What are the Best and most Accurate Trend Reversal Indicators?

 

The stock market moves, sideways, downwards or in an upward direction depending on the market conditions and sentiments of the investors and traders. A trend may continue for many trading sessions but not remain the same and keep changing because there are many factors that affect the stock market movement or price of individual stocks.

When such factors are evident or come into the knowledge of the investors and traders, the current direction of the market might change depending on the positive or negative factor. When the market direction changes, it is called a trend reversal, which means the market index or stock price movement is going to change its track in the coming days.

And identifying such trend reversal could be a crucial point for, you to take the right decision of entering into trade positions. However, identifying the trend reversal is not that easy, especially if you don’t have enough knowledge and experience in technical analysis. But there are certain indicators, you can use to identify the reversal of the trend.

Though there are many indicators, that can be used to identify the trend reversal in this article, we are going to talk about only the best and most accurate trend reversal indicator. We will discuss the technical indicators that can be used for trend reversal, how to find or identify them and how to use these indicators in intraday trading or day trading.

What is Trend Reversal in the Stock Market?

Trend Reversal in the stock marketis simply a process of change in the direction of the market index or individual stock price movement. The change in the direction can be upside or downside, but when the current trend gets reversed and a new trend starts, and continues for a few trading sessions, then it is called a trend reversal in the stock market.

Usually, when the trend reversal takes place, traders enter into the trade positions. If the uptrend starts from the previous downtrend, you can enter into the long position, while when the uptrend reverses and the downtrend starts, you can go for short-selling. Trend reversal is the turning point that you can use for trading. So, let’s find out the best trend reversal indicators that you can use to spot such turning points timely and take advantage of the trading.

Best Trend Reversal Indicators

Trend reversal indicators are the technical tools that you can use to identify the change in the current trend. The indicators follow the price movement of stock or market index and give the indication of whether the price movement is heading towards. And when there is a reversal in the trend, these technical indicators can spot them at the initial stage.

If you can interpret these indications given by these indicators, you can enter into the trade position as per the reversed new trend to take advantage of further movement of the trend and make your trade position a profitable decision.

Though, there are various technical indicators that can give the trend reversal indication, few of them can give a false signal. Hence, using the best one that can give an accurate indication at a very early stage gives you a better opportunity to make your trade position profitable. So, we will discuss only the most accurate reversal indicator.

10 Most Accurate Trend Reversal Indicators:

#1 Moving Averages for Trend Reversal

Moving Averages (MA)are one the most useful technical indicators you can use for the trend reversal. Moving average lines such as, simple, exponential, weighted and volume-weighted show the trend in the stock price or market index movement. The moving average lines also show the support and resistance levels that levels also work as the trend reversal signal.

To use the Moving Averages for the trend reversal, apply the type of moving average you prefer and then keep watching the price movement, when the price moves below the moving average a bullish trend reversal is confirmed. On the other hand, if the price moves above the moving average, a bearish trend reversal is confirmed in the stock.

Apart from that you can also use the combination of short-period and long-period moving averages to know the trend reversal. For example, if the 50-day MA crosses below the 200-day MA, it indicates that the uptrend is over, and a downtrend is likely to start. While, if the 50-day MA crosses above the 200-day MA, it signals the reversal of the downtrend.

#2 RSI for Trend Reversal

RSI or Relative Strength Index is another useful and one of the best trend reversal indicators you can use. , RSI usually measures the magnitude of recent price changes and gives the indication that the stock price or market index is trading in the overbought or oversold zone.

In other words, you can say when the price is below 30, it is in a bearish trend, while when the pricing moves above 70, and it is trading in a bullish trend. And when the RSI is hovering around 40 or 50, it means there is a trend reversal likely to occur in the stock.

#3 Bollinger Bands for Trend Reversal

Driven from moving averages and standard deviation, Bollinger Bands is another useful technical indicator that you can use for the trend reversal. In Bollinger Bands, there are three lines, the middle line is the moving average and the other two outer lines represent the standard deviation of the underlying stock or market index.

Bollinger Bands are already a trend indicator and you can use this for trend reversal when the price fluctuates between the three lines (bands). Yes, when the price remains between or along the lower lines of the bands, there is a bearish trend. While, when the price remains between the middle and upper lines of the Bollinger Bands, a bullish trend is confirmed.

Bollinger Bands is effective and works well in a volatile market. The trend reversal usually occurs when the price moves below the middle line. But don’t rely on this indicator individually, instead use other indicators to confirm the reversal in the trend.

#4 Stochastic Oscillators for Trend Reversal

Though, the Stochastic Oscillator is one of the most useful tools generally used to know the overbought and oversold levels in the stock price. %K and %D are the two important lines you can see at the bottom of the TradingView Chart that are also characterized by overbought and oversold levels.

Stochastic Oscillator is especially known for following the momentum or speed of the price movement. However, for trend reversal, you can use it by interpreting the bullish and bearish divergences. If the Oscillator moves to overbought and oversold levels and divergences occur, then there is a chance of trend reversal in the price.