Trading da Numbas - Market Trend Indicator Charts Overview

» Market Trend Indicator Charts Overview

The MTI's, Market Trend Indicators, are two indicators that have some useful properties that, while available in other indicators or groups of indicators, may more readily call to the traders attention an important behavior or location in the market. The Intraday Market Trend Indicator Charts update Sunday 18:00 to Friday 16:15 every 5 minutes except for a period between 17:00 and 18:00 eastern. The Long Term Market Trend Indicator Charts are updated Sunday to Friday around 15:30 eastern. Below is a brief description of each chart indicator along with some examples with comments on the interpretation at that point.

Let's begin with ZLR or Zero Line Reject. Phi gave it this name because that behavior, rejecting zero or the midline in the chart, is the most powerful signal that it provides. The ZLR itself can be thought of as a sort of weighted relative strength. It can diverge at tops and bottoms like an RSI, and you can draw trendlines on it like an RSI or CCI. A regular RSI or CCI also on occasion display the same reject of zero or midline, just not as pronounced as the ZLR. A healthy market spends more time above zero and conversely, a weak market spend time below zero.

When the ZLR approaches the midline, you should be asking yourself if there is anything that may slow the market down. If for example you had been long on a trade and the ZLR on the time frame you are trading is approaching the midline for underneath, you should consider taking some profit, tightening your stop, or some combination of the two.

Let's look at some examples and you will see for yourself how straightforward and simple this is.

The first thing you notice on this chart is the divergence that has been marked. Nothing terribly unique just a warning that this advance may be in danger. Now draw your attention to the area marked by numerals next to the price bars and the corresponding area on the ZLR.

This is the first test of zero from above and market bounces a bit.
Another test of zero that holds for a bounce.
Zero fails to hold and market has fairly quick decline.
Test of zero from underneath that makes a slight push over only to fail.
Test of zero that fails.
Now something slightly different yet keeping an eye on. Prices are falling yet the indicator is holding around zero. Not a time to be an aggressive seller.
Market falls from zero on a lower high.
ZLR bounces near zero while prices touch moving average. Nice sell setup.

This indicator is also useful on longer time periods. The 60min chart is an important one to observe the ZLR on. Obviously not as many signals here, but one should pay attention when the market you are trading has the ZLR near zero. Here is an example:

Test of zero from below proves to be resistance.
ZLR manages to get on top of zero to become support.
Test of zero from above slows decline and becomes support.
Zero fails to hold, begins sharp decline.

Now to focus the attention on the Trend indicator. The single most important thing to keep in mind when looking at this indicator and interpreting it correctly is to know that it is not in most cases an oscillator that moves between overbought and oversold. On the contrary, the indicator will frequently peg at one extreme or another denoting a strongly trending market. This is a feature not a bug. This is handy because if you use Elliott Wave or other Fibbonacci oriented techniques, you spend time marking potential turning points and many times put you into a sort of counter trend mindset. A quick look at the time frame you are interested in can give you a sanity check and let you know if you are going against the tide. The one rule that will keep you out of the most trouble is don't trade against the direction of the main (heavy line) Trend indicator. The traders goal should be to find entries in the direction of the Trend indicator, which can often be found by going down to a lower time frame and looking for an entry.

The other thing to keep in mind, some will say more important, when analysing a market with the Trend indicator is that it tends to cycle from one extreme to the other. The indicator is usually pretty decisive, when both of the components, thin and thick, begin to move together, they almost always will travel to the other extreme. So if you notice this happening, a trader will want to take into account other tools they use and see if they have confirmation on entering a trade in that direction.

For our next example let's look at a 60min chart of the es.

Notice how both the thin and thick line drop together. This is type of behavior you are looking for.
This is a point where the market rallied but lacked the strength to change the trend back up. Whenever the thick line does not follow the thin line, the indicator is giving you a warning.
Here the thin line rejoined the heavy line and stayed on the floor for 5 days. During this time, a trader would save themselves a great deal of consternation by not taking long trades. There were probably long trades on a lower time frame, just know that you are trading against the longer term trend. Phi would suggest trading in the direction of the indicator and using a smaller time frame to enter in that direction.
Finally get a lift off the floor, even if only for a few hours. Another thing to note is that prices began to fail yet the indicator stayed up. This divergence happens occasionally and certainly is warning that the down impulse is weakening.
Another instance of the thin component dropping without the main. Notice the gap up the next day.
Now this is interesting. The thin line falls and does bring the main line down yet in a weak drop. More divergence developing signaling a trader to be on the lookout for a long trade to develop.

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