Tools for identifying trends

Now that you understand what a trend is and why it matters, the next step is learning how to identify trends on your chart. This is one of the most critical skills in trend trading. Without a clear idea of whether the market is trending—or just chopping sideways—you risk entering low-probability trades.

In this section, we’ll walk through the core tools that traders use to spot trends early and stay in them longer. These tools aren’t complicated, and when combined thoughtfully, they can give you a powerful edge.

Let’s dive into the two key tools every trend trader should know.

1️⃣ Trendlines & Channels (Manual Drawing)

Trendlines are simple but powerful tools to spot the direction of a market. Here’s how they work:

In an uptrend, draw a line connecting higher lows
In a downtrend, connect lower highs

These lines help you:

Visually confirm a trend
Identify pullback areas (potential entries)
Spot potential trend breaks when price closes beyond the line

Price channels use two parallel trendlines:

One along the lows (support)
One along the highs (resistance)

📌 Tip: Use line charts for cleaner trendline drawing before switching back to candlesticks.

2️⃣ Moving Averages – Smoothing Out Price

Moving averages help traders avoid the noise and focus on the overall direction of price.
Commonly used types:

SMA (Simple Moving Average): Equal weight to all candles
EMA (Exponential Moving Average): More weight to recent price

Popular settings:

Short-term trend: 9 EMA, 20 EMA
Medium-term trend: 50 EMA
Long-term trend: 100 or 200 EMA

Moving average — 50 exponential moving average

Basic uses:

If price is above the 50 EMA, the market is likely trending up
If price is below, it’s likely trending down
Crossovers (e.g., 20 crosses above 50) can signal a trend beginning

⚠️ MAs work best in trending markets — not ranging ones!