Trend Entry indicators are technical indicators that identify when it’s an optimal time to enter a trade based on the strength of the current trend.
They are normally used in conjunction with the Metatrader (MT4 and MT5) platform and identify strong trend trading opportunities. These trade entry points tend to be based on a range of factors rather than just one parameter, as is the case with most other technical indicators.
When a trend reaches a particular strength, as defined by the trend entry indicator, the indicator will give the user a signal to enter a trade and display which direction the trade should be made. Trend Entry Indicators can be particularly potent if used in the correct circumstances and many traders find them of significant benefit to their trading.
Why use a Trend Entry Indicator?
It is possible to use standard indicators like moving averages, the MACD (Moving Average Convergence Divergence), RSI (Relative Strength Index) and OBV (On-Balance Volume) to identify trend trading entry points, so why use a trend entry indicator?
Trend entry indicators greatly simplify your trading process. With regard to Forex:
- The On-Balance Volume indicator can only represent the volume that is traded on your brokerage, as there is no market-wide record of volume in the Forex market.
- The Relative Strength Index (RSI) gives signals that the market is overbought or oversold. Powerful trends appear as overbought, even though they may keep on going.
- The MACD and moving averages are very useful for identifying when a trend is underway, but they should be interpreted in light of the RSI.
In other words, there is no standard all-in-one trend entry indicator among the historically recognized technical indicators.
Instead of analyzing several standard indicators, trend entry indicators often simply draw an arrow over or under a candle when it’s time to make a trade. FXDelta is one example of such an trend entry indicator that does this. It scans trends in long time-frames looking for strong trends developed by financial institutions such as major banks and hedge funds, whilst at the same time searching for market corrections on shorter time frames. The software then identifies the ideal market entries – the precise points where the likelihood of a trend continuing are the greatest.
The Cosmic Diviner Trend Entry indicator by LATAlab is another trend entry indicator and shows recommended take-profit and exit points. This particular indicator also provides global trend and local trend meters, as well as the status of different currency pairs with regard to the indicator.
Even the most dedicated and knowledgeable traders can look at their trading process and feel that they need a little help. If an indicator works and gives you trading signals in a very simple way, there is nothing wrong with this. If it makes you more efficient and gives you better profits, it makes you a better trader. That’s why many traders, even those who are experts, choose to rely on third-party indicators like trend entry indicators.
How to Use a Trend Entry Indicator
Trend entry indicators are generally very simple to use and understand since they are provided as third-party indicators for MetaTrader (MT4 & MT5) and similar tools. These indicators are also sometimes premium offerings, meaning that you must pay money for them. This encourages the developer to make them user-friendly so as to appeal to the widest possible market.
It may seem illogical to pay for indicators when plenty of indicators are available for free, but if these indicators are useful to you and improve your performance, there is a strong possibility that you will earn additional profits that will pay for the indicator themselves, potentially many times over.
With both the FX Delta and Cosmic Diviner Trend entry indicators, new trade signals are denoted by arrows, an upward-pointing arrow for a buy or a downward-pointing arrow for a sell. Each trade that is identified comes with entry points, take-profit points and the strength of the trade.
Example trade from FX Delta
The above trade shows a sell position with FX Delta, indicated by the red arrow. The trade has fixed take profit levels and a stop loss. The FX Delta software comes with trade alerts and one-click trade execution buttons with Open Market, Set Pending and Close Trade fields meaning it is a simple to use and allows you to take advantage of strong entry points quickly.
Below is an example from the Cosmic Diviner Trend Entry indicator:
Example trade from LATAlab’s Cosmic Diviner Trend Entry
The first take-profit, labeled TP1, is usually considered a scalping target. TP2 is considered an intermediate target and TP3 is the maximum target. Multiple stop-losses are also provided to match your desired risk level.
If you decided to use built-in indicators as a trend entry indicator, this is what it might look like. A simple example of using moving averages and the RSI as a trend entry indicator would be as follows:
- Set up a 5-period EMA, a 20-period EMA and a 50-period EMA on your chart. Also set up the RSI indicator.
- When the EMA5 crosses above the EMA20, and the EMA5, the EMA20 and the current price are all above the EMA50, this is a buy signal. When the EMA5 crosses below the EMA20, and the EMA5, the EMA20 and the current price are all below the EMA50, this is a sell signal. Ensure with the RSI that you are not buying into an overbought market or selling into an oversold market.
- The stop-loss order should be placed beyond the EMA20 on the other side of the buy or sell order.
- Prepare to exit when the EMA5 crosses the EMA20.
Trend entry indicators use the strength of a trend to identify excellent trend trading opportunities. While you could analyze the totality of the standard indicators together like moving averages, MACD and RSI, it is no doubt simpler to use one single indicator.
This is beneficial for those who are looking to streamline their trading process as well as those who simply don’t have a lot of Forex experience. Custom indicators are available for MetaTrader for purchase and download such as the excellent FX Delta trend entry indicator.
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