Mega Trend Indicator

If you’ve been trading forex for a while, you’re definitely familiar with the moving average (MA) trading indicator. The Mega Trend indicator is essentially a more advanced version of the moving average indicator. However, you don’t need to worry if you’ve never used MA before as we will cover what it is and how it works in this article to help you understand better.

What is the Mega Trend Indicator?

The Mega Trend Indicator is a Moving average version that identifies optimum reversal points. The indicator is primarily used by traders to provide buy/sell signals. You can, however, use it as a price filter. The period is set to 144 by default. While the value is helpful for identifying long-term price movements, it causes the indicator to be slow. If you are trading for a short amount of time, you will want to make the indication speedier by utilizing shorter intervals. The indicator is ideal for trading trends, price movement, and reversals. The Mega Trend indicator can be used in any time frame, from one minute to monthly time frame. Furthermore, it allows for both long-term and short-term trend analysis.

Setting up the Mega Trend Indicator
Setting up the Mega Trend Indicator

Mega Trend Strategy

The Mega Trend indicator for MetaTrader 4 is simple to use. Perhaps its best feature is its simplicity. The indicator line changes color to indicate market direction. To illustrate, the line goes from red to blue, indicating a bullish indicator. It is a bearish signal when the line shifts from blue to red. When the Megatrend indication changes from red to blue, it could be a time to buy. You may set your stop loss at the most recent level of support. You can also exit the transaction if the line returns to red. When the line turns from blue to red, you may enter a sell position. A good stop loss could be placed above the most recent resistance level. You can also exit trade if the indicator changes to blue.

Buy Signal

The following could be your checklist for a buy trade:

  • When price is trending above the indicator.
  • When the indicator turns blue in color.

Once these events occur:

  • You could open a buy position after you confirm your entry with bullish candlestick patterns.
  • You could set your stop loss just below the nearest swing low.
  • You could set your take profit at the nearest resistance zone, or you could exit trade when the indicator turns red in color.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Mega Trend Indicator Buy Setup
Mega Trend Indicator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:

  • When price is trending below the indicator.
  • When the indicator turns red in color.

Once these events occur:

  • You could open a sell position after you confirm your entry with bearish candlestick patterns.
  • You could set your stop loss just above the nearest swing high.
  • You could set your take profit at the nearest support zone, or you could exit trade when the indicator turns blue in color.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Mega Trend Indicator Sell Setup
Mega Trend Indicator Sell Setup

Mega Trend Pros & Cons

Pros

  • The Mega Trend Indicator can help traders predict potential price reversal points on their charts.
  • This indicator can be advantageous in trending markets for staying long without exiting too quickly.

Cons

  • The Mega Trend Indicator may be slow in providing trade signals, hence negatively affecting the risk to reward ratio when it provides lagging signals.
  • This indicator may not meet the trader’s expectations in a consolidating market.

Conclusion

The Mega Trend is a simple indicator which is understandable even by novice traders. To initiate a buy position, you could simply wait for the line to move from red to blue, and vice versa. Because of its simplicity, it is user-friendly and hence a useful tool for new traders. The indicator is beneficial for trading trending markets, however it does not guarantee profits.

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