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Trend Indicators

Trend indicators help identify the direction and strength of market trends, enabling traders to follow momentum and avoid counter-trend trades.

Moving Average Convergence Divergence (MACD)

Calculation

MACD shows the relationship between two moving averages of price, revealing changes in trend strength, direction, and momentum.

Formula:

MACD Line = EMA(12) - EMA(26)
Signal Line = EMA(9) of MACD Line
Histogram = MACD Line - Signal Line

Standard Settings: 12, 26, 9

Step-by-Step Example:

Day 1-26: Calculate EMA(12) and EMA(26)
  EMA(12) = 105.50
  EMA(26) = 104.20
  
  MACD Line = 105.50 - 104.20 = 1.30

Day 27-35: Calculate Signal Line
  Signal Line = EMA(9) of MACD values
  Signal Line = 1.15
  
  Histogram = 1.30 - 1.15 = 0.15

Components

Component	Calculation	Purpose
MACD Line	Fast EMA - Slow EMA	Shows momentum direction
Signal Line	9 EMA of MACD	Triggers buy/sell signals
Histogram	MACD - Signal	Shows momentum strength

Characteristics

Range: Unbounded (oscillates around zero)
Bullish: MACD > 0 and rising
Bearish: MACD < 0 and falling
Standard Settings: 12, 26, 9
Fast Settings: 8, 17, 9 (for shorter timeframes)

Interpretation

Signal	Condition	Meaning
Bullish Crossover	MACD crosses above Signal	Buy signal
Bearish Crossover	MACD crosses below Signal	Sell signal
Zero Line Cross	MACD crosses above/below 0	Trend change
Histogram Expansion	Histogram growing	Momentum increasing
Histogram Contraction	Histogram shrinking	Momentum decreasing

Usage Examples

MACD Bullish Crossover:

{
  "indicator1": "macd",
  "period1": "12,26,9",
  "indicator2": "macd_signal",
  "period2": "12,26,9",
  "comparison": "crosses_above"
}
// MACD line crosses above signal line = buy

MACD Zero Line Cross:

{
  "type": "indicator_value",
  "indicator": "macd",
  "period": "12,26,9",
  "comparison": "crosses_above",
  "value": 0
}
// MACD crosses above zero = bullish trend

Histogram Turns Positive:

{
  "type": "indicator_value",
  "indicator": "macd_histogram",
  "period": "12,26,9",
  "comparison": "crosses_above",
  "value": 0
}
// Histogram crosses above zero = momentum shift

MACD Strategies

1. Classic MACD Crossover:

{
  "entryConditions": {
    "long": {
      "conditions": [
        {
          "indicator1": "macd",
          "period1": "12,26,9",
          "indicator2": "macd_signal",
          "period2": "12,26,9",
          "comparison": "crosses_above"
        }
      ]
    },
    "short": {
      "conditions": [
        {
          "indicator1": "macd",
          "period1": "12,26,9",
          "indicator2": "macd_signal",
          "period2": "12,26,9",
          "comparison": "crosses_below"
        }
      ]
    }
  }
}

2. MACD with Trend Filter:

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "price_indicator",
          "price": "close",
          "indicator": "ema",
          "period": 200,
          "comparison": "above"
        },
        {
          "indicator1": "macd",
          "period1": "12,26,9",
          "indicator2": "macd_signal",
          "period2": "12,26,9",
          "comparison": "crosses_above"
        }
      ]
    }
  }
}
// Only take MACD signals in uptrend (above 200 EMA)

3. MACD Histogram Reversal:

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "macd_histogram",
          "period": "12,26,9",
          "comparison": "below",
          "value": 0
        },
        {
          "type": "indicator_value",
          "indicator": "macd_histogram",
          "period": "12,26,9",
          "comparison": "crosses_above",
          "value": 0
        }
      ]
    }
  }
}
// Enter when histogram crosses from negative to positive

MACD Divergence

Bullish Divergence:

Price makes lower low
MACD makes higher low
Signal: Potential reversal to upside

Bearish Divergence:

Price makes higher high
MACD makes lower high
Signal: Potential reversal to downside

Average Directional Index (ADX)

Calculation

ADX measures trend strength regardless of direction, helping traders determine if a market is trending or ranging.

Formula:

Step 1: Calculate True Range (TR)
TR = max[(High - Low), |High - Close_prev|, |Low - Close_prev|]

Step 2: Calculate Directional Movement
+DM = High - High_prev (if positive, else 0)
-DM = Low_prev - Low (if positive, else 0)

Step 3: Smooth and Calculate Directional Indicators
+DI = (Smoothed +DM / ATR) × 100
-DI = (Smoothed -DM / ATR) × 100

Step 4: Calculate DX
DX = (|+DI - -DI| / (+DI + -DI)) × 100

Step 5: Calculate ADX
ADX = Smoothed average of DX (typically 14 periods)

Characteristics

Range: 0 to 100
Weak Trend: ADX < 20
Developing Trend: ADX 20-25
Strong Trend: ADX 25-50
Very Strong Trend: ADX > 50
Extreme: ADX > 75 (rare)
Period: 14 (standard)

Interpretation

ADX Value	Trend Strength	Trading Strategy
0-20	No trend / Ranging	Avoid trend-following, use range strategies
20-25	Weak trend	Caution, wait for confirmation
25-50	Strong trend	Trend-following strategies work well
50-75	Very strong trend	Ride the trend, avoid counter-trend
75-100	Extremely strong	Trend exhaustion possible

Directional Indicators

Condition	Signal
+DI > -DI	Uptrend
-DI > +DI	Downtrend
+DI crosses above -DI	Bullish signal
-DI crosses above +DI	Bearish signal

Usage Examples

Strong Trend Filter:

{
  "type": "indicator_value",
  "indicator": "adx",
  "period": 14,
  "comparison": "above",
  "value": 25
}
// ADX > 25 = strong trend, safe for trend-following

Uptrend Confirmation:

{
  "logicalOperator": "AND",
  "conditions": [
    {
      "type": "indicator_value",
      "indicator": "adx",
      "period": 14,
      "comparison": "above",
      "value": 25
    },
    {
      "indicator1": "plus_di",
      "period1": 14,
      "indicator2": "minus_di",
      "period2": 14,
      "comparison": "above"
    }
  ]
}
// ADX > 25 AND +DI > -DI = strong uptrend

DI Crossover:

{
  "indicator1": "plus_di",
  "period1": 14,
  "indicator2": "minus_di",
  "period2": 14,
  "comparison": "crosses_above"
}
// +DI crosses above -DI = bullish signal

ADX Strategies

1. ADX Trend Filter:

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "adx",
          "period": 14,
          "comparison": "above",
          "value": 25
        },
        {
          "indicator1": "ema",
          "period1": 20,
          "indicator2": "ema",
          "period2": 50,
          "comparison": "crosses_above"
        }
      ]
    }
  }
}
// Only take EMA crossover when ADX confirms strong trend

2. ADX with Directional Indicators:

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "adx",
          "period": 14,
          "comparison": "above",
          "value": 20
        },
        {
          "indicator1": "plus_di",
          "period1": 14,
          "indicator2": "minus_di",
          "period2": 14,
          "comparison": "crosses_above"
        }
      ]
    }
  }
}
// Enter when +DI crosses above -DI with ADX > 20

Parabolic SAR (Stop and Reverse)

Calculation

Parabolic SAR provides potential entry and exit points by placing dots above or below price, indicating trend direction.

Formula:

SAR_tomorrow = SAR_today + AF × (EP - SAR_today)

Where:
- AF = Acceleration Factor (starts at 0.02, increases by 0.02 each period, max 0.20)
- EP = Extreme Point (highest high in uptrend, lowest low in downtrend)
- SAR = Stop and Reverse point

Example:

Uptrend:
Day 1: SAR = 100, EP = 105, AF = 0.02
Day 2: SAR = 100 + 0.02 × (105 - 100) = 100.10

If new high is made:
Day 3: EP = 106, AF = 0.04
Day 3: SAR = 100.10 + 0.04 × (106 - 100.10) = 100.34

If price closes below SAR:
Trend reverses, SAR switches to above price

Characteristics

Position: Dots below price (uptrend), above price (downtrend)
Acceleration Factor: 0.02 to 0.20 (standard)
Best For: Trending markets
Weakness: Whipsaws in ranging markets
Use: Trailing stops, trend identification

Interpretation

Condition	Signal
SAR below price	Uptrend, hold long
SAR above price	Downtrend, hold short
Price crosses below SAR	Exit long, enter short
Price crosses above SAR	Exit short, enter long

Usage Examples

Uptrend Confirmation:

{
  "type": "price_indicator",
  "price": "close",
  "indicator": "parabolic_sar",
  "comparison": "above"
}
// Price above SAR = uptrend

Trend Reversal (Bullish):

{
  "type": "price_indicator",
  "price": "close",
  "indicator": "parabolic_sar",
  "comparison": "crosses_above"
}
// Price crosses above SAR = bullish reversal

Trailing Stop:

{
  "exitConditions": {
    "stopLoss": {
      "type": "indicator",
      "indicator": "parabolic_sar"
    }
  }
}
// Use SAR as trailing stop loss

Parabolic SAR Strategies

1. SAR Reversal System:

{
  "entryConditions": {
    "long": {
      "conditions": [
        {
          "type": "price_indicator",
          "price": "close",
          "indicator": "parabolic_sar",
          "comparison": "crosses_above"
        }
      ]
    },
    "short": {
      "conditions": [
        {
          "type": "price_indicator",
          "price": "close",
          "indicator": "parabolic_sar",
          "comparison": "crosses_below"
        }
      ]
    }
  },
  "exitConditions": {
    "oppositeSignal": {
      "enabled": true,
      "closeImmediately": true
    }
  }
}
// Enter on SAR flip, exit on opposite signal

2. SAR with Trend Filter:

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "price_indicator",
          "price": "close",
          "indicator": "ema",
          "period": 200,
          "comparison": "above"
        },
        {
          "type": "price_indicator",
          "price": "close",
          "indicator": "parabolic_sar",
          "comparison": "crosses_above"
        }
      ]
    }
  }
}
// Only take SAR signals in direction of 200 EMA

Comparison: MACD vs ADX vs Parabolic SAR

Feature	MACD	ADX	Parabolic SAR
Purpose	Momentum & trend changes	Trend strength	Trend direction & stops
Range	Unbounded	0-100	Price-based
Signals	Crossovers, divergences	Strength levels	Price crosses
Best For	Entry timing	Trend confirmation	Trailing stops
Lag	Medium	High	Low
Ranging Markets	Poor	Excellent (identifies)	Poor
Trending Markets	Good	Excellent	Excellent

Trend Indicator Combinations

1. MACD + ADX (Momentum with Strength)

Setup:

MACD(12,26,9) for entry signals
ADX(14) for trend strength filter

Entry (Long):

ADX > 25 (strong trend)
MACD crosses above signal line

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "adx",
          "period": 14,
          "comparison": "above",
          "value": 25
        },
        {
          "indicator1": "macd",
          "period1": "12,26,9",
          "indicator2": "macd_signal",
          "period2": "12,26,9",
          "comparison": "crosses_above"
        }
      ]
    }
  }
}

2. MACD + Parabolic SAR (Momentum with Stops)

Setup:

MACD(12,26,9) for entries
Parabolic SAR for trailing stops

Entry (Long):

MACD crosses above signal
Price above SAR

Exit:

Price crosses below SAR

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "indicator1": "macd",
          "period1": "12,26,9",
          "indicator2": "macd_signal",
          "period2": "12,26,9",
          "comparison": "crosses_above"
        },
        {
          "type": "price_indicator",
          "price": "close",
          "indicator": "parabolic_sar",
          "comparison": "above"
        }
      ]
    }
  },
  "exitConditions": {
    "stopLoss": {
      "type": "indicator",
      "indicator": "parabolic_sar"
    }
  }
}

3. Triple Trend Confirmation

Setup:

MACD for momentum
ADX for strength
+DI/-DI for direction

Entry (Long):

MACD > 0
ADX > 25
+DI > -DI

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "macd",
          "period": "12,26,9",
          "comparison": "above",
          "value": 0
        },
        {
          "type": "indicator_value",
          "indicator": "adx",
          "period": 14,
          "comparison": "above",
          "value": 25
        },
        {
          "indicator1": "plus_di",
          "period1": 14,
          "indicator2": "minus_di",
          "period2": 14,
          "comparison": "above"
        }
      ]
    }
  }
}

Best Practices

Do's

✅ Use MACD for entry timing in trending markets
✅ Use ADX to filter out ranging markets (ADX < 20)
✅ Use Parabolic SAR for trailing stops
✅ Combine trend indicators with momentum indicators
✅ Wait for candle close before acting on signals
✅ Use longer periods for higher timeframes

Don'ts

❌ Use MACD or SAR in ranging markets (many false signals)
❌ Ignore ADX when trend-following (leads to whipsaws)
❌ Use Parabolic SAR alone without confirmation
❌ Trade against strong trends (ADX > 50)
❌ Over-optimize indicator parameters
❌ Use all three indicators together (redundant)

Common Pitfalls

1. MACD Whipsaws in Ranging Markets

Problem: Multiple false crossovers Solution: Use ADX filter (only trade when ADX > 25)

2. ADX Lag

Problem: ADX confirms trend after it's already started Solution: Use ADX as filter, not entry signal

3. Parabolic SAR Flips Too Often

Problem: Frequent reversals in choppy markets Solution: Combine with trend filter (EMA or ADX)

Indicators Overview - All available indicators
Moving Averages - SMA, EMA, WMA
Momentum Indicators - RSI, Stochastic, CCI
How to Setup MACD Signals - Practical guide

Moving Average Convergence Divergence (MACD)​

Calculation​

Components​

Characteristics​

Interpretation​

Usage Examples​

MACD Strategies​

MACD Divergence​

Average Directional Index (ADX)​

Calculation​

Characteristics​

Interpretation​

Directional Indicators​

Usage Examples​

ADX Strategies​

Parabolic SAR (Stop and Reverse)​

Calculation​

Characteristics​

Interpretation​

Usage Examples​

Parabolic SAR Strategies​

Comparison: MACD vs ADX vs Parabolic SAR​

Trend Indicator Combinations​

1. MACD + ADX (Momentum with Strength)​

2. MACD + Parabolic SAR (Momentum with Stops)​

3. Triple Trend Confirmation​

Best Practices​

Do's​

Don'ts​

Common Pitfalls​

1. MACD Whipsaws in Ranging Markets​

2. ADX Lag​

3. Parabolic SAR Flips Too Often​

Related Documentation​

Moving Average Convergence Divergence (MACD)

Calculation

Components

Characteristics

Interpretation

Usage Examples

MACD Strategies

MACD Divergence

Average Directional Index (ADX)

Calculation

Characteristics

Interpretation

Directional Indicators

Usage Examples

ADX Strategies

Parabolic SAR (Stop and Reverse)

Calculation

Characteristics

Interpretation

Usage Examples

Parabolic SAR Strategies

Comparison: MACD vs ADX vs Parabolic SAR

Trend Indicator Combinations

1. MACD + ADX (Momentum with Strength)

2. MACD + Parabolic SAR (Momentum with Stops)

3. Triple Trend Confirmation

Best Practices

Do's

Don'ts

Common Pitfalls

1. MACD Whipsaws in Ranging Markets

2. ADX Lag

3. Parabolic SAR Flips Too Often

Related Documentation