The TrendScore indicator, described by Tushar Chande in the September 1993 issue of “Stock & Commodities,” tries to give a quantitative and qualitative judgment of the direction and strength of a trend. It accomplishes this by comparing the current closing price of a trading instrument to the preceding closing prices during the previous 20 periods.
What is the Trend Score Indicator?
The Trend Score Indicator ranges from -10 to +10. A reading of +10 indicates that a powerful bull trend could be underway. A rating of -10 indicates that a serious bear trend could be underway. TrendScore scores above zero may indicate the presence of a bull trend of different strength while TrendScore scores less than zero may indicate the presence of a bear trend of different strength.
The indicator is known for defining both the strength and direction of a trend. The indicator contains discrete overbought and oversold zones located above and below the 5 and -5 levels. Under the inputs parameter of the Trend Score MT5 indicator, there is a variable (Period method). It enables currency traders to choose between “Use Period” and “Do Not Use Period”.
Trend Score Strategy
The Trend Score Strategy is a technical system that focuses on markets that are trending. If the blue line of the Trend Score Indicator rises above the zero signal line from the oversold zone (below the -5 level), you may go long, while if the blue line of the Trend Score Indicator falls below the zero signal line from the overbought region, you could go short (above the 5 level). Furthermore, you could cancel your buy orders if the blue line of the Trend Score indicator falls below the 5 level during a bullish trend (overbought region). On the other hand, you might cancel your sell orders if the blue line of the Trend Score indicator breaks over the -5 level during a bearish trend (oversold region). The Trend Score indicator is a simple and useful technical instrument which is also suitable for scalping, day trading, and swing trading.
Buy Signal
The following could be your checklist for a buy trade:
- When a bullish trend is ongoing.
- When the blue line of the indicator rises above the zero signal line from the oversold region.
Once these two events occur:
- You could open a buy position once the bullish crossover occurs and 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 falls below the zero signal line.
- For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Sell Signal
The following could be your checklist for a sell trade:
- When a bearish trend is ongoing.
- When the blue line of the indicator falls below the zero signal line from the overbought region.
Once these two events occur:
- You could open a sell position once the bearish crossover occurs and 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 rises above the zero signal line.
- For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Trend Score Pros & Cons
Pros
- The Trend Score Indicator can be useful for predicting the direction and power of the trend.
- This indicator also shows the traders overbought and oversold levels so that they could plan their trades accordingly.
Cons
- The Trend Score Indicator may give confusing signals in a consolidating market.
- Overbought and Oversold regions may not necessarily depict an imminent price reversal.
Conclusion
The Trend Score Indicator may assist traders in taking advantage of trends as they occur while showing possible reversal regions at the overbought and oversold levels. The indicator is user-friendly and easily read even by novice traders. This indicator can be combined with other technical indicators or trading strategies to further confirm trading entries or exits.
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