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How many trading days are there in a year?

Whether you are an active day trader or have invested some funds in the stock market, you might be aware that the stock market doesn’t open all days a week, limiting the number of trading days each year. This article will debrief how many trading days there are in a year. We’ll also discuss why trading days fluctuate and who defines trading schedules, and what factors can impact how often you trade. But first, let us explain a trading day.

Image Source: Swingtradesystems.com

What Is a Trading Day?

A trading day refers to any day when the stock market is open. Unless there is a big event at a national level, such as National Holiday, the market usually remains open from Monday through Friday. It is worth mentioning that regular trading hours (RTH) are different from electronic trading hours (ETH).

From 9:30 am until 4:00 pm, the Nasdaq and the NYSE exchanges remain open for business. The trading day begins and closes with the bell’s ring in most cases. As soon as the closing bell sounds, all trading ceases and resumes on the next day. 

Sometimes the stock market remains closed even on weekdays. For instance, a funeral of a state’s head is a public holiday or a day designated for a state event. Also, the market may shut down at 1:00 pm instead of 4:00 pm due to unavoidable circumstances, like an emergency.

How many trading days are there in a year in the United States?

Usually, a trading year averages 252 days, or 21 days per month and 63 days every quarter. However, the numbers keep fluctuating from year to year. For instance, there were 252/365 trading days in 2019 and 253 in 2020 since it was a leap year. Last year had 252 trading days. March had the most 23, while other months averaged 21 days per month, or 63 days each quarter. Notably, 104/365 days were weekends, besides 09 market holidays in 2021. 

Below is the simple equation you may use to find the number of trading days in a year. 

Total trading days per year = Trading days – (Weekends + Holidays)

= 365 – (104+9)

= 252

Who defines trading hours?

The primary stock exchange in each nation sets the trading timetable for the stock market. The NYSE determines the trading timetable in the US, and most other stock exchanges follow it for both days and hours. In addition to trading hours Monday through Friday, the NYSE practiced a two-hour trading session every Saturday until 1952. However, the NYSE and other US exchanges now stick to Friday – Mon trading schedule.

The New York (NY) time zone is the base of the trading hours.  Hence, traders from other time zones must trade during the NYSE’s trading day. These exchanges allow remote trading via electronic platforms, but only during designated market hours. The NYSE remains open between 9:30 am to 4:00 pm ET for those not in the Eastern Time Zone. In California, the market timings are from 6:30 am to 1:00 pm.

Why does the number of trading days vary? 

As mentioned earlier, the number of trading days varies annually. This variation can be due to holidays, weekends, leap years, or significant events. Let’s have a quick look at each of the listed variables. 

Holidays

In 2021, the US had several federal holidays like Columbus Day and Veterans Day. However, the stock market didn’t close on all of them except the Good Friday, a non-government holiday. The stock market has nine annual holidays in the year, which are as follows:

  1. Jan 01, 2021 – New Year’s Day  
  2. Jan 18, 2021 – Jr. Martin Luther King’s Day 
  3. Feb 22, 2021 – Presidents’ Day 
  4. Apr 02, 2021 – Good Friday
  5. May 31, 2021 – Memorial Day 
  6. Jul 04, 2021 – Independence Day
  7. Sep 06, 2021 – Labor Day
  8. Nov 25, 2021 – Thanksgiving Day 
  9. Dec 25, 2021 – Christmas Day

Note: The stock market observed any holiday falling on a weekend on the last day of the previous week or the first day of the following week.

Weekends

As stated previously, the US market has nine official holidays, and you might wonder why the number of trade days changes when the same number of holidays are honored each year? The answer is in the number of weekends every year.

Yearly weekend days vary based on when the year’s first-weekend fall. Even though it’s a leap year, business days get reduced if the year begins on a Saturday.

Major Events

The stock market might close unexpectedly due to major national events not foreseen in the trading schedule. For example, on Dec 05, 2018, the US stock market closed to mourn former President (George H.W. Bush). The market also remained closed in 2012 for two days due to Hurricane Sandy and four days in 2001 due to the terrorist attack on Sep 11, 2001.

Leap Year

Leap years have one extra day every four years. This extra day increases the total number of trading days per year. For example, 2020 had 253 trading days. However, a weekend starting on Saturday can prevent a leap year from adding an extra trade day.

Do you trade every day?

Since now you know how many trading days are there in a year, you might ask if you can trade on each one? Even for day traders, that isn’t certain. Factors that generally restrict the number of business days each year include.

Unexpected events

Important family reunions, dental appointments, illness, or other occasions might keep you from trading. Therefore, the chances are that you might not be able to trade, even if you wish.

Stalemates

A devastating defeat or a losing streak usually necessitates some time off. Doing so allows you to de-escalate and restore emotional control.

Vacations

Being a day trader is demanding, especially when constantly checking your trading screen for excellent trade setups and maintaining open positions. Vacation time is quite beneficial but will undoubtedly decrease your trading days.

Trading Style

If you are a day trader, you probably find yourself entering trade setups on almost all trading days. However, that might not be the case for swing traders. They won’t trade on all trading days unless they find setups that fit their plan, which may not be that frequent. 

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ATR Indicator 

Technical indicators help traders to analyze past market trends and forecast future developments. While some traders develop personal indicators, usually with a programmer’s help, others rely on existing ones. As a result, indicators like the moving average and stochastic oscillator, or bespoke indicators, are becoming more popular among traders. ATR is also a widely used indicator that helps analysts determine market volatility. This article discusses the ATR indicator in detail.

What Is the Average True Range (ATR)?

Founded by American technical analyst J. Welles Wilder in 1978, Average True Range (ATR) is a volatility indicator that displays how much an asset changes on average. The technical indicator may assist day traders in deciding whether to enter a trade and where to set stop-loss order. Analysts calculate it by dividing the price range of an underlying asset over a specific period.

How Does Average True Range (ATR) Indicator Work?

The ATR indicator swings up and down when an asset’s price changes. Each period generates a fresh ATR measurement. For instance, the ATR is calculated daily on a one-day (D1) price chart, while it shows the ATR value every minute on a one-minute (M1) time frame. 

Formula For ATR Calculation 

ATR measures volatility by accounting for price gaps. Typically, traders calculate ATR using 14 periods, such as Minute (M1), Hour (H1), Day (D1), Week (W1), or Month (MN). Each one can calculate ATR. We have the following formula to calculate ATR

TR=Max[(H−L),Abs(H−CP​),Abs(L−CP​)]ATR=(n1​)(i=1)∑(n)​TRi​

The TRi​ represents a particular true range in this formula, and “n” shows the relevant period. 

How to calculate the Average True Range (ATR)

Finding a security’s actual range value is the initial step in determining ATR. A security’s price range is just its high minus low. Traders can produce more trading signals by employing shorter periods, whereas longer intervals provide fewer indications.

For instance, if you are a short-term trader and want to look at a stock’s volatility over five trading days, you might compute the five-day ATR. Then, for each price range, you determine the absolute maximum of each, such as current high-current low, current high- previous close, and current low-previous close. That’s how you calculate ATR for the most recent 05-days and then average the value to find the first value of 5-day ATR.

What does Average True Range (ATR) Indicator Tell You?

Wilder created the ATR to employ it in the commodity market, but it is equally helpful to trade equities and indexes. 

The ATR is a valuable tool for market technicians to initiate and exit trades. Its primary purpose was to help traders calculate an asset’s daily volatility more precisely. However, traders mostly use it to assess volatility generated by gaps and restrict up or downswings.

Traders typically employ ATR to exit a trade regardless of the entry point. One of the popular strategies is called the chandelier exit strategy developed by Chuck LeBeau. The chandelier exit establishes a trailing stop below the stock’s highest high since you opened a position. 

In simple terms, the distance between the highest high and the stop level is the multiple of ATR. For example, you can deduct three times the ATR from the trade’s highest point since you entered.

The ATR may also help traders decide how much to trade in a derivates market. The ATR technique to position size can account for both the trader’s risk tolerance and the market’s volatility.

Example of Using the Average True Range (ATR)

Assume the five-day ATR starts at 1.41 and ends at 1.09. You can estimate the sequential ATR by multiplying the former ATR value with the number of days minus one and then adding the current period’s actual range.

Now divide the total by the chosen period. For instance, [1.41*(5 – 1)+(1.09)]/5 is expected to be the second ATR value. You may then use the formula throughout the entire timeframe.

ATR can not predict the breakout direction, but you can add it to the closing price, which will help you enter a buy position if the price rises over that figure the next day, as shown below. Rare trading indications generally mark big breakthrough moments. According to this theory, a price closing the ATR above the previous close indicates a shift in volatility. Buying a stock means you expect it to rise.

Limitations of Average True Range (ATR) Indicator 

The ATR indicator comes with two significant limitations. 

  1. Being a subjective measure, ATR remains open for interpretation. No ATR measurement can tell you if a trend is poised to reverse or continue in the same direction. Instead, you must compare ATR values to previous readings to gauge a trend’s intensity.
  1. ATR gauges volatility, not price direction, and may produce confusing signals, especially when markets or trends pivot. For example, a quick rise in the ATR after a strong move against the market trend may cause some traders to believe the ATR supports the previous direction when this is not the case.

Conclusion 

Unlike RSI or MACD, ATR isn’t a trend indicator. Instead, it’s a volatility indicator that shows the degree of interest or indifference in a move. Large ranges, or True Ranges, typically accompany strong movements. Uninspiring maneuvers might have limited spans. As a result, traders may utilize ATR to verify a market move or breakout. A rise in ATR would imply significant buying pressure and confirm a bullish reversal. A bearish support breach with an increase in ATR would ensure the support break. Like other indicators, ATR can also lead to false interpretation, and traders must not depend solely on it. Therefore, it’s usually best to use along with technical tools and indicators for additional confluence.

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Frequently Asked Questions (FAQs)

Which indicator works best with the ATR indicator?

The Average True Range measures volatility. However, It is typically neglected as a market indicator since it indicates price action strength. Bollinger Bands are well-known indicators that may work the best with ATR. 

How is Average True Range (ATR) helpful for traders?

Being a volatility indicator, ATR offers you an idea of how much the market may change. Day traders can use ATR with different technical indicators and strategies to find optimal entry and exit positions.

Which number is more suitable for the Average True Range (ATR) indicator?

Although it isn’t the only technique, the conventional ATR indicator number is 14. You can also consider using a lower number to emphasize recent volatility. More significant numbers allow long-term investors to measure more.

Momentum Indicator

Whether you trade forex or explore profitable opportunities in the stock market, it is challenging to make money only using fundamental data. Therefore, it is pertinent to employ tools that present price activity and market data to improve the odds of profitability. Day traders rely on multiple technical indicators to identify market trends. This piece discusses a few most commonly used momentum indicators in detail. 

What Is Momentum Indicator? 

The momentum indicator is a technical analysis technique that determines a stock’s price strength. Momentum quantifies how fast stock prices rise or decrease. Traders use momentum indicators in conjunction with other tools and trend indicators to make an informed trading decision. 

A stock’s price’s Momentum measures its rise or decline. It is well-known that momentum indicators are pretty helpful in trending markets since markets rise more frequently than they decline. In other terms, bull markets outlast bear markets most of the time.

Average Directional Index (ADI), Relevant Strength Index(RSI) and Moving Average Convergence Divergence (MACD), Rate of Change (ROC), and Stochastic Oscillator are some common momentum indicators.

How to calculate Momentum Indicator?

A stock’s Momentum is the difference between the current and previous closing prices. Technical Analyst Markets John J. Murphy plots a 10-day momentum line against zero-line.

We can use the following formula for calculating the momentum indicator. 

 Momentum = Current price – Closing price “n” days ago

Momentum can have both positive and negative values. Most traders and analysts use 10-day movement to gauge a stock’s momentum. The zero-line represents the stock’s trendless or sideways movement. The momentum line disperses away from zero when the stock’s momentum grows.

If the stock’s current price is higher than ten days ago, the positive number will be over the zero line. If the current price is below the 10-day price, the negative momentum value will be below the zero-line.

Look at the chart below to see how the RSI momentum indicator predicts price fluctuations.

Understanding Divergence

Divergence often signals the end of a price trend and the beginning of a new one. The divergence occurs when the stock price movement and the indicator disagree. A bullish divergence occurs when price and momentum move in opposite directions, while a bearish divergence occurs when the price and the momentum indicator move upwards. Price retracements are more likely to incur during price divergence.

Divergence helps traders identify and respond to price fluctuations. It signals a shift in the market, and investors must respond. No certainty of reversal exists. So, traders can decide to hold, sell, or partially book profits as the market moves.

Trending Momentum Indicators

Traders can use several momentum indicators. However, below are a few most used momentum indicators. 

  1. Moving Average Convergence Divergence (MACD)

Moving Average Convergence Divergence (MACD) involves two indicators. It creates an oscillator by subtracting the longer average from the shorter average, the MACD’s primary indicator. A moving average converges, overlaps, and moves away from another to represent momentum.

The MACD uses two moving averages, as stated previously. However, it is up to the trader or analyst to choose between the 12-day and 26-day EMAs. In this way, a MACD line can operate as a signal line to detect price movement turns.

The MACD’s histogram shows the MACD line’s relationship to the 9-day EMA, which is crucial. Positive histograms above the zero-midpoint but falling towards the midline signals a deteriorating trend. On the other hand, a negative histogram below the zero-midpoint line but climbing towards it suggests a diminishing downtrend.

Image Source: Investing.com

  1. Relative Strength Index (RSI) 

RSI is another popular momentum indicator that most traders prefer to use for technical analysis. The RSI is an oscillator that measures price fluctuations and their pace. The indicator oscillates between 0 and 100.

Traders and analysts can notice signals by looking for divergences, failed oscillator swings, and indicator crossings above the centerline.

While the RSI figures rising above 50 suggests a positive uptrend momentum, the RSI values of 70 or more frequently indicate overbought situations. 

Similarly, RSI values below 50 signal a negative decline, while RSI values below 30 indicate possible oversold circumstances.

Image Source: Investing.com

  1. Average Directional Index (ADI) 

It might be unfair not to mention the usefulness of the Average Directional Index (ADI) either. Welles Wilder created the Directional Movement System (DMS), including the Negative Directional Indicator (-DI) and positive Directional Indicator (+DI).

To calculate the ADX, you need to take smooth averages of the +DI and -DI, which results by comparing the two recurring lows and their relative highs. The Directional Movement System’s index measures the strength of a trend independent of its direction. An ADX rating of 20 or higher confirms a trend. However, any value below 20 is directionless.

Image Source: Investing.com

  1. Rate of Change (ROC) 

Rate of Change (ROC) is another momentum indicator that gauges the percentage change between two prices. The ROC indicator is displayed against zero, moving upward for positive price changes and downward into negative territory when the price falls. The indicator detects centerline crossings, overbought/oversold conditions, and divergences.  

Image Source: Investing.com

  1. Stochastic Oscillator

Traders use this momentum indicator to compare a stock’s current closing price over time. It measures the market’s pace and momentum without regard to volume or price. Stochastics oscillates between 0 and 100 and help detect overbought and oversold zones. This indicator displays an overbought zone when it is over 80 and an oversold area when below 20.

Image Source: Investing.com

How to trade using Momentum Indicators?

Momentum indicators help spot trading indications. They also assist analysts in validating trades based on price movements, such as breakouts and pullbacks. Traders can utilize momentum indicators in the following ways:

Crossovers: When momentum indicators pass through the centerline or other lines, the activity is called crossovers. Cross overs generate trade signals. For instance, the MACD Line crosses the centerline (zero line). Types of crossovers:

Signal line crossings are a typical MACD signal. A bullish trend develops when the MACD crosses the signal line on the upside. A negative trend happens when the MACD goes down and passes below the signal line.

Center Line Crossovers: A bullish trend occurs when the MACD crosses above zero-line. This happens when the stock’s 12-day EMA crosses over the 26-day EMA. A negative trend occurs when the MACD indicator intersects the zero line and swings lower. However, a trend’s strength may define its life as it may last a few days up to a month.

Alternative strategy: 

It is best to enter and exit a position using one or two indicators. To quarantine a trend or entry point, use RSI. For example, the RSI can differentiate entry points from the Trend. Not to mention, the RSI reading should be above 70 during uptrends and above 30 during downtrends. 

Trade can also use MACD to exit. For example, MACD can track stock losses in trading trends. If the Trend rises, you can short a position as soon as the price falls below the line. Similarly, traders can use other indicators for intra-day trading besides employing momentum indicators.

Pros and Cons of Using Momentum Indicators 

While momentum indicators are pretty helpful in technical analysis, they can also sometimes be a source of inconvenience. Below are some pros and cons of using momentum indicators.  

Pros

  1. Momentum indicators reveal an asset’s price trend. They also assess the price movements’ strengths and flaws.
  2. Momentum indicators enable users to make informed trading decisions. In other terms, they assist you in determining market entry & exit points. Price divergences identify the signals.
  3. Momentum indicators work pretty well for trend confirmation.

Cons

  1. Momentum indicators can be misleading when used in isolation. 
  2. Newbies might find it challenging to understand and interpret them. 

Bottom line

Momentum indicators are helpful to identify the best time to enter or exit a trade based on price momentum. Traders and analysts use momentum indicators in conjunction with other trend-following indicators as additional confirmation. 

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Frequently Asked Questions (FAQs) 

What is momentum trading?

Momentum trading is a method that aims to enter the Trend as it gains momentum. In simple terms, momentum is the tendency of a price trend to rise or fall for a period, generally considering both volume and the price. 

Why is momentum necessary in trading?

Prices follow an upward or downward trend, and the momentum indicator shows the strength of a trend. It is also a leading indicator, as it generates buy & sell signals, helping traders open an appropriate position.

How does Trend differ from Momentum?

While the momentum takes account of a stock’s annual performance (i-e past twelve months), the Trend Following macro style element examines the contract’s performance over the last six and twelve months and takes an average. 

Japanese Candlestick Charting Techniques

Candlestick charts combine data from multiple time scales into a single price bar, making it more helpful than standard lines connecting closing prices or open-high and close low bar. Candlesticks create patterns that forecast price direction. Not to mention, color-coding makes this tool look more sophisticated. Traders widely use Japanese candlestick charting techniques to evaluate financial markets. In this piece, we’ll discuss different candlestick charting techniques in detail. 

History of Candlesticks Charting

Munehisa Homma, a Japanese rice dealer, introduced the concept of candlesticks charting patterns in the 18th century. Homma noticed that the rice market was impacted by the emotions of merchants while still admitting the demand and supply impact on the prices of rice. 

Later on, the western world became familiar with the candlestick charting patterns when Steve Nison used and explained the notion in his book “Japanese Candlestick Charting Techniques” in 1991. 

How does the Japanese Candlestick Charting work? 

Compared to bar charts, Japanese Candlesticks give more comprehensive and precise price movement data. They show the supply and demand forces that drive price behavior.

The body of each candlestick reflects the price movement between the opening and closing points of underlying securities. While the upper wick indicates price distance from the body’s peak to the trading period’s high, the lower wick shows the price difference between the body’s bottom and the period’s low.

The security’s closing price determines the candlestick’s bullish or bearishness. If a candlestick closes higher than it opened, the body is white. In this scenario, the closing price is at the top while the opening price remains at the bottom.

The body fills up or turns black if the security traded closed lower than it opened. In this case, the body’s bottom is the candle’s closing price, and the top is its opening price. Modern candlesticks include more colors than white and black, such as blue, red, and green. Traders utilizing computerized trading platforms can select different colors for candlestick while setting up charts.

Reliability of Candlesticks Charting Techniques

Not every candlestick pattern works as anticipated. The popularity of candlestick patterns has diminished their dependability due to hedge funds and algorithms analyzing them. These well-funded traders employ lightning-fast execution against individual investors and fund managers who rely upon popular technical analysis tactics.

The five candlestick patterns below generally tend to work well for determining price direction & momentum. Each one interacts with the surrounding price bars to forecast price changes. Not to mention, these candlestick patterns are time-sensitive in a way that they only function inside the chart’s parameters (for instance, daily, weekly, or monthly), and their effectiveness rapidly diminishes 3 – 5 bars following the pattern.

Performance of Candlestick Patterns

This research is based on Thomas Bulkowski’s 2008 book “Encyclopedia of Candlestick Charts,” which ranked the performance of candlestick patterns. He provides stats for two predicted pattern outcomes, including reversal and continuation. While reversal candlestick patterns indicate a price shift, continuation patterns imply price extension.

The examples below show the empty white candlestick represents a higher closing print than the black candlestick.

  1. Three-line Strike 

Three black candles form a bullish three-line strike reversal pattern. Each bar closes near the Intrabars low, posting lower lows. However, the fourth bar reverses widely and closes above the series’ high. The opening point also prints the fourth bar’s low. It anticipates increased pricing with up to 83% confirmation, according to Bulkowski.

Image Source: Candlescanner.com

  1. Three-black Crows

Three black bars close around the Intrabars lows in an upswing, forming a bearish three-black crows reversal pattern. This pattern implies further declines, possibly sparking a broader-scale slump. The most bearish variant starts at a fresh high (A on the chart), trapping purchasers into momentum trades. Bulkowski claims this pattern accurately forecasts decreased pricing 78% of the time.

Image Source: Candlescanner.com

  1. Two-black Gapping

The two-black bearish continuation pattern forms after a noteworthy peak in an upswing, with a gap-down resulting in two black bars reporting lower lows. The pattern implies further declines, possibly sparking a wider-scale slump. Bulkowski claims this pattern accurately forecasts decreased prices with an accuracy of 68%.

Image Source: Candlescanner.com

  1. Abandoned baby 

In a downtrend, the black candles series prints lower lows before the emergence of the bullish abandoned baby reversal pattern. For Doji candlesticks having a small range, the market’s gap lowers on the next bar, but no new sellers appear. The pattern gets completed by adding the third bar and anticipates further gains, maybe sparking a larger-scale upswing. This pattern has a 49.73% accuracy rate, as per Bulkowski.

Image Source: Candlescanner.com

  1. Evening Star

The evening-star bearish reversal pattern initiates with a towering white bar leading an upswing to new highs. This results in a tight range candlestick as the market gaps soar, but no new buyers materialize. On the 3rd bar, the pattern gets completed following a gap down, implying further declines and maybe a more considerable slump. Bulkowski claims this pattern accurately forecasts price declines by 72%.

Image Source: Candlescanner.com

Difference between Candlesticks Patterns and Bar Charts 

The link between opening and closing price is displayed in candlestick charts by the body color, but it is shown by horizontal lines protruding from the vertical in bar charts.

The bar chart emphasizes the stock’s closing price relative to the prior period’s closure, while the candlestick variant emphasizes the close concerning the same day’s opening.

Traders can get the same information using Japanese candlesticks or bar charts. However, candlesticks are more visible, giving traders a better idea of price activity. They also show the dynamics (supply & demand) affecting price fluctuation over time. The upper and lower wicks of the candle’s body are called the shadows. The body length and shadows of the candlestick are crucial price indicators.

Conclusion 

Candlestick patterns attract traders’ attention, but many of their continuation and reversal signals are unreliable in today’s computerized market. Based on Thomas Bulkowski’s data, a small number of these patterns provide traders with actionable sell and buy recommendations. Therefore, traders must learn to distinguish between profitable and unprofitable patterns.

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What is Hull Moving Average (HMA) and How to trade using it?

Since trading indicators can decrease latency, remove noise, and respond quickly to market moves, many traders use different technical indicators for trading purposes. Plenty of specialized tools, technical indicators, and programming languages are available, helping traders generate increasingly sophisticated visual measures to overlay their charts. However, people seem to have been affected by excess. With an overwhelming amount of indicators and drawing tools on price charts, traders are most likely to become confused. Therefore, employing only a few most valuable technical indicators can help you keep your charts as clean as possible and stay focused. This guide will detail a multi-purpose technical indicator – the Hull Moving Average (HMA). 

What Is Hull Moving Average (HMA)?

The Hull Moving Average (HMA)is a technical indicator used to determine a market trend. It records the current market position and compares it to past data to ascertain a bullish or bearish outlook. Unlike EMA or the SMA (SMA), the HMA provides a quicker indication on a flat visual plane, reducing the latency usually associated with MAs.

An indicator must balance producing an accurate signal with minimal latency and offering a fast-paced, high-volume first-mover benefit to gain a competitive edge. HMA has two dimensions, including positional and directional values. While positional value is a default attribute of all moving averages used for identifying the location according to the price, directional value emerges from the present directional slope. 

For instance, the HMA is the blue one sloping upwards and another one colored in orange sloping downhill. The binary represents bullishness or bearishness in the following chart. 

Note: TradingView’s Hull indicator lacks color change confirmation and has reduced visual display clarity. Therefore, use a custom script instead of TradingView’s Hull indicators. 

Like SMA and EMA, the length of HMA can be increased. It could result in altering the indicator’s price history analysis. Choosing short Hull results in the following:

Watch the moving average hugging price because the length is 15 (standard value ranges between 45 to 90). Due to the aggressive slope computation, a low duration causes quick signal switching.

Customize the HMA to your target market and timeline. It is not always necessary for the HMA that works on the USD/CAD (4H) time chart to work on the BTC/USD (1W) chart. To have a decent hit rate, you need to analyze the charts and refine the indicator parameters.

History of Hull Moving Average 

Alan Hull developed the HMA in 2005. Being an IT expert and Mathematician, he introduced the Hull Moving Average, claiming that it reduces lag while improving smoothing. Presently, swing & long-term traders use it to corroborate trading signals based on many in-depth study methodologies.

The HMA isn’t very distinctive. It is only a variant of other MAs (SMA, for example). However, it still works well for traders since it produces a flat line that is easy to understand.

Formula to Calculate the Hull Moving Average? 

Hull Moving Average (HMA) is pretty simple to calculate. What matters is you know how to employ the Weighted Moving Average (WMA). Given below are a few steps to calculate Hull Moving Average. 

Step1: Use “n/2” as a period to calculate the weighted average and multiply it with 2.  

Step2: Find out the weighted moving average for the period “n”, and then subtract it from the number calculated in step1. 

Step3: Use the data from the second step to calculate the weighted moving average for the square root of the period “n”. 

We have the following equation for the HMA formula.

HMA = WMA(2 x WMA(n/2) − WMA(n)), (n))

How to use the Hull Moving Average?

Based on the previous data, HMA is a directional trend indicator that uses recent price activity to evaluate if the market is bullish or bearish. HMA indicator has two dimensions, such as a position and a direction. Traders utilize the former to establish pricing locations. The latter is derived from the prevailing market slope. The HMA’s smoothness and responsiveness occur due to the combination of both.

This indicator’s appearance on a chart is similar to other moving average indicators. While illustrating bullish or bearish tendencies, the HMA may employ a variety of colors on different platforms.

Before moving on how trade using the HMA indicator,  let’s first discuss the optimum periods for the HMA and how they affect its look and symptoms. When using the HMA for long-term trading, the lengthier time allows you to recognize patterns more accurately. Notably, shorter periods might be more advantageous than longer durations for day traders who wish to record price swings in real-time. Entry signals from a shorter time HMA usually follow the trend.

How To Trade Using Hull Moving Average?

Hull Moving Average indicator works best for directional signals rather than crossovers since they are prone to lag distortion. Instead, seek turning points to locate entrances and exits.

You can use the HMA in the following ways. 

1) Buy an underlying asset when HMA starts turning up. 

2) Sell an underlying asset when HMA starts turning down. 

The HMA is easy to use. Its essential premise is that if the indicator rises, the trend is rising. So you can long hold your position. Alternatively, if the market becomes bearish and the signal follows suit, it may be time to sell.

Hull Moving Average (HMA) VS Other Moving Averages

Hull Moving Average (HMA) is interpreted similarly to other moving averages. But it’s meant to fix their fundamental issues, such as their inability to filter out market noise and latency avoidance. That’s why the HMA is faster than other moving averages and can assist in confirming a trend or suggesting a price shift at the proper time.

In other words, the HMA offers a quicker signal on a flat visual line. It outperforms different types of moving averages due to its low-latency trigger.

Not to mention, the HMA lets you customize the observation period like other moving averages. Also, it allows you to alter the indicator’s price history analysis.

Now let’s look at the critical distinctions between HMA and other moving averages, including Simple Moving Average (SMA), Exponential Moving Average (EMA) and Weighted Moving Average (WMA).

Simple Moving Average (SMA) 

SMA stands for Simple Moving Average. It is the most straightforward moving average. Despite being a cornerstone of technical analysis, it has several flaws. That’s why there are multiple moving averages. Not to mention, all of them aim to improve the indicator’s signals, efficiency, or usability.

You can calculate a simple moving average (SMA) by averaging the price over time. It detects trend direction. If it’s increasing, it suggests a bullish trend. On the other hand, a declining indicator signals a bearish market ahead. 

While long-term traders use an SMA proxy of 200-bars, a 50-bar SMA is used to comprehend intermediate-term trends. 

SMA has the most significant price lag compared to other moving average indicators. Traders use longer intervals to mitigate this issue. However, latency between the source and SMA still prevails. The HMA is preferred because it outperforms the SMA.

Given below figure compares the blue-lined HMA  and yellow-lined SMA. As evident, the SMA is smoother and tracks the price better.

Image Source: Finamark

Exponential Moving Average 

The EMA is analogous to the SMA (SMA). Both assess trend direction over time, and their signals are interpreted similarly.

The Exponential Moving Average (EMA) was developed to address the SMA’s significant latency. While the SMA estimates average price data, the EMA gives more weight to recent data. Notably, favoring recent periods may work for specific traders but not for others.

The HMA utilizes the EMA’s principal benefit. It is quicker and more fluid than SMA. While the EMA reduces the SMA’s latency, the HMA makes it inconsequential. It also enhances line smoothing.

You can compare the blue-lined HMA and the green-lined EMA in the image below. In contrast to the SMA, which is more sensitive to market movements, the EMA is less responsive.

Image Source: Finamark

Weighted Moving Average 

It is a weighted variant of the EMA. It emphasizes new data over older data. To do so, the WMA multiplies each bar’s price by its weighting factor (see below). So it’s more versatile than the EMA or SMA. But, once again, the HMA’s reactivity outshines them.

Below is a chart that compares the two indicators. The HMA (blue line) closely tracks the price more than the purple-lined WMA.

Image Source: Finamark

The WMA, like other moving averages, determines trend direction. Traders utilize it for buy and sell signals (for instance, going long when the price dips close or below the WMA and going short when the price tops above it).

Overall, the WMA is more responsive to price movements than the SMA and EMA but less sensitive than the HMA.

Pros and Cons of Using Hull Moving Average (HMA)

Using the Hull Moving Average indicator has several advantages and disadvantages listed below.

Pros

  1. HMA is a simple indicator that is easy to understand and adapt.
  2. Unlike other MAs, it minimizes latency.
  3. Traders can use it while trading different financial markets, such as commodities, stocks, ETFs and equities. 
  4. Most trading platforms like MT4 and TradingView offer it by default.

Cons

  1. Some users claim that lowering the latency renders it ineffective. 
  2. Calculating HMA might appear a little complicated to some users. 
  3. It is accused of not providing a clear indication for entry or exit.

Conclusion 

HMA is a valuable day trading indicator. Traders usually prefer to use it with different indicators like the RSI (Relative Strength Indicator or ATR (Average True Range).

While the HMA is one of the most thorough, sensitive, lag and noise-resistant moving averages, it is not the silver bullet. Its responsiveness may act as a two-edged sword. It can spot trends faster than other moving averages, but it also whipsaws more frequently than other moving averages.

To summarise, the HMA is an excellent indicator to add to your technical trading toolbox, provided you know how to utilize it and practice it in a trading simulator.

Furthermore, trading knowledge isn’t always the primary limitation for most traders. Instead, the lack of capital restricts them from exploring more potential. The financial stress negatively impacts their trading performance and the urge to make quick returns over a short time leads them to incur losses. If you are also finding it difficult to continue your trading journey due to funds limitations, you may check out Traders Central’s funding options and pick one that suits you best. It will relieve the strain of expecting unrealistic earnings in a short interval and allow you to focus solely on your trading expertise.

Frequently Asked Questions (FAQs)

Is Hull moving average a good analysis tool?

Yes, Hull Moving Average is a good analysis tool. Although, the SMA (Simple Moving Average) is the most simple form of moving average. It fails to compete with the Hull Moving Average (HMA), a rapid and smooth moving average invented by Alan Hull. The HMA nearly removes latency entirely and simultaneously improves smoothness.

What is Hull moving average formula?

The Hull Moving Average improves the responsiveness of a moving average while preserving the smoothness of the curve. You can use the following formula to calculate HMA:

HMA[i] = MA[(2*MA(input, period/2) – MA(input, period)], SQRT(period)]

Where MA = Moving Average

         SQRT = Square Root

What is the best period for Hull moving average?

Using a sample account to experiment with different time frames is the best way to find the one that works best for you. When trading, we recommend using the following timeframes: 15, 25, and 50.

How do I read Hull moving average?

Shorter HMAs are frequently employed to locate entry points. When the overall market trend is up, HMA suggests you buy long. Inversely, a downward trending HMA is a hint to buy short.

Is Hull Moving Average better than Exponential Moving Average?

Hull is different from typical trend indicators, such as the EMA and SMA. It reduces latency by producing quick signals on a smooth visual plane.

Bull Flag – What is it and How to trade using it?

It is crucial to use effective chart patterns in technical analysis. Almost all levels of traders employ different chart patterns to identify market trends and anticipate market moves. Whether you trade the stock market or try your fate in forex, charting patterns have always had its place in the traders’ tool belt. This piece discusses one of the most popular charting patterns called Bull Flag in detail. 

What Is Bull Flag?

A bull flag is a chart pattern that signals an entry into an uptrend. Many professionals adopt this pattern to flow with the trend. The bull flag pattern helps you participate in the present market trend. That implies you may use the data to find entry points where the risk is low compared to the potential gain. Visually, this pattern displays a solid upward movement (the pole) followed by a flag-shaped consolidation.

The flag is commonly a horizontal rectangle and is sometimes seen with a slant formation. Another variant is the bullish pennant, which involves consolidating a  symmetrical triangle.  

The psychology behind the pattern holds more significance than the flag’s appearance. Despite a robust vertical rebound, the stock refuses to fall much as bulls grab any available shares. That’s generally followed by a forceful upward rise, measuring the previous flag pole’s length. These chart patterns are called bear flags and pennants when used in reverse. Bull flags generally appear during a new market rally.

Flag patterns include five essential characteristics:

  1. The preceding trend
  2. Volume pattern
  3. Consolidation
  4. Breakout
  5. Confirmation

Bullish Flag Examples

Let’s use price charts to understand the bullish flag concept and visual appearance.

Emerging Bull Flag

A breaking out flag is a good example of an emerging bullish flag. However, the overall pattern is more important than the fact that the flag doesn’t make a perfect rectangle. It rises sharply to create the flagpole, then settles firmly. Bulls don’t seem to be waiting for better pricing. 

We can calculate the bull flag target by projecting the flag pole’s length from the breakout point. That’s how we get the target price of roughly $9.50.

Image Source: StockCharts.com

Rectangular Bull flag

Below is a pricing chart for America Service Group Inc. Also, the candles’ lengthy lower tails show definite purchasing every time it drops below $10. Volume has increased during the last two sessions. The volume pattern is a frequent feature of bull flags.

Volume usually spikes as the stock develops the flagpole. A pricing consolidation causes a drop in volume. Volume often increases somewhat when the bull flag is broken, but not drastically.

Image Source: StockCharts.com

Breakout Bull

The price chart of Cantel Medical Corp. looks to have broken out of a bull flag formation. CMN closed over the flag’s top near $15. While CMN may resume its parabolic advance, it is common for a stock to retest the breakout point after a few sessions, allowing for a second entrance.

Stop-loss protection for this sort of trade is flexible. For example, long-term traders frequently employ stop levels beneath the entire flag, while others use two-bar stops.

Image Source: StockCharts.com

Tight Bull Flag 

The price chart of CF International Inc. shows a very tight bull flag. The tighter flags often perform better and have more manageable stop-loss levels. 

Bull flags usually clear out in three weeks. More extended periods form a triangle or rectangle.

Following a consolidation week, ICFI pushes over the resistance region at $24.50, fitting the usual trend and pointing to a possible rally.

Image Source: StockCharts.com

Difference between Flag & Pennant

Flag chart designs resemble pennant patterns at first glance. Both flag patterns occur after a substantial price movement followed by a horizontal price movement. They usually last 1-3 weeks. However, there are various discrepancies among the similarities.

Pennants are usually triangular. Converging trend lines form them by successive highs and lows. It’s consolidated in a pennant shape, with sinking resistance & rising support. Generally, it would help be best to utilize pennants as part of confirmation along with other technical indications. Using the RSI (Relative Strength Index) to moderate during consolidation and attain oversold levels can be viable. 

A flag pattern occurs when a substantial spike (or decline) is followed by a tight price range (or fall). A flag usually helps a candle close above a support or resistance level.

To trade successfully with flags or pennants, you should always use volume to determine your entry and exit locations. It will help you confirm breakouts and allow you to speculate on the following momentum.

Finally, there is no time lined defined for the pattern formation. Hence, waiting for the right time is all you can do.  

How to Identify a Bull Flag Chart

The flag pattern looks rectangular; hence it might be difficult for new traders to spot it. Therefore, the need to be careful while identifying the bull flag pattern. Below are some tips to help you Identify the bull flag pattern quickly.

Step 1: The bull flag should have an uptrend since it’s a continuation pattern and isn’t a reversal.

Step 2: When the correction begins and the price drops. You may say it’s a bull flag.

Step 3:The retracement should not be less than 38%, and it’s not a bull flag even if it is below 50%.

Step 4: Draw lines parallel to the pattern.

Step 5: The underlying security price should surpass the pattern’s upper border.

How to Trade The Bull Flag?

After identifying the flag pattern, you should enter a position when the downtrend loses momentum.

A Long Entry

In this case, the long entry is at the flag’s break, while the stop level is below the flag’s consolidation. Keep previous swing high as your primary objective. A strong market trend would make the price continue moving in the same direction. 

Trade management differs. It depends on each trader’s style. Still, closing a position around the previous swing high could be a sensible move. You can then define a trailing stop based on trend line or moving average.

Below is an example of a BTCUSD weekly chart showing how to detect and trade a bull flag.

1) As stated previously, the dominant trend must be positive. This momentum is frequently framed by a series of bullish bars with slight correction.

The picture below shows significant directional movement with just minor retracements.

 2) We must await consolidation. In this situation, a downtrend channel may be created once a lower high is reached, and we can prepare for a flag break.

The price breaks the flag, triggering the long entry. You may set a stop loss on the other side of the flag’s pattern. 

The red region shows the possible risk (loss), while the green area reflects the potential reward (gain).

Activating the entry is followed by a waiting period. In this case, the price jumps to the last swing high.

Trade Management

Traders need to manage their trades based on their risk appetite. You can close a portion of your position near the target region and keep the rest open.

You can also project the price range of the flagpole upwards and close the entire trade. The price may continue rising to new highs. 

Pros and Cons of Bull Flag

The bull flag has the following pros and cons.

Pros 

  1. Traders may find it while trading any market, including forex, stocks, indices, cryptocurrencies, etc.
  2. There is no specific timeframe to spot the bull flag. Instead, you may find it on any period, such as M1, H1, W1, and MN. 
  3. It helps clients find an optimal entry-level
  4. It provides uptrend continuation signals to clients.

Cons

  1. Newbies might find it challenging to interpret.
  2. It doesn’t frequently appear on charts. 
  3. It might become difficult for traders to distinguish between Bull flags and rectangular patterns.
  4. It may produce false signals sometimes.

Conclusion

No chart pattern or indicator can offer absolute assurance concerning whether a trend will reverse or continue. Therefore, it’s best to use this if it fits your strategy, then follow your trading plan and let probability play out. If you’re looking to learn more about indicators, candlestick patterns, etc. do check out the Traders Central Academy

If you’re looking to get funded with a large capital, do check the funding options available at Traders Central. You can get funded with the instant funding plan or go through a challenge and get funded depending on your preference. 

What is OBV Indicator and How to use it in Trading?

Traders employ different technical indicators to assess supply and demand mechanisms and understand the market psychology. Since indicators can generate reliable trading signals, they help investors to find profitable trading opportunities. However, technical indicators don’t guarantee market success. Therefore, traders must also learn effective risk management strategies. In this piece, we discuss the OBV indicator in detail. 

What Is OBV Indicator?

On balance volume (OBV) is a technical indicator used to link price and volume while trading stocks. The indicator measures selling and buying pressure utilizing volume and help clients to predict the price movements of the underlying security. No doubt that volume has a vital influence on the stock market, and it represents the attention of market players and aids in price speculation. That’s why people prefer using the OBV indicator. 

History of OBV Indicator 

Understanding the need for comprehensive volume structure research that gives more trading buffer, especially in turbulent markets, Joshep Granville invented the OBV in 1963. He believed volume has a more substantial influence on markets than price change. 

Granville further explained that if volume grew or fell drastically without affecting the price of the issue, the cost would eventually go higher or lower. 

What Does OBV Indicator Tell You?

The OBV hypothesis distinguishes between savvy institutional investors and less skilled retail traders. The volume appears to increase as institutions, including investment funds and trading houses, start buying the stake of ordinary investors available for sale. Over time, volume tends to drive the prices upward. On the other hand, the reverse occurs as institutions sell their positions and ordinary investors re-accumulate.

Despite being drawn on the price chart and quantified statistically, OBV is irrelevant. Although the indication is cumulative, the time interval remains fixed. Therefore the actual numerical value of OBV is dependent on the start date. So instead, traders and analysts focus on the OBV line’s slope over time.

Analysts typically track institutional investors using the OBV Indicator. To illustrate purchasing opportunities against prevalent trends, they use volume and price divergences as a metaphor for connecting smart money and the diverse masses. For example, institutional investors may bid up an asset’s price before selling it.

Formula to calculate OBV 

OBV calculation becomes pretty simple after understanding the relation between two recurring trading days’ closing prices.

Please note that today’s price may be lower, greater, or the same as yesterday’s volume depending on the price connection. We have the following three equations for the OBV in all three cases:  

1) OBV = Yesterday’s OBV – Today’s volume

2) OBV = Yesterday’s OBV + Today’s volume

3) OBV = Yesterday’s OBV = Today’s volume

Example of OBV Indicator

Consider a hypothetical daily share price and volume. Let’s understand it using the following numbers. We’ll convert them to OBV changes.

First Day = $10.00 per share; 10,000 shares

Second Day = $10.10; volume = 12,000

Third Day = $10.05; volume = 14,000

Fourth Day = $10.15; volume = 8,000

Fifth Day = $10.12; volume = 9,000

Since the first and the second day are days with price spikes, we add these traded volumes to the OBV. On the other hand, the prices fell down on the third and fifth days, so the volume is subtracted from the cumulative OBV figure. The OBV on the fifth day may look like this;

First Day’s OBV equals to 0.

Second’s Day OBV = 12,000 (0 + 12,000)

Third’s Day OBV = -2,000 (12,000 – 14,000) 

Fourth’s Day OBV = 6,000 (-2,000 + 8,000) 

Fifth’s Day OBV = -3,000 (6,000 – 9,000)

This calculation shows that OBV can be negative or positive. The premise is that as the share price rises, OBV rises proportionally. OBV falls by the share volume each day when the share price falls.

Difference between OBV and Distribution/Accumulation line

Being momentum indicators, both OBV and the accumulation line rely on volume to forecast the smart money movement. However, the similarities cease there. It is computed by adding up the volume on each up day and subtracting it on the down days.

Not to mention, the accumulation/distribution line is calculated differently from the OBV. The Acc/Dist is calculated by taking the current price’s position relative to its previous trading range and multiplying it by the volume of that time.

How to set up an OBV Chart?

The OBV is a volume-momentum indicator that requires no changes. The OBV automatically modifies its values depending on automated calculations.

You may adjust the indication line’s color or thickness to improve the user experience. For instance, if the default color of the line is green and you like simple candlestick charts, you can modify the line’s color.

You may also move the OBV’s box on your chart to better organize your workspace for trading.

When putting up the OBV on your chart, avoid using time frames less than 4 hrs because they have significant volatility and might create extra noise.

How to trade using the OBV indicator?

Clients can use the On Balance Volume (OBV) indicator in three ways.

Method 1: To validate a trend continuance, traders can employ the OBV indicator.

Method 2: When the OBV and price trend are in opposition, clients can use the OBV indicator anticipating a price reversal. 

Method 3:  The OBV indicator can indicate the early breakout, precisely if the price moves in a range. 

On Balance Volume (OBV) Confirmation

OBV confirmation enables you to discover a price trend. For example, when changes in volume and price are positively correlated, it can signal a high probability confirmation of a trend. In this circumstance, the rise in volume would lead the price to surge, while a volume decrease may result in price decline.

  1. Confirmation of OBV on Stock Charts

The OBV indicator confirms that a rising trend will continue in the price of an asset class like stock. In this case, the OBV indicator validates the uptrend by increasing. 

  1. Confirmation of OBV in Crypto charts

In this case, OBV corroborated the bitcoin price trend. As evident, the bitcoin price reached a new ATH (all-time high) due to incremental volume flow.

Divergence of On Balance Volume (OBV) Indicator

The divergence occurs in an uptrend when the price prints a higher high (H-H) but OBV prints a lower high (LH). On the other hand, a downtrend involves price printing a lower-low (LL) and OBV printing a higher-low (HL).

  1. Divergence of OBV indicator in Stock Charts 

When looking at the share price of Apple, it appears that the price has made a new high, and the trend is upward. On the other hand, the OBV indicator shows a lower high, which implies bulls have lost power and selling pressure has started building up.  

  1. Divergence of OBV indicator in Crypto Charts

When a price approaches its support/resistance levels, it responds violently. In such a scenario, bitcoin’s price rose, OBV volume decreased. In actuality, OBV revealed bitcoin’s price reversal before it dropped. In other words, when the price rose, bulls lost power, and bears seized control.

OBV breakout

Breakout trading is no longer as simple, and many traders fall into bull/bear traps. OBV can assist traders in differentiating a messy breakthrough from a real one. Just remember, If the price breaks a resistance level, the volume should increase.

On the other hand, If the price breaks a support level, it should lose volume.

  1. Breakout of OBV indicator in Stock Charts

In this case, Tesla shares range on a certain price level with firm support. Observing the volume movement in this area, the OBV verified the price breakout to the downside before the price plummeted. It can also predict a price breakthrough before it occurs. In this situation, bears control the cost and escalate selling pressure, causing it to crash.

  1. Breakout of OBV Indicator in Crypto Charts

Not to mention, the price swings of cryptocurrencies are unique. The bitcoin price fluctuates too much, causing traders to lose focus.

OBV suggested a price break out just ahead of the price surged in this case. In other words, holding a position for an extended period at this price level would be beneficial with a close stop loss.

Limitations of OBV Indicator 

Like all other indicators, OBV can lead you to false interpretation. Therefore, you should have realistic expectations while using it. Do not forget to take precautions before employing it. 

In extremely liquid markets like Forex (e.g. EUR/USD), the OBV might be useless in determining whether a signal is correct or incorrect. Essentially, there are numerous buyers and sellers for each price when there is enough market liquidity. So, more volume doesn’t always mean more money. OBV indicator is more useful in other markets such as stock or crypto.

Market volatility can also significantly impact the performance of the OBV indicator. It might mislead you after price breakouts. Since the OBV indicator cumulates volume, even a single candlestick volume may significantly impact.

In such a scenario, it becomes difficult to ascertain If buyers/sellers can manage price after hitting new levels or they’ve lost control. In other words, you may use the OBV indicator to validate price movement before a breakout. However, making a move based on the OBV indicator after the breakout wouldn’t be wise. Instead, it would help if you use other technical indicators combined with the OBV to confirm the price action. 

Notably, low volatility always makes lower periods noisier. But again, OBV can produce false indications in smaller time frames. So avoid using OBV as a sole indicator while trading lower time scales. 

Pros and Cons of OBV Indicator 

Like other indicators, the OBV indicator also comes with some pros and cons listed below. 

Pros

  1. OBV is one of the leading indicators that reasonably predict significant market changes
  1. Clients can learn the computation, plotting, and interpreting signals in a few trading sessions. Of course, you’ll need to practice identifying institutional from retail volume. Not to mention, some indications and order flow can be fraudulent. Overall, the OBV is one of the most user-friendly indicators.
  1. The OBV indicator works in all types of markets, including stocks, bonds, futures, forex, and cryptocurrencies. However, the market must have related exchange volume and evaluate more extended time-frames.
  1. Among all volume indicators, traders use the OBV  the most. The indicator is generally found to be preferred among day traders due to being a real-time momentum indicator. Experts who wish to add insights based on volumes to their analyses also find it pretty useful. 

Cons 

  1. Dealing desk brokers can increase volume by issuing bogus orders and canceling them before their execution. A surge in trade volume might throw off the indicator. Due to a fake trend, it may fool you into hurrying your trading choice.
  1. It generates signals but doesn’t tell much details. The trader can’t study the reasons that led to a specific indication. Irrespective of bucks or pennies, the OBV indicator adds or subtracts/eliminates the same volume independent of price. As a result, we deem the indicator unconvincing for price analysis. So each produced signal requires a trader to incur risk.
  1. While this is true for most indicators, it is especially true for the OBV. Because volume analysis is not definitive, traders typically use additional indicators to seek breakouts, such as adding Moving Average lines (MA) to the OBV. 

Conclusion 

In the present times, with the increase in accessibility of trading tools to almost everyone with a device and internet connection, more and more participants are involving in the market. Therefore, both the volatility and volume keep increasing day by day. Although the OBV works in small and large volume markets, the indicator might not cater to turbulent market conditions. Price surges or downfalls, flash crashes, and transaction cancellations destabilize prices and impact the trading volume. It can push the OBV beyond boundaries and promote false signal production. The OBV indicator might be helpful when combined with other indications. So, it can assist you in spotting trend reversals, divergences, or confirmations, enhancing your trading techniques. However, in today’s economy, it isn’t worth utilizing alone. Undoubtedly, employing OBV as your only signal could end up as a catastrophe. If you really find an edge with this indicator alone, well done. If not, it’s generally best to use it as a confirmation and create your own strategy, backtest and then live test to validate the statistics you have collected in your backtesting.

If you want to learn more about forex trading indicators, do check out Traders Central Academy. We fund good traders who can prove their capability as well as multiple other services catering to traders including but not limited to Cryptocurrency exchange services, liquidity services and trading tools.

Frequently Asked Questions (FAQs)

What does a negative OBV suggest?

A negative OBV suggests two things; the price is low today than yesterday, and the traded volume is more significant today than yesterday. It generally indicates tremendous selling pressure followed by a probable bearish pattern.

How accurately does the OBV Indicator work?

The OBV indicator works accurately in a steady market, specifically when you apply OBV to larger time frames, and there is low market volatility. However, it is better to avoid depending solely on its indications. The OBV works best when combined with other indicators.

Doji Star 

When the market appears strongly bullish, a segment of traders may anticipate a trend reversal, and choose to sell. On the other hand, some may prefer to watch the market during an indecision phase and forecast market developments based on technical analysis. Primarily, it is through specific candlestick patterns formed on charts, that technical traders base their decisions off of. Doji candlesticks is one such candlestick pattern. While there are different types of Doji candlestick patterns, we’ll discuss the Doji Star in detail in this article.

What Is Doji Star?

A Doji Star is a three-column candlestick pattern that indicates a possible market trend reversal. Usually, traders find it in bullish and bearish variants depending upon the prevailing trend. To comprehend the Doji Star pattern, one must first understand the Doji candlestick pattern. 

A Doji appears when a candle’s starting and closing prices are almost identical. Doji has a body that resembles a cross or a plus sign. In auction theory, Doji signifies buying and selling uncertainty. Some technical analysts interpret Doji as a retracement. However, this is when buyers and sellers acquire momentum for future trends. When they arise during the integration phase, Dojis can assist analysts in spotting price breakouts. 

Technical Analysis – Doji Star

Technical analysis is the study of chart patterns & price movements to predict future price changes. While analyzing Doji candles, traders seek answers to the following questions:

  1. What is the current situation on the price chart before the appearance of Dojis? 
  2. Is the price trending upward or reversing in an uptrend (a pullback)? 

They may also try to figure out if the price is going in a triangle or sideways? Lastly, technical analysts might wish to confirm a support or resistance level near the Doji pattern?

These scenarios help analysts predict an instrument’s price movement after a Doji. In addition, technical analysis help traders to identify trade opportunities in Doji candlestick patterns. Let’s look at different types of Doji Star and discuss some trading ideas.

Types of Star Doji Candlestick Patterns

There are two Doji Star candlestick patterns, including bullish Doji Star and bearish Doji Star. 

Bullish Doji Star candlestick pattern 

Bullish Star Doji comprises a three-bar downtrend formation pattern. The first bar is long and dark, while the second is relatively shorter, replicating a Doji with a narrow trading range. Its third bar closes above the middle.

Bullish Star Doji candlesticks indicate a market reversal from the present downturn and are considered purchase indications. Traders use them to track the time to hold their positions. It typically forms at a chart’s bottom, signalling the end of a protracted bearish period.

Bearish Doji Star candlestick pattern 

Bearish Star Doji candlestick appears during an upswing. It’s a bearish reversal pattern, and two candles depict it. The first candle’s body is lengthy because of the rise during an uptrend. Doji opening and closing above the first candle appears afterwards.

How to spot a bullish Doji Star?

Look for a standard red candlestick at the chart’s bottom on the first day. It verifies the general downward trend and shows that the price closed below the opening price. A little Doji on the following day means there is little or no gap between the price where the candle opened and closed. Next, look for a gap-up on the third candlestick.

Example 

The chart below for Brent Crude Oil (WTI) shows two bullish stars forming following a price dip. The price gap is narrow, creating a star before rising again, confirming a bearish price reversal.

How to spot a bearish Doji Star?

Identifying a bearish Star Doji isn’t tricky. The first candle should have a lengthy white line and a Doji above it. Remember, Doji’s shadow won’t have excessive length, and the line’s shadow does not overlap.

Example

Following a price gain, a bearish star Doji signalled the commencement of a short-term downslide in the given below chart for the U.S SPX 500 index.

How to trade a bullish Doji Star?

Consider entering a long trade with a stop loss to protect yourself if prices start moving in the opposite direction. You may also examine the 5 and 15 minute time frames to study the trend and adjust your protection. Prices begin to rise when the bullish Doji Star pattern forms. So, if you trade after this pattern is confirmed, you can make some potential profit. 

How to trade a bearish Doji Star?

A bearish Doji Star signals the conclusion of an uptrend and the beginning of a downtrend. Therefore, when you spot a bearish Doji Star pattern, it is better to shorten your position right away. 

Limitations of Doji 

The Doji candle is a non-directional indicator that gives minimal data. Since Dojis are rare, they can’t reliably identify price reversals. After the candle is validated, the price may not move in the predicted direction.

Dojis tail or wick combined with the confirmation candle’s magnitude might indicate a trade entry location distant from the stop loss. Traders must locate another stop-loss position or exit the trade if the stop-loss is too far. 

Calculating prospective Doji trading gains also becomes challenging since candlestick patterns seldom indicate price goals. Therefore other candlestick patterns, technical indicators, or tactics in conjunction with Doji can help you exit the trade profitably.

Conclusion 

Assuming you have learned how to read market trends, structure, technical and fundamental data; using Doji star candlesticks patterns will be a nice addition to your toolbelt. First, however, do not forget to employ Doji Star candlestick patterns with other indicators. Relying solely on Doji star candles might not be a great idea. It’s always best to develop a strategy with a positive edge in the markets and use these patterns or indicators as confirmations for entry. Backtesting on past data is always the best way to do it and later on you can also try your strategy in live markets to validate it.  

Discover more resources about forex trading indicators, candlestick patterns and more on Traders Central Academy. We cover everything from Stocks, Forex and Cryptocurrencies. We also support skilled traders and finance them on trading numerous financial instruments. 

Frequently Asked Questions (FAQs)? 

What does a Doji tell you?

A Doji candlestick emerges when an underlying security’s opening and closing prices are almost equal and often signifies a reversal pattern. Doji means error or mistake in Japanese and refers to the rarity of the open and closing price being the same.

How to read Doji?

Doji patterns have two lines, one vertical and one horizontal. Length of wick might vary depending on price action. The body indicates the difference between the closing and opening prices.

What does a bullish Doji Star mean?

The Doji Star Bullish Candlestick Pattern is employed in technical analysis to determine when a protracted decline will reverse. It refers to the unusual phenomenon of a security’s opening and closing prices being almost identical. 

What does a bearish Doji Star mean?

A Bearish Doji Star candlestick pattern implies that buyers are losing power, and the market is in a bind in an upswing.

101 Trading Quotes To Aid You In Developing A Strong Mindset For Trading

“It’s not always easy to do what’s not popular, but that’s where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized”

– John Neff

“Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pay it.”

– Albert Einstein

“I have two basic rules about winning in trading as well as in life: a) If you don’t bet, you can’t win. b) If you lose all your chips, you can’t bet”

– Larry Hite

“The trend is your friend until the end when it bends”

– Ed Seykota

“Today, people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value”

– Warren Buffet

“The goal of a successful trader is to make the best trades. Money is secondary”

– Alexander Elder

“Amateurs think about how much money they can make. Professionals think about how much money they could lose”

– Jack Schwager

“You create your own game in your mind based on your beliefs, intents, perception and rules”

– Mark Douglas

“There is a time to go long, a time to go short, and a time to go fishing”

– Jesse Livermore

 “If most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money.”

– Bill Lipschutz

“Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don’t take a hard look at risk, it will take you”

– Larry Hite

“Remember that stocks are never too high for you to begin buying or too low to begin selling”

– Jesse Livermore

“It is the job of the market to turn the base material of our emotions into gold”

– Andrei Codrescu

“You get a recession; you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets”

– Peter Lynch

“I have found that when the market’s going down, and you buy funds wisely, at some point in the future, you will be happy. You won’t get there by reading. Now is the time to buy”

– Peter Lynch

“The market can stay irrational longer than you can stay solvent”

– John Maynard Keynes

“Invest for the long haul. Don’t get too greedy and don’t get too scared”

– Shelby M.C. Davis

“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute”

– William Feather

“Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.”

– George Soros

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas”

– Paul Samuelson

“A handful of men have become very rich by paying attention to details that most others ignored”

– Henry Ford

“The stock market is a device for transferring money from the impatient to the patient”

– Warren Buffett

“All the math you need in the stock market you get in the fourth grade”

– Peter Lynch

“If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume”

– Benjamin Graham

“A company has only so much money and managerial time. Winning leaders invest where the payback is the highest. They cut their losses everywhere else”

– Jack Welch

“We are in the business of making mistakes. Winners make small mistakes; losers make big mistakes”

– Ned Davis

“In the short run, a market is a voting machine, but in the long run, it is a weighing machine”

– Benjamin Graham

 “There’s no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or worse, to buy more of it when the fundamentals are deteriorating”

– Peter Lynch

“The big money is not in the buying or the selling, but in the waiting”

– Charlie Munger

“Seek advice on risk from the wealthy who still take risks, not friends who dare nothing more than a football bet”

– J. Paul Getty

“You make most of your money in a bear market; you just don’t realize it at the time.”

– Shelby Cullom Davis

“A peak performance trader is totally committed to being the best and doing whatever it takes to be the best. He feels totally responsible for whatever happens and thus can learn from mistakes. These people typically have a working business plan for trading because they treat trading as a business”

– Van K. Tharp

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”

– Warren Buffett

“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliché, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short”

– Victor Sperandeo

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ” – Warren Buffett

“Money is made by sitting, not trading”

– Jesse Livermore

“That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?”

– Paul Tudor Jones

“I think investment psychology is by far the more important element, followed by risk control, with the least important consideration being the question of where you buy and sell”

– Tom Basso

“The goal of a successful trader is to make the best trades. Money is secondary”

– Alexander Elder

“You only have to do very few things right in your life so long as you don’t do too many things wrong”

– Warren Buffet

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages”

– Jesse Livermore

“It’s not what we do once in a while that shapes our lives. It’s what we do consistently”

– Anthony Robbins

“ It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that, you’ll do things differently”

– Warren Buffett

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have”

– Paul Tudor Jones

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

– Warren Buffett

“You have to identify your weaknesses and work to change. Keep a trading diary – write down your reasons for entering and exiting every trade. Look for repetitive patterns of success and failure”

– Alexander Elder

“It is always the best discretion to let the market show us where it is going and just simply follow, rather than predict where the market is going and place a position”

–  Anne-Marie Beiynd

“In trading/investing, it’s not about how much you make but rather how much you don’t lose”

– Bernard Baruch

“If a trader is motivated by the money, then it is the wrong reason. A truly successful trader has got to be involved and into the trading, the money is the side issue. The principal motivation is not the trappings of success. It’s usually the by-product”

– Bill Lipschutz

“The core problem, however, is the need to fit markets into a style of trading rather than finding ways to trade that fit with market behavior”

– Brett Steenbarger

“My experience with novice traders is that they trade three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks”

– Bruce Kovner

“It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that”

– Charlie Munger

“Timing, perseverance, and ten years of trying will eventually make you look like an overnight success”

– Christopher Isaac Stone

“Trade What’s Happening… Not What You Think Is Gonna Happen”

– Doug Gregory

“I set protective stops at the same time I enter a trade. I normally move these stops to lock in a profit as the trend continues”

– Ed Seykota

“The fundamental law of investing is the uncertainty of the future”

– Peter Bernstein

“If you can’t take a small loss, sooner or later you will take the mother of all losses”

– Ed Seykota

“By living the philosophy that my winners are always in front of me, it is not so painful to take a loss”

– Martin Schwartz

“Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected”

– George Soros

“Risk no more that you can afford to lose, and also risk enough so that a win is meaningful”

– Ed Seykota

“An average trader loses money, so in this profession, you need to be way above average to make consistent money trading the markets”

– Henrique M. Simões

“Win or lose, everybody gets what they want from the market. Some people seem to like to lose, so they win by losing money”

– Ed Seykota

“It’s not whether you’re right or wrong that’s important, it’s how much money you make when you’re right and how much you lose when you’re wrong”

– George Soros

“Accepting losses is the most important single investment device to ensure the safety of capital”

– Gerald M. Loeb

“There is no single market secret to discover, no single correct way to trade the markets. Those seeking the one true answer to the markets haven’t even gotten as far as asking the right question, let alone getting the right answer”

– Jack Schwager

“Trader has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit”

– Jesse Livermore

“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.”

– Jim Rogers

“The hard work in trading comes in the preparation. The actual process of trading, however, should be effortless”

– Jack Schwager

“Successful investing is anticipating the anticipations of others”

– John Maynard Keynes

“I have learned through the years that after a good run of profits in the markets, it’s very important to take a few days off as a reward. The natural tendency is to keep pushing until the streak ends. But experience has taught me that a rest in the middle of the streak can often extend it”

– Martin Schwartz

“By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical”

– Larry Hite

“Frankly, I don’t see markets; I see risks, rewards, and money”

– Larry Hite

“I get real, real concerned when I see trading strategies with too many rules”

– Larry Connors

“If you don’t respect risk, eventually they’ll carry you out”

– Larry Hite

“All you need is one pattern to make a living”

– Linda Raschke

“If you can learn to create a state of mind that is not affected by the market’s behavior, the struggle will cease to exist”

– Mark Douglas

“What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower”

– William O’Neil

“Why do you think unsuccessful traders are obsessed with market analysis? They crave the sense of certainty that analysis appears to give them. Although few would admit it, the truth is that the typical trader wants to be right on every single trade. He is desperately trying to create certainty where it just doesn’t exist”

– Mark Douglas

“A great trader is like a great athlete. You have to have natural skills, but you have to train yourself how to use them”

– Martin Schwartz

“I always laugh at people who say, “I’ve never met a rich technician.” I love that! It’s such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician”

– Martin Schwartz

When in doubt, get out and get a good night’s sleep. I’ve done that lots of times and the next day everything was clear… While you are in the position, you can’t think. When you get out, then you can think clearly again”

– Michael Marcus

“Learn to take losses. The most important thing in making money is not letting your losses get out of hand”

– Martin Schwartz

“My attitude is that I always want to be better prepared than someone I’m competing against. The way I prepare myself is by doing my work each night”

– Martin Schwartz

“When I became a winner, I said, “I figured it out, but if I’m wrong, I’m getting the hell out”, because I want to save my money and go on to the next trade”

– Martin Schwartz

“Don’t worry about what the markets are going to do, worry about what you are going to do in response to the markets”

– Michael Carr

“Trading is a waiting game. You sit, you wait, and you make a lot of money all at once. Profits come in bunches. The trick when going sideways between home runs is not to lose too much in-between”

– Michael Covel

“The men on the trading floor may not have been to school, but they have Ph.D.’s in man’s ignorance”

– Michael M. Lewis

“Every trader has strengths and weaknesses. Some are good holders of winners but may hold their losers a little too long. Others may cut their winners a little short but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach”

– Michael Marcus

“Good investing is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake”

– Michael Steinhardt

“Some people make shoes. Some people make houses. We make money, and people are willing to pay us a lot to make money for them”

– Monroe Trout

“I was convinced that I was totally incompetent in predicting market prices – but that others were generally incompetent also but did not know it, or did not know they were taking massive risks. Most traders were just “picking pennies in front of a steamroller,” exposing themselves to the high-impact rare event yet sleeping like babies, unaware of it”

– Nassim Nicholas Taleb

“Trading is a psychological game. Most people think they are playing against the market, but the market doesn´t care. You’re really playing against yourself”

– Martin Schwartz

“A lot of people get so enmeshed in the markets that they lose their perspective. Working longer does not necessarily equate with working smarter. In fact, sometimes is the other way around”

– Martin Schwartz

“I believe in analysis and not forecasting”

– Nicolas Darvas

“5/1 risk/reward ratio allows you to have a hit rate of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time and still not lose”

– Paul Tudor Jones

“Everyday I assume every position I have is wrong”

– Paul Tudor Jones

“There is a saying that bad traders divorce their spouse sooner than abandon their positions. Loyalty to ideas is not a good thing for traders, scientists – or anyone”

– Nassim Nicholas Taleb

“Where you want to be is always in control, never wishing, always trading, and always, first and foremost protecting your butt. After a while size means nothing. It gets back to whether you’re making 100% rate of return on $10,000 or $100 million dollars. It doesn’t make any difference”

– Paul Tudor Jones

“We want to perceive ourselves as winners, but successful traders are always focusing on their losses”

– Peter Borish

“Trading is very competitive and you have to be able to handle getting your butt kicked”

– Paul Tudor Jones

Supertrend Indicator – How to use in Trading?

Irrespective of the financial market you trade, it is crucial to make lucrative trading decisions. Likewise, the use of trading indicators for an intraday trader is simply unavoidable. However, it is well said that success requires more than a decent trading platform. While indicators aid in reading a trading chart and determining market ranges or trends, they help clients detect overbought, oversold, and reversal situations. In this piece, we discuss the Supertrend indicator in detail. 

What Is Supertrend Indicator? 

Founded by Olivier Seban, the Supertrend indicator produces precise buying or selling signals in a trending market. Plotted on price shows the current trend employing only two parameters: period and multiplier. Traders often consider it the same as other trend-following indicators, such as moving averages and MACD. However, it works much better across all time frames, including 1-Min, 5-Min, or 15 Min charts. 

The Supertrend indicator strategy’s default parameters are 10 for ATR and 3 for its multiplier. In addition, the Average True Range (ATR) helps calculate the indicator’s value and signifies the extent of price volatility. 

Changes to these data may impact the usage of the Supertrend indicator. Please note that no trading indicator has an optimal setting. Changing too many settings might result in a trading system that is over-optimized for the moment. Therefore, the less you change the settings for the indicator, the more productivity you can expect from it. Although more settings may reduce market noise, they can also reduce the reliability of the trading signals.

How does the Supertrend indicator work?

Like a Moving Average (MA), the Supertrend indicator is a trend-tracking overlay on a trading chart. Not to mention, it performs well in trending markets but can be misleading in range markets. Since the indicator employs the ATR to calculate volatility in the market, a trader should develop a strong understanding of the ATR first. 

ATR is another indicator that measures market volatility by decompressing a security’s price range across time. 

A true-range indication is the highest of these values: (current high – current low), (current high – previous close), and (current low – previous close). 

To obtain the ATR, find the TR values for the series first, and divide them by the number of periods represented by n. Hence you get the actual range moving average.

So, we get the following equation by putting the abovementioned data into the ATR calculation. 

TR=Max [(current high–current low), Abs(current high–previous close), Abs(current low–previous close)] 

Where ATR=(1/n)

TRi = True Range

n = trading days count

This formula helps comprehend the indicator’s working procedure. First, ensure the super-trend indicator is configured correctly. Set Periods (ATR days) and adjust the multiplier accordingly. A multiplier is a number that increases ATR. Traders often employ ten for periods and a three for the multiplier. Prices adjustments are more responsive to shorter n values. Notably, there will be fewer signals to act upon if n is larger.

How to Setup the Supertrend indicator?

After installing it on your trading platform, you need to follow the simple steps listed below to set up the indicator. 

Step 1: To trade a stock, open its chart.

Step 2: Set an intraday trading period of 10 minutes. Any standard charting software would work fine.

Step 3: Make your indication the super trend. You can set the figures to either 10 & 3 or use your custom configuration.

Step 4: Now start tracking favourable indications.

Step 5:  You may also use the arrows to purchase and sell stocks.

How to trade using the Supertrend indicator?

The Supertrend indicator helps you perform solid technical analysis on any stock. You can also have confirmation of trend and decide whether to go long or short using this indicator. Since it works best in a trending market, determining an up or downtrend in any market shouldn’t be difficult. 

However, do not forget to employ the stop-loss feature while opening a position based on the Supertrend indicator. Using the indicator line for a stop-loss would be even better. Moreover, you can trail it irrespective of the price direction. If you want to go long, place your stop loss at the green signal line. In another scenario, put it on the red line. 

The indicator’s primary purpose is to produce traders’ buy and sell signals. It exhibits changing patterns via flipping. When the stock price exceeds the indicator value, the indicator turns green and signals a buy. Similarly, a sell signal is received when the price falls below the indicated value, leading the colour to turn red. The indicator catches intraday patterns fast. While using it, keep the default settings of 10 and 3. Trying to lower the settings may result in false indications.

Undoubtedly, using the Supertrend indicator combined with your stop loss pattern is the most fantastic strategy to make money effectively.

Things To Consider While Trading With Supertrend Indicator 

You may utilize this indicator on different time frames for entry and exit signals. i.e. starting with a larger timeframe and working your way down to lower time frames. Swing and position traders might employ more extended periods. However, the 15-minute should be the smallest period for using the Super trend indicator. 

Pros and Cons of Supertrend Indicator 

Like all other indicators, the Supertrend indicator also has some pros and cons of using it. Let us quickly enlist a few of them below. 

Pros  

  • The Supertrend indicator is well-known for producing accurate signals with default settings. Hence it appears to be one of the most reliable indicators.
  • It produces precise signals, enabling traders to make appropriate trading decisions fast.
  • The indicator is quick to set up, easy to understand, and simple to use. 
  • Supertrend indicator is widely available across multiple platforms. Mostly, traders can download it for free. 
  • It helps clients to perform quick technical analyses to find profitable trading opportunities. 

Cons 

  • The Supertrend works well in a trending market but can be ineffective in a range market. That means it doesn’t necessarily work every time. 
  • The indicator employs only two parameters, including multiplier and ATR, which might not be sufficient in different trading conditions for predicting the market direction reliably. 

Conclusion 

The super-trend indicator works best in markets with unambiguous price patterns. In sideways markets, it may cause misleading signals, inciting erroneous trades. It is used with other indicators like moving averages and MACD for more efficient signals. Aside from the Supertrend indicator, no technical analysis tool works perfectly. Nevertheless, you may make wise selections and benefit handsomely. False signals occur from time to time using the Supertrend but are less often than produced by other indicators. Hence, using it in combination with other indicators is recommended.

You can explore Traders Central Academy to learn more about forex tools, indicators, and general trading tips. Besides forex and stock trading tutorials, we also provide plenty of resources related to cryptocurrencies. If you’re good at trading and looking to get funded with a large capital, check out our funding solutions. You can go with the challenge model or get funded instantly depending on your preference.