Introduction to the Flat Trend Indicator
Many new traders make the mistake of assuming that a market is always trending. This is why some new traders would make reversal trades whenever a trend ends even when the market has no clear signs of a trend reversal. These are what we call as flat markets, which are markets without a clear trend direction.
The Flat Trend Indicator was developed to help traders objectively identify trending and non-trending markets, as well as its trend direction.
What is the Flat Trend Indicator?
The Flat Trend Indicator is a trend following technical indicator which is used to objectively identify and confirm trend direction or the lack thereof.
This indicator points out the trend direction by plotting vertical bars on a separate window. These vertical bars change color depending on the direction of the trend. It also indicates the lack of trend direction. It plots lime green bars to indicate a bullish trend direction and red bars to indicate a bearish trend direction. It also plots gold bars whenever the market still does not have a clear trend direction, such as in scenarios where the market is flat or whenever the market is in the beginning phase of a reversal.
How the Flat Trend Indicator Works?
The Flat Trend Indicator has an algorithm which uses a couple of underlying technical indicators to filter out non-trending markets and identify trending markets along with its trend direction.
The underlying indicators it uses are the Average Directional Movement Index (ADX) and the Parabolic Stop and Reverse (PSAR). It identifies a bullish trend whenever there is a confluence between the two indicators pointing an upward trend. It plots lime green bars in these scenarios. Inversely, it also identifies a bearish trend whenever the two underlying indicators are in confluence pointing a downward trend, in which case it would plot red bars. In scenarios wherein there is no confluence of trend direction between the two indicators, the Flat Trend Indicator would plot gold bars to indicate a flat market.
How to use the Flat Trend Indicator
The Flat Trend Indicator has just one variable within its indicator settings.
This indicator should be adjusted based on the timeframe it is used in.
The “Minutes” variable allows users to change the timeframe in which the Flat Trend bars are based on by changing the input to the number of minutes equivalent to one candle on the chose timeframe. For example, on a 1-hour chart, users should input 60 minutes to have a proper trend direction indication.
Buy Trade Setup
When to Enter?
Open a buy order as soon as a bar changes to lime green in confluence with other technical indications.
When to Exit?
Close the trade as soon as the bar changes to gold or red.
Sell Trade Setup
When to Enter?
Open a sell order as soon as a bar changes to red in confluence with other technical indications.
When to Exit?
Close the trade as soon as the bar changes to gold or lime green.
Conclusion
Although the Flat Trend Indicator can be used as a trend reversal signal indicator, it is not perfectly accurately. This is why traders should use this indicator in confluence with other technical indications as part of a larger trading strategy or system.
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