The Trend Intensity Rating system rates a stocks trending attributes using four behavioural measures. Price behaviour is assessed as to where buyers buy, and sellers sell and what effect it has on the price action.

This behaviour has certain qualities we can read and asses for future behaviour of which the trend being the most oft occurring and easy to read. But having a clear and simple step by step process by which we evaluate and assess trend behaviour is important to maintain consistency using this approach.

Price: A stock that moves in a series of higher and lows is deemed to have an uptrend and the reverse is true for a downtrend.

Volume: Volume readings provide participation analysis. It reflects the number of buyers or sellers participating in a price move which in turn can be a guide as to demand.

Moving Averages: Various forms of moving averages can be used to provide probability assessments as to likely price direction. In our case we use the Exponential Moving Average which places greatest emphasis on the latest data.

Momentum: Momentum readings reflect the size and pace of price changes and measure the acceleration of a price move. This can be very useful in supporting trend analysis and buyer and seller ‘excess’ behaviour.

A full explanation of the basis of designing the Trend Intensity rating system the calculation and the results generated by the Trend Intensity Indicator can be found here

This article is aimed at explaining the benefits of using the Trend Intensity Indicator with real time trading and how it supports and provides perspective when trading.

1. Stocks moves in cycles of behaviour that drives accumulation, uptrend, distribution, and downtrend stages. The Trend Intensity Indicator thus naturally moves through its scale of strongly trending up, +7 to +10 ratings, right through to strongly trending down stages registering readings of -7 to -10 and back again. The cycle continues.

The rating provides perspective and helps us understand what stage of the cycle a stock may be in. This is important because it guides us as to what we should be doing from a trading perspective.

Perspective is a key word because it helps us control our emotional behaviour which can often be at odds with the systematically based rating. It is a good controlling influence for a trader.

1. A stock that may be in the +4 to +6 trending zone may not have the confluence of strength provided by a stock with of +7 to +10, which could be construed as the ‘best’ rating. But as a stock moves through the stock cycle a reading of +4 to +6 may simply tell us it is in the early stage of its trend. Thus, there are varied uses and benefits of having such a system and evidence-based indicator.

2. A reading of +10 or -10 can also possibly warn of excessive buyer of seller behaviour developing and although not a signal to sell it tells us we should be rigorous in setting and observing our stops.

3. A stock that moves from the weaker -4 to -6 ratings and into the neutral rating zone of -3 to +3 could be considered a potential breakout candidate and one that is ready to gain trending status with gathering momentum and possible then more towards a strongly trending rating between +7 and +10.

A user may wish to only trade in certain areas of Trend Intensity that reflects their trading profile. I.e. buying weakness of a stock ready to reverse a down trend or buying a stock that has momentum and a very strong Trend Intensity Rating.

Without wishing to scrutinise in detail every minute movement in the Trend Intensity indicator, which is not our way, it can be a very helpful guide and tell us much about the likely future movement in the price action. The determination of trend behaviour being our primary interest and thus the name the Trend Intensity Indicator.