Strategies

A short moving average crossing a longer one is a standard way to follow a trend without predicting the next bar. Traders treat a short average closing above a long average as a possible uptrend, and the reverse cross as a reason to exit or flip. The averages are slow on purpose: price has to stay higher or lower long enough to move them.

Supertrend is a trailing line built from the average true range. When price closes on one side of the line, the indicator flips and follows the new direction at a distance set by recent volatility. It is popular because the chart shows a single trend color and a built-in trailing stop.

Ichimoku Kinko Hyo puts trend, momentum, and support and resistance on one chart. The cloud, formed by two leading spans, is the piece most traders watch: price above the cloud is treated as an uptrend, price below it as a downtrend, and price inside it as a transition. The conversion and base lines add a faster cross, and the lagging span checks whether price agrees with where it was 26 periods ago.

MACD compares a fast exponential average with a slow one, then smooths that difference with a signal line. A cross of the MACD line through the signal line is the usual entry, and the histogram shows whether that momentum is growing or fading. Traders also watch whether the cross happens above or below zero, which is a rough read on the larger trend.

The average directional index measures how strong a trend is, not which way it points. Direction comes from the plus and minus directional lines that sit with it. A common approach is to trade only when ADX says a trend is strong, then buy a pullback in that direction instead of chasing the breakout.

Parabolic SAR, from Welles Wilder, plots a trailing stop that flips when price crosses it. Dots sit under price in an advance and above price in a decline. Traders use the flip as a trend direction change, not as a forecast of how far the move will run.

Aroon, from Tushar Chande, measures how recently price made a high versus a low. It answers a timing question, not a distance question: did the extreme happen on this bar, or many bars ago? A strong uptrend keeps Aroon Up near 100 and Aroon Down near 0.

The Hull moving average, from Alan Hull, is a weighted average built to cut lag without becoming a raw price line. It combines a fast weighted average and a slow one, then smooths the result with the square root of the length. Traders use the slope, or a cross of price through the Hull line, as a trend filter.

Daryl Guppy's multiple moving average splits a ribbon into a short group and a long group. The short group is a stand-in for traders, the long group for investors. A trend is readable when the two groups separate and each group is ordered from fast to slow. Compression of the ribbon is a warning that agreement has broken.

Alexander Elder's impulse system colors bars from the slope of a short exponential average and the slope of the MACD histogram. Green means both are rising, red means both are falling, and blue means they disagree. It is a permission system: it tells you when not to fight the current impulse, and it is meant to sit on top of another entry rule.

The Coppock curve is a long-term momentum sum built for monthly charts. Edwin Coppock added an 11-month and a 14-month rate of change, then smoothed that sum with a weighted average. A cross up through zero from below is the classic long signal for a market that has already been falling. It is not an intraday oscillator.

TRIX is the one-period rate of change of a triple-smoothed exponential average. Jack Hutson designed the extra smoothing to ignore moves that do not last long enough to move all three averages. A cross of the zero line is the trend signal. A signal line, a moving average of TRIX itself, is sometimes used instead of zero.

Perry Kaufman's adaptive average speeds up when price is moving in one direction and slows down when price is noisy. An efficiency ratio compares the net move over a window with the sum of the absolute bar-to-bar moves. The average then uses a faster smoothing constant in clean trends and a slower one in chop.

The vortex indicator compares upside and downside price travel over a window. VI+ sums how far each bar's high is from the prior low. VI- does the mirror image. A cross of VI+ above VI- is treated as an uptrend starting, and the reverse cross as a downtrend. It is a two-line trend tool, not an overbought oscillator.

Martin Pring's Know Sure Thing sums four rates of change, each smoothed and given a weight, with the longest rate weighted most. The point is a momentum curve that looks at several horizons at once instead of a single MACD length. A signal line is a moving average of that sum. Crosses of the signal line are the usual trigger.

On-balance volume adds the day's volume when price closes up and subtracts it when price closes down. Joseph Granville used the running total as a check on whether volume agrees with the price trend. A price high that OBV does not confirm is the warning. OBV does not produce a price target.

The negative volume index changes only on days when volume falls versus the prior day. The idea, associated with Paul Dysart and Norman Fosback, is that quieter days say more about the underlying trend than crowd-driven high-volume days. It is the opposite construction from on-balance volume, which updates every day.

The relative strength index compares recent gains with recent losses and plots the result from 0 to 100. A simple mean-reversion rule buys after RSI falls to an oversold level and sells after it recovers, on the idea that a short, sharp dip will bounce. In a bull market, traders often only take the long side and require price to stay above a long moving average.

Bollinger Bands wrap a moving average with bands set a number of standard deviations away, usually two. A mean-reversion rule fades a close outside the band, expecting price to drift back toward the average. The same bands also show when that idea is dangerous: in a strong trend, price can walk along the upper or lower band for a long time.

Volume-weighted average price is the session's average trade price, weighted by how much volume printed at each price. Day traders use it two ways. One fades an extended move back toward VWAP. The other only takes trades in the direction of a sloping VWAP, treating it as the session's fair price.