What is a Half Trend Indicator?
The second part of the Half Trend Indicator serves as a Buy and Sell indicator, also known as a trade indicator. This means that it would indicate when an opportunity presents itself to enter either a bullish or bearish trade.
Both parts of the indicator are portrayed on the candlestick graph at the same time in a very clear way that makes it easy to understand and use, even for those who are relatively new to trading and the use of indicators.
It is also a rather versatile indicator and, although any people prefer to use it for forex trading, it could also be used when trading commodities or stocks, because the basis of the indicator is a simple moving average, often based on the RSI (Relative Strength Index) or sometimes on the EMA (Estimated Moving Average) calculations.
You can also read about the Laguerre RSI here.
This versatility and readability indicates that it is an indicator that most traders should have in their arsenal, and should be able to understand.
Reading and Understanding the Half Trend Indicator
The Half Trend Indicator is heavily color based, and so it is important that we understand what each color represents.
Half Trend Indicator Moving Average Line
It is fairly intuitive, but whenever the moving average line turns blue, it indicates a general uptrend, or a bullish market.
On the other hand, whenever the moving average line turns red it indicates a general downtrend, or a bearish market.
The angle or slope of the line indicates the strength of the trend. A blue line that rises rapidly indicates a very strong uptrend, whilst a blue line that seems almost straight may indicate a weak uptrend.
Half Trend Indicator Arrows
Likewise, the arrows, which indicate possible trade entries.
The arrow would be blue to indicate a buying opportunity, or an opportunity to enter a bullish or uptrend trade.
Similarly, a red arrow would indicate a shorting opportunity, or an opportunity to place a bullish or downtrend trade.
How to use the Half Trend Indicator
The Half Trend Indicator for Determining Trend Direction
As mentioned before, the Half Trend Indicator uses colors in order to infer trend direction.
Although the Moving Average line, like all others, is placed over the candlestick graph, it could at times be difficult to determine trend direction just by looking at it.
When the line is blue, the trend is upwards and when the line is red the trend is downwards. This can be seen even when there seems to be very little movement.
The different periods of the Half Trend Indicator can be changed in order to display trends over different periods of time.
The Half Trend Indicator for Trade Entry
The Half Trend Indicator relies on colored arrows to indicate trade opportunities. When the Blue arrow appears, below the blue moving average line, indicating an uptrend, a trade opportunity occurs.
Some say it is best to use more caution and only enter a trade when the candlesticks then also rise above the blue moving average line, but others say this is not necessary.
Likewise, when the red arrow appears above the red moving average line, an opportunity to enter a short occurs, and one may wait until the candlesticks further dip below the red moving average line.
The Half Trend Indicator for Exiting a Trade
The Half Trend Indicator gives no clear indication for exiting a trade. It is assumed that when the opposite signal appears one should exit the trade.
In other words, if you are trading an uptrend, then when the signal appears that a shorting opportunity is occurring, that would indicate the time to exit the trade.
As one can see in the image below, there is a signal given to enter a bullish trade (blue arrow), followed by a signal to enter a bearish trade (red arrow). The second trade indicator would be the signal to exit the first.
Is the Half Trend Indicator Reliable?
The Half Trend Indicator, like all other indicators, makes an effort to be as reliable as possible.
The fact that it includes so many different aspects, yet displays it in a simple and easy to understand manner means that it may be more reliable for someone new to trading than some of the other moving average or trade indicators, which might confuse the trader and increase the likelihood of human error.
However, like all other indicators, it forms in real time and because of that there may be some lag, or some components of the indicator, such as the trade indicator arrows, might appear before disappearing again as the market changes afterwards.
This means that it is never perfectly reliable to use any indicator in isolation. Instead, it is recommended that the indicator only be used as a tool for understanding market conditions better, and that it should never be relied upon fully.
Risk Management when Using the Half Trend Indicator
Risk management is one of the key factors to trading successfully. One of the best ways to manage risk is to observe the larger trend. Even though the indicator might be showing a temporary uptrend when observing the past few minutes, the market might be in a several day downtrend, in which case it would not be wise to enter the trade.
Another recommended way of managing risk when using any indicator is to place a stop loss on each trade. When trading an uptrend, this stop loss would be at the previous low.
It is assumed that if the market reaches this previous low then the general trend will become bearish, and thus the trade will automatically be exited, thus cutting losses. The inverse is true for a downward trade where a stop loss should be placed at the previous high.
It is always important to take into account multiple factors when trading, but because the Half Trend Indicator is so easy to understand, it could be a useful tool to help improve your trading.
You might be also interested in Adam and Eve Pattern and Using a First Green Day Scanner to Trade Stocks using this Pattern.