Introduction to the Trend Continuation Factor 2 Indicator
Trend direction is one of the most important technical analysis elements which traders should be aware of. There are many ways to identify trend direction. Some use price action while others use technical analysis.
The Trend Continuation Factor 2 Indicator is a tool which can be used to help traders objectively identify trend direction and reversals.
What is the Trend Continuation Factor 2 Indicator?
As its name suggests, the Trend Continuation Factor 2 Indicator is a trend following type of technical indicator. It was developed to help traders objectively identify the direction of the trend, as well as its possible reversals and trend continuations.
The Trend Continuation Factor 2 Indicator plots two lines which oscillate around zero, which is its midpoint. One line is colored blue, which represents the bullish momentum. The second line is red, which represents the bearish momentum.
Trend direction is identified based on how the two lines interact. Trend direction is bullish whenever the blue line is above the red line. Inversely, trend direction is considered bearish whenever the blue line is below the red line. In effect, crossovers between the two lines can also be considered as trend reversals.
How the Trend Continuation Factor 2 Indicator Works?
The Trend Continuation Factor 2 Indicator has an algorithm which is very similar to the Directional Movement Index. Just as with the Directional Movement Index, the Trend Continuation Factor 2 Indicator also plots two lines, one representing the bullish direction, while the other representing the bearish direction. The two lines are calculated independent of each other. However, trend direction is based on how these two lines interact.
How to use the Trend Continuation Factor 2 Indicator for MT4
The Trend Continuation Factor 2 Indicator has several options within its indicator setting which traders can use to modify the characteristics of the two lines.
“n” refers to the number of bars which the indicator uses to calculate for the two lines. This is the main variable used to change the sensitivity of the two lines.
“CountBars” refers to the number of bars in which the indicator would be applied on. The indicator would stop using the algorithm on the bars which is outside the scope of this variable.
“t3_period” can also be used to somehow shift the two lines forward. It can be used for slight tweaks on the two lines.
“b” is another variable which can be used to modify the characteristics of the two lines. Modifying this variable somehow changes the intensity of the fluctuation of the two lines.
Buy Trade Setup
When to Enter?
Open a buy order as the blue line crosses above the red line while in confluence with other technical analysis indications.
When to Exit?
Close the trade as soon as the blue line crosses below the red line.
Sell Trade Setup
When to Enter?
Open a sell order as the blue line crosses below the red line while in confluence with other technical analysis indications.
When to Exit?
Close the trade as soon as the blue line crosses above the red line.
Conclusion
The Trend Continuation Factor 2 Indicator can be an effective trend direction indicator. However, it is not perfectly accurate. There are reversal signals which do not result in an actual trend reversal. As such, it is best to use this indicator in confluence with other technical analysis indications.
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