How is Trend determined?

The idea of creating FX Trend Radar came about from the numerous requests by traders (both professionals and retail traders) to create an indicator which allows them to monitor multiple pairs in multiple timeframe. We have combined the essences of their systems and through our own research and optimization, come up with FX Trend Radar.

Below are the main concepts behind FX Trend Radar:

1. Based on a series of Adaptive Moving Averages

Since the start of trend trading, pioneers of system trading have used moving averages (crossover, comparison of different moving averages period etc) as signals for entering trades. All those methods are base on the notion that moving averages (which are actually low pass price filters) tells trends. This is so fundamentally true if you can see that moving averages are nothing but a display of past price action!

However moving averages are lagging price indicators (Indicators that produce signals after the price events have occurred). We have modified traditionally used moving averages method and came up with our own adaptive version of it to increase the response of moving averages to predict trends.

For the pair below, FX Trend Radar will detect it as a trend base on our adaptive moving averages algorithm. You can see that 1) traditional moving averages, 2) swing points and 3) trend lines all indicate that there is a prevailing trend.

Moving Averages

1) Moving Averages

Swing Points

2) Swing Points

Trend Line

3) Trend Line

2. Based on relative Strength of price movements
Most trend indicators do not care about the strength of a trend. Whether it gaining in momentum or waning. We do not want to get into a trend where the momentum of the move is waning. That is a low probability trade. FX Trend Radar performs checks on the recent price movement to ensure that those trending pairs with waning strength are filtered out.
For the pair below, even though it is in a downtrend, it is filtered out due to its waning downtrend move as highlighted below.

Waning DownTrend

3. Checks on opposite price movements
Sharp opposing price movements against the trend direction are warning signals that there are strong opposing forces up against the trend.
It signals a huge pool of supply which is waiting for a uptrend to hit it or a huge pool of demand waiting for a downtrend to hit it. Those are usually huge institutes’ orders waiting to get filled at a favorable price. We do not want to be going against those orders.
Sharp opposing price movements could also be due to unfavorable news (e.g. sudden interest rate hikes, war etc) which might reverse the course of a trend immediately. Those are warning signals that the trend is coming to an end or has already ended.