Technical Indicators: Trend-Confirming

Trend-confirming indicators help to confirm the new trend and are very helpful in avoiding false breakouts and whipsaws because they measure the strength of the trend.

The most common trend-confirming indicators include Moving Average Convergence/Divergence (MACD) and Average Directional Index (ADX). Let's take a closer look..

1) Moving Average Convergence/Divergence (MACD)

Developed by G. Appel in the 1960s, MACD (Moving Average Convergence/Divergence) is a very popular technical indicator designed to identify trend changes and is often used to confirm trends in forex trading systems.

It shows the difference between a fast and slow exponential moving average (EMA) of closing prices. Fast means a short-period average, and slow means a long period one. The standard periods used are 12 and 26 days.

MACD consists of three components:

Signal line - the 9 day EMA of the MACD line
MACD line - the difference between the 12 and 26 period exponential moving average (EMA)
Block histogram - the difference between the MACD and the signal line

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2) Average Directional Index (ADX)

Developed by J. Welles Wilder, the ADX is a momentum indicator that measures the strength of a prevailing trend. ADX and can be extremely useful to determine if a trend is strong or weak or to filter out false breakouts in non-trending markets. ADX doesn't tell you if the trend is going up or down, it just tells how strong or weak the current trend is.

ADX is used very often as a trend-confirming indicator in forex trending systems. As a general rule, if ADX >= 25, the trend is confirmed, either up or down.

ADX shows trend strenght or weakness