For intraday traders, the trend act like a best friend. Trading the trend is like trading with the flow. The intraday trend is very important for day traders, as it makes the difference between a session of big profits and one of the major losses. Following the intraday trend is the key to achieve success in Intraday Trading.
Here in this blog, you will find the most effective way to identify the trend in intraday.
A trend line is the most common way to spot the trend in Intraday. It highlights the structure of the market and also projects the momentum and speed of price.
The trend line can be used as a support and resistance and interpretation of the trend line is that once the trend line is broken, the trend may reverse. For Intraday traders, the trend line act as an excellent tool, if they are used correctly.
The trend line indicates a trend or range. When the price makes lower lows and lower highs, it’s in a downtrend. If the price makes higher highs and higher lows, then it’s in an uptrend.
Use the Trend line to find the direction of the trend
To use the trend line, first, draw your trend line and analyze that the trend line is pointing higher or lower. If it is lower, then the market is in a downtrend and vice versa. The image below shows the example of an uptrend.
Trend lines also help you to identify the reversals. I.e. if the trend line is getting flatter – then the market is moving into a range condition. And if the price is touching the trend line and going back to the direction of the trend, then the trend is becoming stronger. And also the trend line can be to trail your stop-loss.
Trend lines not only help to identify the trend in intraday but also helps traders to make decisions for day trading.
Use of a moving average with 20- period exponential moving average (EMA) is another useful way to identify the trend.
In this method to confirm an uptrend, follow these steps.
• Add EMA – 20 periods, when price touches the moving average it establishes a baseline.
• If the price is above the moving average and keeps going in one direction then we can say that it is an uptrend.
• An uptrend becomes stronger when the price makes new higher- highs, and higher lows above the mobbing average.
• If the candle closes below the moving average, it gives a sign of reversal.
Read More : Moving Averages Trading Strategy
To confirm, downtrend, with the help of moving average, make sure that the price stays below the moving average.
• If the price makes a new lower low and lower high, below the moving average, that indicates the strong bearish trend.
• When the price started going above the moving average that clearly shows the ending of a trend and starting of reversal.
Moving averages act as a trend line and also helps to trail your stop loss. To get the better result you can use two moving average (EMA 10 and EMA 20) for the better result.
Highs and Lows
This is one of the easy ways to analyze the charts and find out the trend. During the bullish trend (uptrend), the price makes new higher highs, as the buyers are in the majority. When the price makes a new higher low during the uptrend, buyers are keeping buying at the earlier dips.
From the below image, you can see the clear up-trend by analyzing higher, high and higher low. When the price breaks the previous higher low and starts moving downwards we can say that there is an end of an uptrend.
Same for the downtrend, the prices keep going down by making a new lower low and lower highs because sellers are in the majority and push the price to the downside.
As you can see from the below image, the price is going down by making new lower highs and lower lows. Once the previous lower high breaks and price moving towards the upside, it gives the signal of reversal.
ADX indicator is useful for identifying the direction of the trend and also the strength of the trend. ADX indicator is consisting of three lines. The ADX line shows the strength of the trend. +DI line (green line) shows the bullish strength and the –DI (red line) shows the bearish strength.
A combination of the ADX indicator and the Moving average gives a clear idea of intraday trend. ADX gives a signal of an uptrend when the +DI line is on top of the –DI line. When the –DI line is higher than the + DI line, it gives the signal of a downtrend. When the price is ranging, the +DI and –DI lines stays very close together and hover around the middle.
In the below example, you can see that the price is above the moving average and the green line is above the red line that clearly indicates the uptrend. When the price is below the moving average and the red line is higher than the green line, it indicates the downtrend.
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