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Chart 6 - Template 6 - Trend Direction
The green dashed line is the MA%Diff, which turns a little slower than the EMA %Diff, but combines with the EMA%Diff to show strong uptrends and strong downtrends. More than that, it can help identify tradable tops and bottoms.

From the September low in 2001, the EMA and MA %Diffs showed a strong uptrend into early December when both the red EMA %Diff and the green MA %Diff turned down. When the red EMA %Diff turned back up again, to be followed by a downturn at A, lower prices were indicated as both %Diffs were now moving down. This dowmove was confirmed by a drop below the Sell Setup Bar for the DBS10 Sell Signal, showing a probable trend reversal beginning at A.

Both %Diffs were now moving down, as was the red EMA line to show a continued downtrend into late February/early March, when both %Diffs were once again rising together to show an uptrend to another top the week of 3/18.

As both %Diffs were rising, the red EMA line was also rising, until the EMA %Diff turned down at B as prices confirmed a double top by taking out the swing low between the two highs.

As the red EMA %Diff, which is more sensitive than the MA%Diff, was turning down, the green MA%Diff continued up to turn down at C in the first week of April, as a DBS5 and DBS10 Sell Oscillator Pattern also indicated a high. From that point, both %Diffs and the red EMA line were moving down, showing a strong downtrend. The blue EMA line was also moving down to heighten the anticipation of a continued downtrend.

In the week of 5/13, prices rose up to test the blue EMA line in a recognizable pattern of --

  1. Prices at a resistance level as
  2. The DBS10 and 5 oscillators are overbought,
  3. Followed by a Mechanical Sell Signal and expectation of a continued downmove.

The EMA Trend Indicator in a Downtrend

The blue EMA line is moving down, with the red EMA line below the blue and generally moving lower. And in a strong downtrend the %Diffs will also be moving down as the red EMA line is moving down… The trend is clearly down when both %Diffs and the red EMA are moving down at the same time.

The blue EMA line will often become a resistance level for a cycle top in a downtrend, and Sell Signals should be taken.

The EMA Trend Indicator in an Uptrend

The blue EMA line is moving up, and the red is above the blue and generally rising as shown by the %Diff indicators…The trend is clearly up when both %Diffs and the red EMA are moving up at the same time.

The blue EMA line will often become a support level for a cycle bottom in an uptrend, and buy signals should be taken.

Review these guidelines for trend direction in your favorite markets and time frames.

Next: EMA Trend Indicator Shows Bull/Bear Markets With EMA%Diff; BLine Oscillator and B-S Signals