

What a moving average does is give you a clear view of the long-term trend and filter out short-term noise, but what are the best moving averages to use?

The first point to note is that moving averages don’t work on short time frames and I’ve seen many people use them in day trading on the 30 minute chart, don’t do this, they don’t work.

The moving average can only be used on longer-term time frames, so let’s look at some good ones to use.

Trend wise there are 3 moving averages that I like the 40 and 20 day moving averages.

In a bear market, the trend will change very often when the 40-day SMA breaks to the upside, and as the trend progresses, the 20-day SMA will act as support and is also an excellent average to re-buy. . If you want to be sure the trend is moving, wait for the 40-day average to give way and then wait for the first 20-day pullback to go long.

This sounds very simple and it is and you can see how effective it is on any forex chart.

When trading in an uptrend, you would look to enter the 20-day MA and place your stop behind the 40-day MA. If you look at the big trends, they will last for many weeks and these averages will help you know the trends and stick with them. Trends last much longer than most traders think and if the averages show you that there is a trend in motion, jump in and stick with it.

There are other ways to measure trends and a great indicator is the Moving Average Directional Indicator which was developed by Welles Wilder and allows you to see the strength of the trend visually and is a great backup to moving averages.

When using the above trend spotting tools, you should always use a few momentum oscillators to see how strong the momentum is to enter the trends with the best moment in the market. Trading trends are very lucrative and the above tools will help you make bigger profits in forex trading.