The market is actually made up of trends all the time. For example, you may see a range bound market on a 4 hour chart, but if you zoom down to a 5 or 10 minute chart you will probably see a series of what looks like up and down trends. Instead of trying to find a strong trend, try just determining if you are in a trend or not. If not, go to another timeframe. Youíll find one eventually.
Which indicators will help you clarify whether the market is trending or range bound? The most commonly used indicators are:
Average Directional Movement indicator (ADX)
ADX measures the the strength or weakness of the general market trend and produces a number from 0-100 that indicates price direction. Traders generally agree that readings below 20 indicate that the currency price is range-bound and readings above 25 tell us the price is trending.
Regarding Bollinger Bands, traders look at the width between the bands to gauge the extent of price movement. Bands that are relatively far apart signal that the average price over a given number of days is flunctuating signifcantly: The currency is probably trending. If the bands are narrow, there is less volatility in price movement and the currency is range-bound.
A third way to determine a market's behavior is to use the momentum indicator. As a mesaure of volatility, the mometum indicator simply subtracts the closing price a given number of days ago from the last closing price - indicating the rate of change in price over a given period of time.
These values begin at zero and track a currency's tendency to move in a given direction. A momentum line that rests near zero for a long time OR frequently bounces above and below it means the currency is range-bound.
A momentum line that stays above or below zero for long periods of time means the market is trending.
If you take a look at the attached image you might be able to understand how MAs can help you guage the trend or movements health condition.
I thought the best way to give an example of this would be to
literally show you how “i” do it, as im sure there exist many other
ways of determining the trend strenght.
Once again i implement the usage of E-MAs and S-Mas.
E-MA 5 White
E-MA 10 Red
E-MA 20 Green
E-MA 50 Blue
S-MA 100 Pink
S-MA 200 Rose
I’ve picked out a healthy uptrend which eventualy breaks off and reverses, so you can evaluate in detail the actions that have taken place and what the MAs have hinted before and after the climax.
As you can see during a healthy uptrend the price is pretty much obedient to the 5,10,20 and 50 E-MAs.
In a very good trend the price wount even touch the 50 so i personally tend to get weary when that heppens.
Think of the Price as a burglar and of the MAs as the Door he/she is trying to knock down.
If they have “intent” they will easily break through the 10 (Wooden Door), 20 (Metal Reinforced Wood)
If the cops are chasing them and they need to hide or go to jail they will definately break through 50 (Steel Door)
If there are diamonds behind the door the burglar will break through even the Great Walls of China (100 SMA / 200 SMA)
You will realize that on the eventual reverse there, the scheme sort of flips upside down, so the 50 normaly pops on top of the price first, then the 5, 10 and 20 follow and after that the 100 / 200 smas.
Once the 50 is is over together with the 10 and 20, you can comfortable say that a strong move is taking place, when the 100 and 200 smas come over the price as well and the price moves below the MAs, you've got something going and by this time you should have been long in the trade.