A market trend is a tendency of a stock market to move in a particular direction over time. These trends are classified as secular trends for long time frames, primary trends for medium time frames, and secondary trends lasting short times. Trend indicators are always lagging indicators as a trend has to establish first, before it could be measured.
Investors are identifying market trends using technical market indicators with different time frames for different trend periods. For example a simple 200 day simple moving average (the average of the last 200 closing prices of a stock or index) is one of the oldest trend indicators for identifying a secular trend (long time frames).
If the current price of an index trades above the 200 day moving average, a long term uptrend exists. A rising 200 day moving average gives additional information about the trend direction.
Examples of Different Trend Indicators Offered by WallStreetCourier
Trend Trader Index (short term trend identification)
The Trend Trader Index calculates the simple moving average of the daily high and daily low price of the S&P 500 over the past 20 days. A short term uptrend exists if the S&P 500 is trading above the 20 day moving average line and a short term downtrend is given if the S&P 500 is trading below the 20 day moving average line. Additionally the direction of the simple moving averages could also give additional information about the trend direction.
Global Futures Trend Indicator (medium term trend identification)
The Global Futures Trend Indicator calculates the amount of stocks listed on NYSE which are reaching daily new highs or daily new lows. As long as the gauge of this index stays above the 60% level there is a solid bullish trend in progress.
The Global Futures Long Term Trend Index (long term trend identification)
The Global Futures Long Term Trend Index shows a perfect entry point for long term investors. This trend indicator is calculated with a specific algorithm which will not be published. This indicator will show long term investors exactly when a technical bull market is in force!
The Advantage and the Complicacy of Trend Indicators
Money will only be made in strong trends. So identifying a trend is the most important part in technical analysis as a trend is stronger than any other indicator. Trend indicators are always lagging indicators as they follow the price action of the underlying security (late in, late out).
Since stock markets are trending most of the time, trend-following indicators can be enormously profitable and easy to use. Trend indicators will never lead a price of a security. They are not designed to do so. Furthermore the main idea behind those indicators is to catch the middle part of a strong trend. In sideways market, trend indicators are not effective.
The shorter the trend, the more signals will be produced and the more trading signals an investors will get.