Best methods to identify trends using MQL5 tools in 2018 yearTuesday, 2 January 2018 12:27
There are terrible legends in the financial markets about how a risky trader Boby had traded against the trend and lowered all his capital. To avoid such a fate, traders try to steadfastly adhere to the golden rule "Trend is your friend". They try to follow the current trends in the market. But sometimes it is so difficult to determine this trend by yourself. Therefore, traders need the help of indicators and trade advisers of MQL5. This instruments like a Grail, which allows you to enter the market exclusively follow the trend and remain stable in profit.
Why you need to know the trend
Trend is the direction of price movement in the market limited by timeframes and starting from a certain point. Thus, in order to correctly identify the trend, it is necessary to determine the period of market analysis.
Let’s consider the example. The graph above shows the price movement from December 2005 to May 2006. The general trend for this period is upward (a green arrow). However, a more detailed analysis of the chart makes it clear that from mid-January to the end of February the trend was downward, and in January, the flat was predominant. If we take smaller timeframes, we can consider other trends.
On how long the trend lasts, the duration of holding the position from its opening to the closing depends. This also determines the level at which the stop-loss and take-profit protective orders will be exhibited. Thus, knowledge of the current trend is extremely necessary for successful trading on Forex and other financial markets.
How to determine the trend?
It is impossible to correctly determine the trend without nesessary skills, but the Metatrader terminal indicators are quite good at this. Let's talk about what tools can determine the leading trend in the market. This can be done through the following indicators:
- Moving Average.
- Vertices of the zigzag.
- The color of the Heiken Ashi candles.
- Indications of the ADX.
- The NRTR indicator.
Let’s consider the merits and demerits of each of these options.
Determination of the trend using Moving Averages
The Moving Averages are one of the most common tools. It is the basis of the vast majority of indicators created for Metatrader terminals. Several Moving Averages can be used at once in one trading robot. The principle of determining the trend in such instruments is as follows:
- The trend is upward, if the moving average is located below the closing price of the bar on the selected timeframe.
- The trend is downward, if the moving average is higher than the closing price of the bar on the selected timeframe.
As practice shows, the price does not always move in the direction shown by the moving averages. This tool gives a lot of false signals, and this is its main drawback. For this reason, indicators based on Moving Averages should always be checked using other technical analysis tools.
Determination of the trend direction using the ZigZag extremes
ZigZag refers to the classic tools of technical analysis. It is used to determine the trend in the market for more than a dozen years. It is based on the Charles Dow rule, which states:
- Trend is upward, when each next price maximum is higher than the previous high, and each subsequent price minimum is also higher than the previous low on the chart.
- The trend is downward, when each subsequent price minimum is lower than the previous minimum, and each subsequent price maximum is lower than its predecessor.
This method is very useful for working with historical data in order to find patterns in the behavior of prices. However, it is not very useful for practical use, because it is impossible to determine in real time the extremum was formed or it's not yet.
Determining the trend using the ADX indicators
ADH, or the index of average directional movement, is used to identify the current trend and simultaneously shows its strength. This is a very valuable property since the duration depends on how strong the trend is at the moment.
The direction of the trend using this tool is determined by the intersection of the lines + DI and -DI with each other.
- The trend is upward if the + DI line is above the -DI line.
- The trend is downward if the -DI line is above the + DI line.
The strength of the trend is determined by the position of the ADX line on the chart. The trend is considered weak if ADX falls below level 20. In this case, it is better not to start trading, but wait until the trend intensifies.
In general, this indicator shows very good results, since insignificant price movements are easily eliminated with the help of the trend strength filter. However, using it in work, it is worth adjusting its parameters according to the features of the financial instrument, otherwise, it works with very low efficiency.
Determination of the trend using the indicator NRTR
Nika Ripoka's trend indicator also gives very good results. It is at the same distance from the reached extremes below the price with an uptrend and above the graph - with a descending trend. This tool ignores minor price fluctuations and fixes a trend reversal only when the correctional movements exceed a certain range. Determination of the trend using the indicator NRTR occurs as follows:
- The trend is upward if at the close of the next bar the indicator line is below the graph.
- The trend is downward if the indicator line is above the graph when the bar is closing.
The NRTR indicator, in general, gives quite good results. However, since it ignores small corrective fluctuations, it is not suitable for scalping. In addition, this indicator must be adjusted in accordance with existing trading conditions. As a result of numerous tests it was revealed that the default settings give almost zero profitability.
Determination of the candle trend Heiken Ashi
Heiken Ashi candles are a modification of Japanese candles. However, unlike the classical version, the Heiken Ashi candlestick values are partially averaged with the previous bar. The principle of this tool is simple: blue candles appear when the trend is up, red candles are formed with a downward trend.
This method gives an idea of the general situation on the market. However, it is not worthwhile to be guided only by them in the trade, since during the flat it generates a lot of false signals. In addition, the indicator Heiken Ashi often redraws not only the last bar but also the penultimate one.
Each of these tools Metatrader is very useful for determining the trend in the market, so they can be safely used in developing their own indicators and trading advisors. However, do not forget that alone, even the most effective indicator can lead at the most crucial moment. Therefore, when analyzing the market, it is worth using several tools at once.