Rating Trend Strength

by Tushar S. Chande

Here's a simple indicator of trend strength. It goes like this: A value of+10 signals an uptrend; a value of-10 signals a downtrend. Stocks & Commodities Contributing Editor Tushar Chande uses this simple rating system to help answer the eternal traders' question: Is the market trending?

As ls you may have noticed, a number of rather complicated indicators are available to measure trend strength. None of these indicators, unfortunately, is perfect. You could use J. Welles Wilder's average directional index (Adx) as an indicator of trend strength, or perhaps the r2 value from linear regression analysis. Or you could even use the vertical horizontal filter (Vhf) to help determine whether the market is trending.

Each of these indicators requires the user to determine how many days' data should be used in the calculations. As you vary the indicator length or number of days used in the calculation, however, the result of the calculation changes also. Thus, there is no unambiguous answer. If the market were about to enter or leave a trading range, you could get a different indication of trend strength every day — a frustrating set of circumstances.

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