“Identify trends, because the trend is your friend.” This is probably the first lesson you’d learn in trading forex. While not always true, identifying trends is a key practice for technical analysis.
You can identify trends in any charted market using simple methods, such as trend lines and moving averages. You can also use the cloud indicator. These are all part of the second point of the IDDA.
Drawing trend lines is an art. And just as with any other type of art, everyone has his own unique opinion on them.There is no perfect way to draw trend lines, but if you have an artistic eye, you usually won’t miss a strong trend.
To draw a trend line, once you have casually identified a trend with your naked eyes, you simply have to click on the “trend-line instrument” on your trading platform and connect two or more major valleys (bottoms) or two or more major peaks (tops) as shown.
Identify trends using trend lines
How to Identify Trends Using Cloud Indicator
While drawing trend lines remain one of the most popular methods, you can also use the cloud indicator to confirm or identify trends.
Cloud indicator is short for Ichimoku cloud indicator. In her book, Ichimoku Secrets, Kiana Danial dives into the interpretations of this commonly misunderstood indicator. Not only the cloud indicator can be used as entry and exit signals, but it can also be used to identify trends.
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Specifically in chapter 2, Kiana explains the initial, secondary and tertiary trend triggers that can be identified using the cloud. For example, in a trending market, the first trigger could be spotted by the Kijun and Tenkan line cross-overs. This works much like normal moving average combinations where a short-term moving average crosses a long-term moving average.
In traditional usage of moving averages (MAs), as Kiana has explained in her other book “Invest Diva’s Guide to Making Money in Forex”, the cross overs are first responders to a market reversal.
One popular way of using traditional moving averages is based on Joseph Granville’s technique of technical analysis—using the 200-day moving average versus the 30-day moving average to identify bullish (upward moving) or bearish (downward moving) trends.
Golden cross: When a short-term moving average crosses above a long-term moving average, it means that the speed of the upward movement in a short period has become faster than the long-term speed. So this could be the beginning of an uptrend.
Identify trends: Golden Cross – Initial Bullish Trigger after a Downtrend
Dead cross: When a short-term moving average breaks below the long-term moving average, it indicates that the speed of the downward movement in a short period has increased. So this could be the beginning of a downtrend.
Learn all there is about Cloud Indicator: Get Ichimoku Secrets Book
Other methods to identify trends using the Cloud Indicator:
- As long as the five lines are parallel, the trend will continue in that direction.
- When the candles are inside the Ichimoku cloud, that means that the market is in the process of consolidating. In other words, the trend is sideways.
Access cloud indicator education now: Ichimoku Secrets.