The indicator which shows the direction of the current trend in the market based on ATR(Average True Range) values on the chart is called the Trend Direction Indicator.
There is a saying the trend is your friend; it’s better to trade in favour of a trend. Now there are multiple ways to detect the trend in the market. Many people use slow period and short period moving averages to understand the trend direction. However, the trend direction indicator is more accurate and straightforward.
Working of Trend Direction Indicator:
Upon applying the indicator, it draws red and blue arrows along with trend lines.
The arrows represent the direction of the trend in the market. The blue arrow is in the upward direction and shows that the bullish trend is starting, and the red arrow is in a downward direction, representing that the bearish trend will start.
One advantage of this indicator over others is that it has an ATR smoothing value which filters the false trends to make it more accurate.
Settings of the indicator:
In the indicator settings, you can modify the ATR period and turn the smoothing on or off. You can also change the colours of the up and down arrows.
Trading strategy for trend direction indicator:
By using this indicator, you can use the following trading strategies.
Trend Direction indicator Buy Trading Strategy:
- First, you must wait for the indicator to plot a blue arrow on the chart.
- Now, look for confirmation that the price has changed its path
- After confirmation, take the long position
- Put your stop loss at the swing low near the blue arrow
- The take profit level for your trade will be when the indicator plots a red arrow.
Trend Direction indicator Sell Trading Strategy:
- First, you must wait for the indicator to plot a red arrow on the chart.
- Now, look for confirmation that the price has changed its path
- After confirmation, take the short position
- Put your stop loss at the swing high near the red arrow
- The take profit level for your trade will be when the indicator plots a blue arrow.
Conclusion:
A trend direction indicator is a convenient tool because it’s always better to trade in the direction of the trend. Also, you can use this indicator in your other training strategies.
Please click the button below to download the trend direction indicator for free.
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