A Trending Indicator

| September 6, 2010

Charts and technical indicators are the two most important things for a trader. Charts combined with technical indicators are powerful tools in the hands of a savvy trader. You can find the trend in the market by looking at the charts. But you can never find the strength of a trend by simply looking at the chart. For this you need to master one basic technical indicator.

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Now, technical analysis is almost same for almost all markets with some slight variations or modifications. These trending indicators are applicable to stocks, forex, futures, options,commodities, futures, gold, crude oil, ETFs, bonds and almost anyother market. The basic mechanism or what you call market dynamics is the same. The three most popular and useful trending indicators are: 1) MACD (Moving Average Convergence Divergence), 2) Moving Averages and 3) DMI (Directional Movement Index (DMI).

ADX, and +DMI, -DMI. +DMI oscillates between 0 and 100. +Mi tells you how the bulls are doing the market and are they successful in pushing the prices higher than last day’s close. -DMI also oscillates between the two numbers 0 and 100. -DMI shows how effective the bears were in the market. Were the bears effective in pushing prices below last days’s low.

You need to master this DMI indicator. Trader use the crossovers between +DMI and -DMI as trading signals. For example, when +DMI crosses above the -DMI, it is a signal that the buyers are now controlling the market. And when -DMI crosses above the +DMI, it tells that now the sellers are controlling the market.

But if both +DMI and -DMI cross each other frequently, it is an indication that neither the bulls are strong nor the bear. Both are wrestling with each other and are unable to overcome the other. In other words, what this means is that the market is ranging or consolidation .

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