I don't use any of the classical indicators or oscillators that you see on many chartists screens. The price channels you see denote where entries and exits should be taken. To me, price is and always will be the ultimate indicator. Price and its movements will tell me when a trend is starting or finishing.
My chart set up has two additional volatility measurements - one being based on average true range, and the other being what I call the 'Volatility Factor'. This second indicator is what I want to focus on.
Below I have shown two charts of the same stock, on different trend following systems. The first is a weekly chart of a stock that has been in a persistent uptrend since August 2012. This shows the same parameters that I use on a weekly, rather than daily, timeframe..
The second chart is of the same stock using my own approach, and which was traded towards the end of 2013 for a profit.
Looking at the weekly chart, you will see that, after price consolidated within that uptrend, it broke out again in September 2013. If you look at the Volatility Factor reading, at the time of both those entry signals the indicator gave its lowest reading prior to entry. When ploughing through dozens of charts while talking to other traders, they are astounded as to how often this occurs right at the point when price takes off in a new trend. If you look at the daily chart and its signal at the end of September 2013, you will see the same principle.
The indicator is very simple - only a few lines of code, but helps identify stocks that have consolidated nicely prior to an entry signal being given, and forms part of my stock selection process.
In his Market Wizards interview, Paul Tudor Jones talks about starting to use a trend following system with 'range expansion':
"The basic premise of the system is that markets move sharply when they move. If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try and fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion."
This is exactly what the indicator was designed for.