Forex Blau Trend Momentum Indicator: A Comprehensive Review

The Forex Blau Trend Momentum Indicator is a popular technical analysis tool used by traders to identify trends and momentum in the foreign exchange (forex) market. This indicator was developed by famous technical analyst William Blau and has gained a strong following among forex traders.

In this comprehensive review, we will cover everything you need to know about the Blau Trend Momentum Indicator including:

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What is the Blau Trend Momentum Indicator?

The Blau Trend Momentum Indicator is a technical analysis indicator that combines two indicators – the Trend Monitor and the Laguerre RSI. It aims to identify new trends and the strength of those trends.

The Trend Monitor portion tracks price action and uses two moving averages – a fast EMA and a slow EMA – to identify the trend direction. The Laguerre RSI measures momentum using William Blau’s smoothed version of the Relative Strength Index.

By combining trend direction and momentum, the Blau Trend Momentum Indicator provides traders with a powerful tool to gauge market sentiment and identify trading opportunities early.

How Does the Blau Trend Momentum Indicator Work?

The Blau Trend Momentum Indicator plots two lines on a price chart – a fast line and a slow line.

The fast line is a short term EMA that aims to capture new trends quickly. The default setting is 5 periods.

The slow line is a longer term EMA that smooths out the data. The default setting is 35 periods.

When the fast line crosses above the slow line, it indicates upward momentum and suggests an uptrend. When the fast line crosses below the slow line, it indicates downward momentum and suggests a downtrend.

The Laguerre RSI component measures the strength of the trend using William Blau’s formula that smooths out the data even further. This helps reduce false signals.

The indicator values range from 0 to 100. Values above 50 indicate bullish momentum while values below 50 indicate bearish momentum.

Blau Trend Momentum Indicator Settings

The default settings for the Blau Trend Momentum Indicator are:

• Fast EMA Period: 5
• Slow EMA Period: 35
• RSI Smoothing: 3
• RSI Length: 14

However, traders can customize these parameters to suit their trading style and timeframes. Common adjustments include:

• Decreasing the fast EMA period to 3 for more sensitivity
• Increasing the slow EMA period to 50 for less sensitivity
• Adjusting the RSI smoothing and length periods

It’s recommended to test different settings on a demo account to find the optimal parameters.

How to Trade with This Indicator

There are several ways traders can utilize the Blau Trend Momentum Indicator for making trading decisions:

Trend Direction

• When the fast line crosses above the slow line, it indicates an uptrend. Go long.
• When the fast line crosses below the slow line, it indicates a downtrend. Go short.

Overbought/Oversold Levels

• When the indicator moves above 70, the market is overbought. Consider exiting longs or shorting.
• When the indicator falls below 30, the market is oversold. Consider exiting shorts or going long.

Divergences

• If price makes a higher high but the indicator makes a lower high, it indicates bearish divergence. Go short.
• If price makes a lower low but the indicator makes a higher low, it indicates bullish divergence. Go long.

Trend Confirmation

• Use crossovers to confirm trend direction for other indicators like moving averages.
• Only trade breakouts in the direction of the Blau Trend Momentum trend.

Benefits of the Blau Trend Momentum Indicator

There are several advantages of using the Blau Trend Momentum Indicator for forex trading:

• Identifies new trends early using fast and slow EMA crossovers
• Gauges momentum strength to confirm trend validity
• Smoothed RSI reduces false signals
• Can be used for trend direction, divergence, and confirmation
• Customizable parameters to suit any trading style
• Works on all timeframes and currency pairs

Overall, the indicator provides high-probability trading signals for forex traders using a combination of smoothed trend and momentum data.

Limitations of the Blau Trend Momentum Indicator

While the Blau Trend Momentum Indicator is a versatile trading tool, there are some limitations to be aware of:

• Can generate false signals in ranging or choppy markets
• Divergences don’t always result in trend reversals
• Requires fine tuning of parameters for optimal results
• Should be combined with other indicators for confirmation
• Lagging nature may result in late trend reversal signals

Traders should incorporate good risk management practices and not solely rely on this single indicator when making trading decisions. Using the Blau Trend Momentum in conjunction with other technical or fundamental factors is recommended.

How to Combine the Blau Trend Momentum Indicator with Other Indicators

Here are some examples of how to combine the Blau Trend Momentum Indicator with other technical analysis tools:

Moving Averages

Use moving average crossovers to confirm Blau Trend Momentum trend direction signals. For example, only go long on an uptrend if the price also trades above the 50-period or 200-period moving averages.

Support/Resistance

Look for Blau Trend Momentum crossover signals that align with key support or resistance levels. The confluence of indicator signals and S/R levels provide high probability trading opportunities.

Chart Patterns

Use the Blau Trend Momentum direction to confirm chart pattern breakouts. Only trade breakouts from triangles, flags, double tops/bottoms if the Blau Trend Momentum aligns with the pattern direction.

Fibonacci Retracements

Combine Blau Trend Momentum crossovers with Fibonacci retracement levels of prior swings to pinpoint low risk entry points.

Oscillators

Look for divergences between the Blau Trend Momentum and oscillators like RSI or Stochastics to confirm trend reversals.

Blau Trend Momentum vs Other Trend Indicators

The Blau Trend Momentum Indicator has some similarities and differences when compared to other popular trend-following indicators used in forex trading:

Moving Average Crossover

Like dual moving averages, the Blau Trend Momentum uses crossover signals to identify new trends. However, the Blau Trend Momentum applies less lag by using a fast EMA period.

Average Directional Index (ADX)

The ADX measures trend strength but doesn’t indicate trend direction. The Blau Trend Momentum identifies both strength and direction making it more actionable for traders.

Ichimoku Cloud

Ichimoku also uses multiple EMAs to identify trends and momentum. However, Ichimoku is plotted using more parameters and is less customizable than the Blau Trend Momentum.

Parabolic SAR

The PSAR identifies trend direction and reversals like the Blau Trend Momentum. However, PSAR tends to produce more false signals and whipsaws.

Overall, the Blau Trend Momentum Indicator combines smoothed trend and momentum data into one versatile indicator for forex traders. The customization and simplicity gives it an edge over some other trend-following indicators.

How to Install the Blau Trend Momentum Indicator in MT4

The Blau Trend Momentum Indicator comes standard in the MetaTrader 4 trading platform. Follow these steps to install it:

1. Open the Navigator panel and scroll down to “Custom Indicators”
2. Right click on “Custom Indicators” and select “Refresh” to update the indicator list
3. Locate and double click on the “Blau Trend Momentum” indicator to install on the chart
4. The indicator will now be selectable from the “Indicators” menu in the Navigator

Alternatively, you can right click directly on the chart and find the Blau Trend Momentum indicator under the “Custom” indicators section.

Once installed, the default settings can be adjusted by right clicking on the indicator name in the chart legend and selecting “Inputs”.

How to Read and Interpret the Blau Trend Momentum Indicator

Here are some tips for reading and interpreting signals from the Blau Trend Momentum Indicator:

• Focus on fast line/slow line crossovers to identify new trends early
• Monitor the indicator value to gauge if momentum is strengthening or weakening
• Values above 50 indicate bullish momentum, values below 50 indicate bearish momentum
• Look for crossovers to align with support/resistance levels for high probability trades
• Use crossovers to confirm chart patterns like triangles, flags, wedges
• Divergences warn of impending trend reversals
• Be aware of false signals and whipsaws in choppy or ranging markets
• Combine with other indicators like moving averages for confirmation

With practice, traders can learn to incorporate the Blau Trend Momentum Indicator into their overall trading plan and use it effectively. It works best when confirming other technical or fundamental signals.

Conclusion

The Blau Trend Momentum Indicator is a versatile technical analysis tool that combines smoothed trend direction and momentum strength into one indicator. The ability to identify new trends early and gauge their validity makes it valuable for forex traders.

While not perfect, incorporating the Blau Trend Momentum with proper risk management and confirming signals can improve trading performance. It works well when combined with other indicators to validate high probability trading opportunities.

Overall, the Blau Trend Momentum deserves its popularity among forex traders as a smooth and customizable indicator for trend trading. However, like all indicators, it should not be relied on as a single source of trading signals. Using the Blau Trend Momentum as part of a complete trading plan can give traders an added edge in the forex market.