Is it possible? Can we really measure whether a currency pair, or anything trade-able for that matter, is trending?
I have tried many different Trend Strength Indicators in the past, such as Average Directional Index or ADX, Moving Average Convergence Divergence or MACD, Moving Average Crossovers, Relative Strength Index or RSI and a few other less popular.
Not sure about you, but I have found them to be lagging most of the time, that is, by the time the indicator signals a trend, the trend has already lost momentum and soon enough, prices reverses before a target hits 🙁
Have you ever thought about what makes a snake move? What mechanical function is used to describe their movement? Like prices in a chart, a snake can’t move in a straight line. With its undulatory locomotion movement, that is a wave like patter, it can move horizontally or at a certain angle either upwards or downwards.
The question is how can we identify the moment price goes from a sideway movement to an angular one?
If you have read my article about Bollinger Bands you would think the answer is easy “at the moment when price breakthrough the 2nd Standard Deviation since according to the theory of Normal Distribution 95.44% of the time price moves between +2 and -2 deviations from the mean” right? Not always or not as simple as it sounds.
There are many occasions like the one below where price breaks above the top bollinger band, right before it makes a reversal move the other way. Had we entered a Long position at the breakout point, we would have lost big time. This is known as a False Breakout. As traders, we love to give our mind a reason as to why we lost on a trade in order to keep trading!
So if the breakout is not the answer, what is the answer then? How can we identify a Trend? I have given this a thought for a quite a while now and the answer is….The Breakout!
What? Yes, the answer is still the breakout, not just one breakout though, but multiple breakouts of certain deviation in X period of time. The longer the X period, the more breakouts must need to have occurred for price to continue trending in a particular direction!
With that thought in mind I decided to get my developer to create a new mode for the Zscore Indicator Suite In this particular mode, which I called “ZScore Trend Index” and in which I cannot reveal the precise formula used, we get to see a clearer picture whether a trading instrument is or not trending.
Let me give you one example with AUDUSD on 4H Timeframe. The chart has 5 x Zcore indicators on Trend Index mode. From top to bottom they are set at 200, 100, 50, 20 and 10 period. You can notice the 200, 100 & 50 period not only remains colored blue the entire length of the trend but the value stays above the top dotted line the entire time, indicating a bullish upward trend, while the shorter periods 10 & 20 gave us good entry opportunities every single time it crossed above the bottom dotted line.
The trend is your friend. A lot of money can be made with many different strategies that take advantage of a trending price. The key question is determining how early or late in the Trend price is. I believe our Zscore Trend Index mode can be of great help at figuring this out.
The indicator is available for rent on the MQL marketplace for the MT5 platform ONLY.
If you have any questions, feel free to send me an email at fxbaba108@gmail.com