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Indicators to Use in Detecting Trend Start

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Coinpedia

Crypto Journalist and Editor of guest articles in CoinPedia. I am also handling Outreach & Partnerships Manager. Contact me: [email protected]

    Dec 20, 2021

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    No one can forecast the future; thus, it is impossible to determine when or where the new trend will begin or stop. Some traders may be able to predict the trend even before it begins. But the question is if it is consistent. How often do they get it right? The trend usually begins before traders notice it. To determine the best time to buy crypto, we do not necessarily need to focus on the market in general. All we need to do now is see if a new trend has begun. In this article, we will explain how to spot the beginning of a new trend and make the best out of it via crypto exchanges and trading platforms like the Bitcoin ERA.

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    The most common instrument used by traders to determine a new trend direction is the moving average. It is capable of detecting an upward or downward trend. The moving average is a straightforward idea. There is a chance of an uptrend when the moving average and price action cross and the price rises above the moving average. A downtrend is possible when the price and the moving average cross and the price falls below the moving average.

    According to David Penn’s article on Forbes, moving averages are widely accepted tools. Moving averages are typically trend-following tools that help traders determine what kind of trend, if any, a given market has developed. Combining two moving averages with a cross over is another common application of a moving average. So, how does this case play out? Let us pretend we have drawn 50 and 200 EMAs on the chart. When the 50 EMA crosses the 200 EMA, it may indicate a trend shift from bearish to bullish. As a result, traders can claim that this is a new trend but not the start of a trend. However, it is close. It is necessary to understand that the moving average is a lagging indicator. One may not notice the start of a new trend right away. The duration of the moving average we choose will determine this.

    The second indicator indicating the onset of a trend is the level of support and resistance. When a price hits a resistance and support level, it usually bounces. When this occurs, a new trend may emerge. We will see higher highs and lower lows when the market is usually upswing. However, if it reaches a resistance level and the price retraces and contacts the upper-low closing below it, it could indicate a likely trend reversal and the start of a new trend. Lower highs and lower lows characterize a decline in the market. We may say that this is a likely trend reversal if the lower high crosses the price and ends above it, so get ready for an upswing.

    A trendline is one of the most effective tools for determining the end and beginning of a trend. Trendline forms visible lines on charts by connecting sequential price points. It gives us an idea about the future development of the market. It is when the breakout of the trendline comes into play. If the market is rising, we will draw an uptrend trendline here. And be on the lookout if it breaches the trend line we created as the price closes below it because this might signal the end of the uptrend and the start of the decline.

    The same thing goes for the downtrend market; we will draw a downward trendline. When the trend line breaks upwards as the price closes above it, it could indicate that a new trend is starting. The only issue that traders have with the trendline is that it is subjective in nature. Why? It is because we need to use multiple trendlines to know the overall trend of the market sometimes. The fanning trendline is what we term this situation. It means we will need to use a short-term, intermediate-term, and long-term trendline. Before initiating the trade, we must now decide which trendline to use as a reference. That, I believe, is not so simple.

    Now let’s talk about the failed test. We can only use it for a prolonged trend. Meaning, the market has been trending or downtrending for a long time, and all we are waiting for is exhaustion. So how can it be identified? We have to understand how it exactly works. The upward price momentum is strong. There will be a retracement on the weekly chart, and it will push upwards again a bit.

    Heavy rejection will take place with an engulfs bear candlestick. But then it will retrace up again before it continues to go down. When we see the exhaustion of price and loss of power of the bulls, it is the time that we can enter a trade and put a short position. Sometimes, when the crypto market uptrends and reaches an all-time high, it tries many times to break or hit the all-time high again. The force of rejection is one of the factors why it does not happen. Test failure occurs due to the exhaustion on the side of the bulls. One way to confirm it is when it takes time to recover and when its price remains low.

    There are many other ways to identify if there is a new trend. There are indicators like RSI (Relative Strength Index), OBV (On-Balance Volume), MACD (Moving Average Convergence Divergence), Stochastic, and a lot more. But most of these indicators are subjective, so we need more confirmation from price action to make our assumption more robust. Indicators streamline the information that we can get from price movements. It can warn us about reversal trends and trend starts. Remember that one can use indicators at any time frame, and they usually feature variables that are tweakable to suit each trader’s tastes. Traders can mix indicator tactics or create personal rules to produce clear entry and exit criteria for trades.

    Traders who know more, especially in technical analysis, have an edge compared to other traders. For some who find studying technical analysis overwhelming, consulting a crypto trading professional is the solution. However, always remember that whatever trading decision you make, you should own the risk. That is why personal, in-depth research is necessary before entering the crypto world.

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    Coinpedia

    Crypto Journalist and Editor of guest articles in CoinPedia. I am also handling Outreach & Partnerships Manager. Contact me: [email protected]

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