- 1. What are the indicators and why do we need them?
- 2. When the indicators appeared?
- 3. Types of indicators
- 4. Indicators for Forex and not for Forex
- 5. Indicators for binary options
- 6. Indicators for the stock market
- 7. Platforms with indicators for Forex trading
- 8. Indicators in terminals of Forex brokers
- 9. МТ4 and МТ5 indicators
- 10. How to add the indicator to MetaTrader4 chart?
- 11. What shall you do, if the platform does not have the indicator you need?
- 12. Forex indicators, which you shall know
- 13. Signals of indicators
- 14. Summary
- 15. Reviews
What are the indicators and why do we need them?
A technical indicator is a function that is determined by the asset price movements. With the help of indicators, traders try to predict further price movement. Technical indicators are not adapted to analyze fundamental factors, such as income or margin, as they are designed for relatively short-term price movements. Therefore, technical indicators are of little interest for investors or traders who rely on long-term strategies.
What is the trader’s benefit of indicators? They significantly reduce decision-making time based on price movements that have already occurred. With indicators, trading can be performed even automatically. Making decisions on indicators reduces the stress load on the trader, gives him confidence in the actions. Forecasting with the help of indicators is more accurate, based on real price data and excludes the emotional component. Finally, indicators allow you to organize information about situation on the market and analyze it – this allows you to avoid mistakes in the future.
Technical indicators make more flexible trading possible, create and implement strategies of any complexity. At the same time, training of trade with the help of indicators in most cases is not particularly difficult. Technical indicators can also be used to confirm conclusions drawn from fundamental analysis. In the modern market prices change very rapidly; you cannot have time to do the desired operation if relying only on fundamental analysis. Technical indicators let avoid this.
Indicators are selected depending on the strategy that the trader plans to implement on the market. When choosing an indicator, one should take into account the effectiveness of the indicator on different timeframes, on long-term, short-term and medium-term transactions; such information can be found in the trading terminal, where the indicator is presented or on third-party resources on the Internet.
You also need to pay attention to the compatibility of different indicators, if you plan to use several tools at once. Despite the fact that the main tool of the trader is his practical trading skills, the use of indicators requires some theoretical training. That is, you need to understand how the indicator works and how useful the information is which it provides before starting to trade. And, as usual, first, the features of the use of indicators should be checked on a Forex demo account. It is necessary to check the effectiveness of the indicator with reference to the chosen strategy and you should do it by yourself, and not by videos of other traders.
When the indicators appeared?
Technical indicators origin on the basis of the theory developed with the articles of the American financial journalist Charles Dow, the founding editor of «Wall Street Journal». The main postulates of the theory include the following:
- There are three types of trends – long-term, intermediate and short-term;
- The primary trend has three phases: accumulation, participation and implementation;
- The market responds to news;
- The trend is confirmed by the trading volume;
- There are clear signs of the end of a trend.
The used of this theory in practice has led to the emergence of many indicators. Most of the indicators originated in the era before the Internet. But the golden age of the direction of creating and implementing indicators in trading and their mass use began with the rapid development of Internet trading.
Technical indicators are used when trading any assets – stocks, Forex, futures, goods, interest rates and cryptocurrencies. Technical indicators are trading tools that, based on information about the price of the asset, make calculations and present the result-signal to the investor. Based on this result, the trader either conducts the trade transactions himself or they are executed automatically. Technical indicators take into account only price movements and do not take into account the fundamental factors of the market, but it is preferable that the trader is aware of the situation on the market as a whole.
Indicators are lines, histograms and other objects that are automatically put on a chart in accordance with a specific formula, which is set when programming the indicator. Variables in a formula are specific price values. When setting up an indicator, a trader can enter some parameters on his own, but the information is calculated automatically. The speed of building indicators, when properly configured, gives the trader great advantages when trading.
After determining the parameters, the indicator is visualized on the chart and the trader receives a clear signal, based on which he performs the necessary actions – entry or exit from the auction, sale or purchase of an asset. Newcomer traders can use the indicators, but to a greater extent the indicators are useful to quite experienced traders. Experienced traders themselves can create their own narrowly focused indicators.
There are a lot of indicators of technical analysis, they have different value, effectiveness, complexity, information coverage, their own advantages and disadvantages. At the same time, not all indicators are effective and not all effective indicators are effective all the time. But without the use of indicators, few people can achieve high results in trading.
Types of indicators
Indicators can be divided into several types:
- Trend indicators are the most popular, they are designed to determine the direction of the trend and the trend reversal point. Trend indicators follow the price, that is, they are to some extent lagged in relation to price changes. A trader with the help of trend indicators confirms the price dynamics. But he also has time to respond to the information provided by the indicator, since there are signs that allow you to confidently predict a change in trend.
The main task of a trader when using trend indicators is precisely the ability to interpret indicator information, predict what the price will be based on the signals given by the indicator, and performed the correct action. Trend indicators are more informative with a pronounced trend.
- Oscillator indicators are considered to be forward looking (for instance, Chaikin Oscillator). They are also built on the basis of price dynamics, but show fluctuations – price deviations from a certain average of its value, that is, they show not actual price values, but ones relative to price. Oscillators in the trading terminal are installed under the schedule. Most often, oscillators are used to determine whether the market is overbought or oversold, they can confirm the strength of a trend, help to clarify the signals to enter the market or exit a trade. Oscillators, as a rule, are more informative in the absence of a pronounced trend.
- Volume indicators are more commonly used when trading on stock markets. In the Forex market, indicators that analyze tick volume – the frequency of price fluctuations during a certain time period – are used as analogs of volume indicators. These indicators show how active the trade is, they allow you to assess whether the asset is in demand.
- The indicators that give indirect signals include the so-called psychological indicators – indicators of consensus and indicators of commitment.
The market is full with the predictions of numerous experts, including those who overestimate their understanding of the market – and there are much more of them, and it is their opinion that drowns out all others. And when such forecasters express a consensus opinion that the trend will develop in a certain direction, traders put on the opposite trend. This is how the consensus indicator works.
The commitment indicator implies that the trader is guided by information from authoritative sources – official financial institutions, well-informed major players, analytical agencies, the accuracy of forecasts of which is confirmed by practice and so on.
Perhaps the most popular indicator is Moving Average (fig. 1), most likely, it is used in all trading strategies for indicators. MA is a rather simple indicator, it is a line consisting of points, each of which shows the arithmetic average of price values over a certain time. In general, MA shows the average price and direction of the trend, smoothing out frequent price fluctuations, the so-called «noise».
The period for building MA is determined by the trader in accordance with his goals, taking into account the market volatility and the applied trading tools. To build MA, as a rule, the closing price is used, although you can use other prices – opening, extremes and others.
MACD indicator (fig. 2) refers to both trend indicators and oscillators. MACD assesses the convergence and divergence of two moving averages, built for different time periods. The greater the distance between the MA, the stronger the trend is considered, in addition, the indicator allows to determine the direction of the trend.
Stochastics (fig. 3) is an indicator that consists of a moving average and a price ratio to its previous values for a certain time. The price of an asset during the auction is constantly striving to average, that is, the balance between sellers and buyers, respectively, the greater the difference between the tracked average lines, the more pronounced the trend becomes. Stochastics is used to eliminate spurious signals, as it allows you to accurately highlight the dominant trend.
RSI oscillator, or «Relative strength index» is similar to Stochastics, but without MA. RSI correlates average closing prices on an uptrend with closing prices on a downtrend, which allows determining the rate of price change and the strength of the trend. The index values range from 0 to 100. On the chart, RSI is visualized as a regular curve line, which makes it easy to determine the direction of the trend. Traders can search for online graphical shapes to predict price movements; evaluate peaks and troughs on the line to predict possible extremes; analyze support and resistance levels.
Bollinger Bands is a trend indicator of three lines: Simple Moving Average, Exponential Moving Average and Weighted Moving Average. The indicator is used to determine the direction of the trend and shows the degree of volatility. The indicator action is based on tracking strong deviations from the current steady, pronounced trend.
Another indicator-oscillator of the most commonly used list is Momentum. This is one of the simplest indicators, which, moreover, can be used as a forward looking one. Momentum shows the rate of price change in the selected period of time. Momentum is used best in the medium and long-term transactions. This oscillator is used to determine the long-term trend and its strength.
Indicators for Forex and not for Forex
Forex market indicators are tools for forecasting the movement of currencies, the main task of which is to give signals that will allow the trader to determine the optimal time for opening and closing transactions. There are a huge number of indicators on Forex trading platforms, there are often used, almost universal, but there are also specific ones developed for different platforms, different operations, situations on the market, for a variety of strategies, including specific targeted user indicators.
Forex indicators are created to help the trader to make more informed decisions, they remove market noise, confirm trend lines and simplify work on the market. It is important for the trader to be able to interpret the information of the indicators, in particular, to determine which signals are false and which ones are true.
Indicators are initially embedded in Forex trading platforms or uploaded by the user. They are applied over the chart, the trader can choose the parameters, change the scale of the elements, the color of the elements and so on, that is, adapt to their perception. Many experienced traders use several indicators simultaneously, for example, leading oscillators and trend, lagging. Indicators are linked in a single strategy, focusing on disparate indicators of indicators, it is impossible to trade effectively.
The most popular indicators fall into these categories: volume indicators, Williams indicators, trend indicators, oscillators, and user indicators.
- Oscillators in the Forex market allow you to determine the possible price change, tracking the dynamics of the Forex market (e.g. Relative Vigor Index). As a rule, low values of the oscillator in a given range of values signal a downtrend, high values signal an uptrend. The extremes are most important in this context, since this may indicate a trend change.
- Trend indicators are the easiest to understand and therefore the most popular in the Forex market. Their main purpose is to give an idea of the trend strength and the most likely direction of the trend, including the termination of the current trend. Trend indicators are best suited for developing a long-term trading strategy. Whatever qualitative trend indicators are, their work is ineffective in sideways trend. During the domination of the flat in the Forex market, you need to apply other tools.
- For example, many people use Bill Williams’ indicators, named after their author. These indicators occupy a special place in the Forex market. Williams theory, in short, is that chaos prevails in the Forex market and the future price dynamics are not related to its past dynamics. His strategy takes into account such parameters as the fractal (phase space), driving force, acceleration/deceleration, zone (combination of forces) and the line of balance. Based on these parameters, indicators are built. The difficulty in applying the Williams indicators is that within the framework of the concept one can work only with certain tools. Neither the strategy nor the Bill Williams indicators can be considered a panacea for losses. On the contrary, some traders consider the whole Williams theory to be unprofitable, but for many Williams’ finds are profitable and the strategy, like indicators, are of certain popularity in the Forex market.
- Channel indicators form a conditional price range between the lines of resistance and support. Traders with the help of channel indicators track the approach of currency prices to the boundaries of the conditional range, counting on a rebound or breakthrough, which allows you to profitably enter the market. In particular, channel indicators include Bollinger Bands, consisting of three sliding, different display periods.
- Level indicators are not the most popular in the Forex market. They consist of a set of lines, each showing its own group of data. These indicators include, for example, indicator Fractals, Murray Levels and Dinapoli Levels.
- Market indicators can also be used in Forex, which analyze not the data of one or several indicators, such as the opening price, the closing price (e.g. Average Daily Range) and others, but a large amount of data on the market as a whole. These include the Arms Index and McClellan Oscillator. But such indicators are rarely used, as they unnecessarily complicate Forex trading.
- Psychological indicators are considered as an additional tool when trading Forex. They help to predict the situation on the market and its impact on the price, assessing the behavior of buyers and sellers. These include indicators such as, for example, the ratio of bulls and bears or the sentiment indicator.
- User Forex indicators are trading indicators, mostly ordinary, working on standard algorithms, but designed for certain situations on the Forex market. They can be as very useful, created taking into account the most relevant market conditions, and useless. Many user indicators are uploaded in the Internet for free use, but there are also paid ones, – thousands of various developments. In either case, there is no guarantee that custom indicators will be better than the standard indicators pre-installed on the trading platform.
- Indicators are used in Forex trading strategies, which are called indicating indicators. The trader makes his forecasts using only or mainly signals from indicators, combining them with his own analysis of the chart.
- Traders who trade on Forex are more interested in indicators that are displayed on the chart itself, as this allows you to quickly determine the price in real time and predict its movement. Lagging indicators are needed to confirm the trader’s findings.
When choosing an indicator for trading on the Forex market, a trader must clearly understand what the indicator shows – support and resistance levels, trend strength or something else. Is the indicator leading or lagging? It is necessary to determine the timeframe for which the indicator is to be set. It is necessary to study the history of the indicator, try to identify patterns characteristic of its work. Then select the optimal parameters and test the indicator on a demo account.
Indicators for binary options
If you compare Forex indicators with indicators for binary options trading and stock markets, the very principle of the indicators themselves is the same. But when trading on the Forex trader trades on indicators that are put directly on the chart and under it. In the case of binary options, to put an indicator on a chart, you need to find the required currency pair in the trading terminal or open a site that has both a chart and an indicator.
But some binary options brokers provide the same functionality as for Forex trading. This way you can trade binary options, for instance on MT4 platform. Forex indicators for binary options require more customization for the trading tools used.
Indicators for the stock market
In the stock market, it is possible to use the same indicators as in the Forex market, but there are some differences. For example, the market volume can be called the next most significant indicator for a trader after the price of an asset. Volume indicators show the total number of trades in a certain period of time in the market. This allows the trader to determine the activity of traders in the market and the dominant trend. And also to track the beginning of the trend change, which can be indicated by the divergence of volume and price. But in the Forex market it is impossible to determine the volume of the market, but it is possible in the stock market.
There are specific indicators on the stock market (although you can find indicators similar in operation on Forex), for example, these are:
- Index of new upper – new lower prices (NH-NL), which is calculated by the difference between the number of stocks with upper prices and stocks with lower prices in a certain period. The number of market leaders is determined by the upper and lower values of the stocks in a certain period. This index confirms the trend direction.
- The Trader’s Index – TRIN – is a leading stock market index, which shows the mood of the players on the market: if the mood is optimistic, this is expressed by a peak, if pessimistic – by a trough. It is calculated as the ratio of the number of growing stocks to the number of stocks in the fall.
- Advance – decline lines, or A-D, show the massive participation of traders in the trend. The indicator is calculated by subtracting the number of stocks declined from the number of stocks inclined, the difference is added to the previous value and a summing line is plotted.
- The indicator of the most active stocks – MAS is a line. The A-D line consists of 15 most active stocks of New York Stock Exchange, it is calculated on the daily basis and with a high degree of probability shows where the market will go.
At the stock exchange, more attention than in any other market is paid to the analysis of the fundamental factors influencing trade.
Platforms with indicators for Forex trading
MetaTrader 4 (https://www.metatrader4.com/en) is one of the popular platforms for Forex trading, it is basic for most traders. The platform is quickly mastered by newcomer traders, it provides great opportunities for technical analysis with the help of several dozen technical indicators, in addition, there is access to a library of free user indicators and a shop for buying paid ones.
MetaTrader 5 (https://www.metatrader5.com/en) looks very little different from the previous version of the terminal, but it is still different: there are additional tabs in the quotes window, you can see the features of a certain trading instrument and trade in one click without a chart. On the chart, a trader can perform automatic trading already in the basic version of the platform, you can order a trading bot on a freelance platform created for the platform. In the «Navigator» section of the terminal, you can rent VPS-server using terminal. A trader can choose two types of trading – combine all transactions into one or conclude several transactions for one asset. Some MT5 innovations were so successful that they were applied to MT4. At the same time, user indicators cannot be installed on the web version, although the built-in indicators are sufficient for any strategy.
Mirror Trader (https://www.tradency.com/mirror-trader) provides an opportunity for independent trading by indicators. Trading is performed through a web terminal, oscillators and indicators are plotted on charts, – the choice is sufficient for performing trading in any strategy. It is possible to view the history of trading of other users, buy and sell positions. But this platform is more suitable for selecting and copying existing strategies, for trading on signals by subscription.
NinjaTrader (https://ninjatrader.com) is a universal trading platform with extremely wide functionality, though a bit difficult to master and use, including due to the huge analytical tools. The platform allows you to trade using more than 100 built-in indicators, you can implement third-party indicators or develop and implement your indicators without knowledge of programming languages. A feature of the platform is the Market Analyzed service, which by itself performs the functions of many indicators and shows the parameters of price dynamics – extremes, Stochastics, moving average etc. — on the Forex Chart, all of this is presented in a graphical form.
cTrader (https://spotware.com) is similar to MT4 and MT5, but it has differences due to which it has a large and stable audience of traders. The platform works in desktop and web versions. On the platform, you can trade using indicators, opening and closing transaction directly on the chart.
Indicators in terminals of Forex brokers
When trading through Forex brokers, in order to be able to use around 70 indicators of certain trading platforms, you need to know which brokers are working with which platforms:
- RoboForex broker (website: https://www.roboforex.com)
RoboForex is one of the largest trading broker, represents many services and applications for trading. The most popular among traders who use trading advisors. It regularly publishes analytical reviews of the markets for marketable trading assets, online analytics Dow Jones and Trading Central. The «Signals» section offers technical indicators MA10, MA20, MA50, MA100, MACD, BBands, Ichimoku, Stochastic, Вильямса, ZigZag, market sentiment chart. RoboForex broker offers the trading terminals MT4, 5, R Web Trader, R Mobile Trader, R Trader.
For trading transactions, the company provides several trading platforms: a browser without downloading. Automatic trading on MT4 and MT5 is possible. Broker provides analytical support to customers – economic calendar, news, Forex quotes for various categories. RUMUS – a proprietary trading platform, a small number of author indicators have been developed for it.
One of the oldest brokers, works worldwide. For trading the broker offers the popular terminals: MetaTrader 4, MetaTrader 5, OptionTrader and mobile applications for iPhone, iPad, Android. It has quite a large analytical support, – it offers reviews of significant events, tendencies, trends, Dow Jones news, expert opinions, offers a special calendar of the trader from FX street. Alpari also presents analytics of Trading Central, Autochartist service, on the regular basis posts a review of popular financial instruments.
Multifunctional trading service, which offers to work on the platforms FxPro MT4, FxPro MT5, cTrader, FxPro Markets, in applications for iPhone, iPad и Android. Provides technical and fundamental analysis services. Traders can get news from the broker through the terminal MT4, as well the trading signals of Trading Central. There is the FxPro Quant service – the strategies creating system for launching on MT4 and cTrader and cAlgo 0 the application for designing algorithmic trading strategies and user indicators.
One of the largest multi-functional brokers. It offer trading on platforms MetaTrader 4, Forex4you WebTrader, Forex4you Desktop and in mobile applications for iPhone, iPad and Android. Analytics is represented by Trading Central, with Autochartist application, it provides a graphical analysis of the possible development of the trend, key levels on the indicators, analysis of the trend strength and the search for turning points on the Japanese candlesticks. Through Share4you, the service for copying transactions, you can subscribe to signals.
A large broker provides an opportunity to trade on MetaTrader platforms of 4 and 5 versions. Traders can use a fairly large number of broker trading tools, analytical reviews and forecasts, interactive trading charts. A lot of information, which is designed for newcomer traders, including detailed explanations for a large number of indicators. There is a rather large section of technical analysis for several currency pairs. The broker presents trading signals for users MT4 about the conditions for opening and closing positions.
One of the old brokers with a long history, but controversial reviews in the some Forex sectors. It provides brokers with the ability to trade on the terminal with MetaTrader, in desktop and web version HY Trader, developed by MetaQuotes Software Corporation. Quite extensive analytics — news, analytics of Trading Central (Recognia), daily market reviews, weekly currency reviews, provides trading signals when using certain accounts, movie tutorials etc.
A large broker, positioned as a service for professional traders, the number of reviews is small. Works with MetaTrader 5 trading platform in desktop and mobile versions with the adequate set off indicators and oscillators, provides a very large choice of tools for traders. The analytical support of traders includes financial news and daily technical analysis. There is also a large section with educational materials. Also, there is a broker extension, signal manager.
- Fibo group (website: https://www.fibogroup.com)
International broker, provides the trading opportunity on terminals MetaTrader 4, MetaTrader 5 and cTrader. There is quite a lot of training materials, large analytical section, automated trading, a set of signals from МТ4, explanations on indicators as part of training.
A very large and active Forex broker offering for traders trading on the terminals MetaTrader4, MetaTrader5, МТ4, both in desktop and web versions. МТ4 also has broker edition MT4 Supreme Edition, signals scheduler. As you can see, most of the largest brokers offer traders to trade in MT4, less often – in MT5 and in third place, apparently, cTrader.
МТ4 and МТ5 indicators
The platform MetaTrader4 has a large range of indicators, probably the largest number of indicators among all platforms, taking into account user indicators; and the largest amount of methods of their application has been developed. Also MT4 is most often used by Forex brokers.
The OVB indicator is the balance volume, one of the simple indicators that can be leading. It is visualized on the chart as a broken line confirming the direction of the trend. The indicator is calculated at the closing price of the current bar – if the price is higher, the bar value is added to the previous value, if the closing price is lower than the previous bar, then the volume is subtracted from the previous volume value. It is believed that volume changes precede price changes and the formation of a trend.
Popular indicators of MT4 include MFI – Money Flow Index, which characterizes market behavior after volume changes. It acts in the same way as RSI indicator, considering, besides the moving average indicators, volume indicators as well. Like RSI, the values range from 0 to 100, but the numbers do not have the same meaning as the dynamics. In general, MFI shows how interesting the currency is during the trading period. Indicators are located to the left of the trading charts in the respective folder.
How to add the indicator to MetaTrader4 chart?
To launch the indicator, you need to select the appropriate one from the list provided, for instance Adaptive Moving Average, and click on the folder with the indicator. A window will appear in the center of the terminal interface in which you will need to set the parameters the trader needs: quick and slow EMA periods, time frame and others. After selecting the parameters, you need to click on the OK button and the indicator will appear on the chart (fig. 5).
You can view the list of indicators on the chart, change the parameters of the indicator, or delete it by pointing the mouse cursor over it and right-clicking to open the menu. The installation of oscillators is carried out in the same way. Oscillators are displayed below the chart (fig. 6).
What shall you do, if the platform does not have the indicator you need?
A custom indicator written in a programming language MQL4 can be downloaded to the MT4 platform. Most of them are free. The download process is simple, though, if you go through it several times. Suppose a trader needs an additional indicator for trading. There are many third-party sources of indicators on the Internet, but it is optimal to use the indicators provided by the community of traders of the MT4 platform itself (fig. 7).
In the list of indicators, you can choose, for instance, CCI EMA. Going to the page with the indicator, you can see its quite detailed description and, if you like the indicator, download zip-archive (fig. 8).
After you unpacked zip, you need to copy the files to the folder MQL4/Indicators in the data directory. The data directory is located in the «File» section of the terminal.
In the data directory you need to find the appropriate folder, in this case it is the folder «Indicators» and copy the indicator file into it – this is a file in ex4 and/or mql format. By the way, the file may be in .dll format, then it is saved to the folder «libraries».
In order to load the indicator onto the chart, you need to return to the trading terminal, go to the «Service» section, the «Settings» tab and in the center of the terminal a window will appear in which the «Advisors» tab is selected, in which the parameters required to the trader are filled, the «Ok» button is pressed and the trading terminal is restarted, after which the indicator is set. To use it, you need to go to the «Insert» section in the terminal, select the Indicators section and select «User» in it and select the installed indicator.
After that, a window with the indicator settings will appear in the center of the trading terminal, the trader shall select the necessary parameters, click Ok and the indicator appears on the chart MetaTrader 5 also presents a large range of indicators, both well-known on the MT4 platform and new ones. The most popular on MT4 indicators include Adaptive Moving Average AMA (fig. 9). This indicator was invented by trader Perry Kaufman to solve two main problems of the standard moving average: on a short averaging period, the moving average gives a lot of false signals, and on a long period it lags too much. AMA moves more smoothly with flat and more accurately shows prices in case of a pronounced trend.
Another popular indicator is ADMI (fig. 10), the version of indicator ADX, the index of the average direction of motion. The indicator is needed to determine the trend, the optimal moments of buying, selling and taking profits. ADMI allows you to more accurately determine the trend. The indicator consists of three lines, reflecting, respectively, price incline, price decline and a trend.
Envelopes indicator (fig. 11) is considered to be highly accurate indicator which helps newcomer traders to determine the trend direction. It is plotted in two trend lines, horizontal position of which signals flat, and sharp changes shown where trend moves.
EMA indicator is an exponential moving average, also often used on the MT5, as on the MT4. The purpose of EMA is to reduce the lagging of signals, which is achieved by a method of calculating the price, which takes into account the price value of the previous trading session.
One of the most popular indicators of recent times is FRAMA, fractal adaptive moving average. The indicator is based on the fractal theory of financial markets, which states that current price movements depend on the previous ones and that price movement within one interval is similar to price movement on another interval. The FRAMA indicator determines the fractal dependence of the price at different intervals and calculates the smoothing factor EMA. FRAMA more clearly follows the strong trends and also clearly slows down at consolidation.
Loading standard indicators on the MT5 chart is similar to MT4. In the MT5 web terminal, you can download from the Market Terminal (fig. 12).
After downloading from the Market, the indicator is loaded into the desktop terminal in the following way: «Insert» → «Indicators» → «User» → «Indicator».
Market MT5 is a full-fledged online store, where you can also get free indicators. But you can choose them not only by price, but also by the type of indicator, by reviews, by rating, popularity and other parameters. But on the site, you can act as a developer and seller of indicators.
Third-party indicators on the MT5 are set in the same way as it is done on the MT4, with the difference that permission to import files into the terminal is given in the «Advisors» tab, which looks different than on MT4.
When choosing and loading the indicator, especially third-party, you should not forget about the need to test its functionality on a demo account. You can use the MT5 indicators not only for trading on the MT5, but also when trading on brokerage trading platforms, if it is not possible and necessary to upload indicators on third-party platforms. In this case, it is important that the broker uses the same quotes as MT5. Suppliers of quotes on MT5 are the sources Integral, Hotspot FX, FastMatch, Currenex, FXCM Pro, LMAX Exchange, Swissquote, Alpari.
Forex indicators, which you shall know
In addition to the several main indicators listed above, it is desirable and even necessary for the trader to know a few more tools and be able to apply them in practice. We list them briefly.
SMA, Simple moving average. The basis of the technical analysis and the most common indicator. It is standard for any trading platform. This indicator is used to determine the trend direction. It represents the arithmetic average of prices, for example, closing prices. If the line is up, the price rises, if the line is down, the price falls. SMA is suitable for any timeframe, for any currency pair, the user can make individual indicator parameters. An experienced trader needs only this one line to understand the situation on the market; newcomers need additional indicators to clarify the indicators.
WMA, weighted moving average. This indicator is aimed at solving the same tasks as similar indicators – moving ones – smooths the price display on the chart, eliminating noise, which allows you to more clearly visualized the direction of the trend and predict further price dynamics. When calculating the indicator, the price is taken to complete a certain period and the average is calculated from several such indicators. Of all the moving averages, this indicator is the fastest. WMA clearly shows a trend change when price crosses the line. However, it is considered optimal to use other indicators to confirm WMA signals.
ZigZag indicator is a standard indicator that connects local minima and maxima to cut off price noise, it also allows you to determine trend reversals. It represents straight lines, which are placed according to a significant price change. ZigZag is an additional indicator, the indicator itself does not allow to predict anything. ZigZag is suitable for analyzing the situation more than for trading, as it is very late, but it determines price movements very precisely and facilitates the definition of resistance and support lines and the definition of graphical patterns.
Parabolic indicator is also similar to the moving average. It allows you to determine the direction of the trend and its change. Looks like a series of points above or below the price. If the price is above this number of points, then the trend is ascending, if the price is below the indicator, then the trend is descending. That is, Parabolic SAR can also function as a support and resistance line. SAR is «Stop and Reverse», meaning that the indicator shows a trend change, a point or bar in which the movement of Parabolic begins, is often a reversal. At the same time, the indicator works optimally only when there are pronounced trends in the market.
Aroon indicator is designed to determine the trend and local maxima and minima. In essence, this is a set of indicators, which includes the so-called Upper Aroon, which shows how many days have passed from the beginning of the monitored period of time to the maximum, and Lower Aroon, which shows how many days have passed from the beginning of the monitored period of time to the minimum; and the Aroon oscillator, which shows the difference between the Upper Aroon and the Lower Aroon. It is believed that if the Upper Aroon crosses the mark below 50, then the ascending trend is over. If a similar mark is crossed by Lower A, then the descending trend is over. In situations where Aroons cross the marks 70 – each for its own case – then the corresponding trend increases.
- Ichimoku Cloud
Ichimoku indicator allows you to determine the market trend, support levels and resistance levels and specify the signals to buy and sell. The Ichimoku indicator is quite complicated, it consists of five lines:
- Tenkan-sen – average price value for a certain first time period (maximum plus minimum, divided by two);
- Kijun-sen – the average price value for the second period of time;
- Senkou Span A – the middle of the distance between Tenkan-sen and Kijun-sen, shifted forward by an amount equal to the second period of time;
- Senkou Span – average price value for a certain third time period shifted forward by an amount equal to the second period of time, too.
- Chinkou Span – closing price of the current candle, shifted back for a second period of time.
Sentiment is designed to determine who dominates the market, bulls or bears. The indicator is presented as a line that moves from zero, respectively, if the line is above zero and leads up, then the bulls dominate the market, if the line is below zero mark, then the bears dominate. Sentiment in the form of a histogram consists of columns of 4 colours, each of which indicates a certain market mood. Despite the fact that the main task of the oscillator is to display moods, it also allows you to determine the points of entering and exiting the trading.
DeMarker oscillator. DeMarker is designed to determine the zones of price exhaustion in which extremes are most likely to occur. It is quite effective in the period of changing trends and in determining intraday points of enter into the market and exit from the market. D ranges from 0 to 1, if the indicator value is about 0.7, it can signal a price decrease, if less than 0.3, it can signal a possible price increase.
- Bulls power и Bears power
Indicators Bulls Power and Bears power are designed to determine the power of «bulls» or «bears» in the market. The indicators are based on moving average, which is a conditional balance between sellers-bears and bull-buyers for a certain period of time. The maximum price reflects the maximum strength of the bulls, and the minimum price reflects the maximum strength of bears. Accordingly, Bear Power is the difference between the minimum price and EMA, as a rule, a 13-period, and Bulls Power is the difference between the maximum price and EMA, also 13-period.
Williams %R indicator is designed to determine overbought and oversold, it functions similarly to Stochastics. The indicator shows the level of the closing price in relation to the range of extremes for a certain period of time. The indicator is located in a certain range from 0 to -100. If the indicator value is about -20, then this indicates overbought, if about -80, then the price of the asset is underestimated. The indicator does not predict the future, however, based on the fact that the asset is overbought, then its price will soon begin to fall, if it is underdeveloped, then the price is likely to decline
CCI is the oscillator of the trading channel, which shows the deviation of the tool price from the moving average. If the index is high, it means that the price is too high, if the index is low, then the price is too low. That is, the oscillator can show the overbought and oversold levels, which allows to determine the trend reversal. Visually, it represents a line that ranges from -300 to +300, although the oscillator values can go beyond these limits. With the dominance of the bulls, the line moves around +100, with the dominance of the bears – about -100. Lines that go beyond these limits are considered to indicate the beginning of a reversal.
- Rate Of Change
Rate Of Change, or RoC is one of simple oscillators that shows the rate of price change over a certain period of time, which allows you to understand the direction of the market. If the indicator increases, it shows an optimistic mood of traders and an increase in market activity. If the indicator decreases, this indicates a decline in activity and a negative attitude of traders. Based on this, the indicator can function as a leading one, showing the trend change in advance. The basis of the indicator calculations is a comparison of the current closing price with earlier indicators. It is characterized by high efficiency in forecasting the main market trends.
- Detrended Price Oscillator
Detrended Price Oscillator is one of the not quite standard indicators. It is designed to determine oversold and overbought, while not taking into account the trend. It notes its effective work on short-term trading cycles.
- Average Directional Index
The trend oscillator – so called «Average Directional Index» – consists of three lines: ADX; «+DMI» line; «-DMI» line. It determines only the strength of the trend indicators from 0 to 100. At the same time, the index indicators less than 20 show that the trend is weak, and from 20 to 50 that the trend is gaining strength. This oscillator does not give signals to buy or sell, it only stimulates the trader to make a decision, showing the stability of the trend.
Bill Williams indicators
Alligator indicator is one of the indicators of Williams. It consists of three moving averages with different periods. Each of the lines has a characteristic conditional name. The Alligator’s jaw is a 13-period moving average shifted by 8 bars forward. The second moving average is called Teeth and is an 8-period moving average, shifted by 5 bars into the future. The third – lips, 5-period smoothed moving average, shifted by 3 bars. The moment of intersection of all lines shows the phase of consolidation. The indicator helps to determine the signal to enter the market and to clarify the direction and strength of the trend.
Another Williams oscillator, representing addition to indicator «Alligator», as an independent indicator does not apply and is not popular at all precisely because there are enough difficulties with one «Alligator». The indicator is based on the values of moving averages and shows the direction and strength of the trend similarly to Alligator, but in the other format.
Gator consists of two histograms of different colors, located on both sides of the zero line. The trend or its absence is indicated by the color, location from the zero mark and the size of the histogram bars. For example, if price values decrease, the histogram turns red, if they increase, it turns green.
«Awesome Oscillator» is also created by Williams. In fact, this oscillator is identical to the classic indicator MACD and is designed to represent signals for trend reversal. But MACD is built at closing prices, Awesome Oscillator – at median prices and can act as a leading indicator.
Signals of indicators
The most important skill for a trader who trades by indicators is to correctly recognize the accurate signals of indicators, cutting off false ones. The signals come in different forms, for example, many indicators are put directly on the chart and give signals in the form of arrows, changes in the direction of the curve or change color.
Oscillators placed below the trading terminal window show a curve, the values of which should to be correlated with price fluctuations displayed on the chart, that is, the signals are not specifically indicated, they should be seen by the trader.
The more professional an indicator is, the less unambiguous signals it gives. Professional indicators are used to analyze the situation on the market; on the basis of these indicators, the trader determines the enter or exit points and makes decisions about actions during the trading. That is, such signals do not do the job for the trader, but only assist him.
Indicators that give unambiguous signals and do not allow complicated interpretations are intended for newcomer traders. At best, trader needs the ability to be able to more or less clearly distinguish the true signal from the false one and determine the signal strength. But there are very simple indicators that directly give instructions – to buy or sell. The problem with such indicators is that they inevitably make mistakes. A trader who is focused on long and serious work in the market, is assisted by simple indicators to go through the very first stage of work.
A significant problem of indicators is the redrawing: when rebooting a trading terminal, the same indicator gives different, sometimes radically opposite signals. For example, before the reboot, it seems that there were signals about a change of trend from upward to downward and the trader made a bid for the sale, and after rebooting it turns out that there was no reversal. The same thing can happen without rebooting, but in a situation where the indicator seems to have detected and corrected the error. Such an indicator when trading in real time leads to losses, but if you look at its history, it turns out that it is almost perfect – there is a rewriting of history in the literal sense of the word.
Redrawing indicators are dangerous for the trader, so you need to read reviews about indicators and test any indicator before use. Testing is performed in several stages. The first stage – the indicator is launched in the terminal, the trader monitors its work for several days. During this time, there should be no obvious redrawing of signals on the opposite.
If this stage is passed, the trader moves to the second stage of the test. For a test, a period of time is selected and all signals are somehow copied — recorded or a screen is made, and so on. The terminal reboots, the indicator restarts, and its values – over a marked period of time – are compared with signals that are marked after a reboot. If the signals have changed, then this indicator is not suitable for use.
If, after verification, the majority of signals remain the same, then the second stage of verification can be considered as passed successfully. Next you need to check the accuracy of the signals, initially on a demo account.
Examples of Forex indicators signals
Let us consider the signals given by some popular indicators. For instance, the Forex oscillator RSI, relative strength index is a curve and delivers the following signals: RSI above level 50 promises an uptrend, below 50, respectively, a downtrend. When the index crosses the level of 50, we can assume that the market is overbought, when the level 30 is crossing the downtrend, the market is considered oversold.
Reversal levels – 70 for a trend change to a downtrend and 30, for a trend change to an upward one. Also, a change in trend is indicated by the interruption of RSI and the mismatch of the Index with the price chart.
The MACD indicator operates in two versions, in the form of lines and a histogram. In the linear version, two lines are built – the main and continuous dotted lines, which are often highlighted in color. The main line shows the average price fluctuation and reacts quickly to price changes, the dotted line responds more slowly, but assesses a longer time interval. When the signal line crosses the main line in the direction from the bottom up, you can open a transaction to buy. If the signal line crosses the main line from top to bottom, this is, accordingly, a sell signal.
The position itself is also a signal to the trader. For example, if the main one is located above the signal, then the bulls dominate the market, in the signal line is located below above the main one, then the bears dominate.
In the histogram version of MACD the same information is shown, but otherwise visualized – in the form of columns located above and below the zero mark. Obviously, if every next column is higher than the previous one, then the trend in the market is upward, if every column is lower than the previous one, then the trend is downward. It is clear that when a column with the opposite value appears in the histogram among the columns of a certain trend, the trend can change accordingly.
RSI and MACD send quite easily interpreted signals. But not all indicators are so clear. Let us consider the signals of one of the complex indicators – Ichimoku (fig. 13). In general, the signals of Ichimoku can be divided into only three parts:
- Signals by Senkou Span A and Senkou Span B lines and «crosses»;
- Signals by Chinkou Span lines;
- Signals on the price chart lines and lines.
For example, the intersection of the Tenkan-sen and Kijun-sen line from the bottom up is called the «Golden Cross» and signals that you can buy, the intersection of the Kijun-sen line by Tenkan-sen is called the «Dead Cross» and signals the possibility of selling.
Chinkou Span line displays the current price shifted by a certain number of periods, while prices from previous periods are levels of resistance and support. If Chinkou Span line touched the line in the direction from above, it indicates that a downtrend is forming. If Chinkou Span line breaks the price line from below, then an uptrend is formed. Clear reversal Chinkou Span signals are considered very effective.
Lines Senkou Span A and Senkou Span B limit the possible price indicators, forming the so-called «price cloud» on the chart, which is marked in color depending on the trend. The intersection of the price cloud lines shows the beginning of the trend change, as evidenced by the change in the color of the cloud. The Tenkan-sen line performs the functions of the moving average; when the extremum price pulls back, the Tenkan-sen line takes the place of a support or resistance line, which may indicate a trend reversal.
Based on this indicator, you can create full-fledged trading strategies. At the same time, despite the visual complexity, the number of Ichimoku signals is limited, they are fairly formalized and can be memorized and learned to recognize quickly enough.
Signals of Bill Williams’ indicators are particular. The Alligator, to which Williams gave the maximum similarity with the zoological prototype in appearance and behavior, created a kind of language that should be understood when mastering the indicator. The alligator consists of three moving averages with different periods. The «Alligator jaw» marks the long-term price, Williams also called it the Balance Line. If the price is above the «Alligator jaw», it is the signal to continue the ascending trend. If the price is below the «Alligator jaw», it is the signal to continue the descend trend.
When all movings, that is, the parts of the Alligator, are intertwined, this, according to Williams, is called the «Alligator sleeps», which essentially means that the market is in a consolidation phase. The longer the Alligator sleeps, the more hungry it will be, when it wakes up. And when the Alligator «wakes up», that is, the movement of movings begins, this is a signal to the fact that a breakthrough of the trading range is coming soon – the Alligator hunts the price. The activity of the Alligator upon waking is stronger, the longer the sleep phase lasts. After the Alligator is full, it loses the interest in hunting, which looks like the convergence of the moving averages, that is, the indicator signals that the market is again entering the consolidation stage.
Compared to the two previous indicators, the Stochastics oscillator shows more traditional signals and is used much more often. The Stochastics shows the closing price in relation to the previous range of maximum and minimum prices and measures as a percentage. It consists of two lines – the fast one, (%K) continuous, which the shows turning points, and the slow one, dotted, marking the most important of the points.
In total Stochastics shows three types of signals: divergence, level of stochastic lines, direction of Stochastics lines. Divergence is the indicator discrepancy with price movement indicators. For example, a bearish divergence occurs when D is above 80 and forms two peaks, while the price continues to rise. On the contrary, bullish divergence is noted when D is below 20 and forms a double rising base, and prices fall. Signals to buy can serve as an approximation of Stochastics K or D to 20 with the subsequent rise and K rise above the line D. The sell signals, respectively, are marked when Stochastics rises above 80 and lowers or when the K line falls below the D line.
Momentum (fig. 15) is another traditional oscillator, which shows the strength of the trend. The indicator can work as leading one, it is most effective in long-term trading. The momentum curve is located under the price chart and moves, ranging from -100 to +100. When the curved line crosses the middle line 100 from the bottom up, it signals an uptrend, traders prepare for the purchase; a downtrend is determined by crossing the level of 100 from top to bottom – traders can open sell orders.
Momentum gives quite accurate signals of divergence. When prices reach a peak even after a short drop in a higher peak, but Momentum does not reach the new peak, which serves as a sell signal after Momentum drops. Optimally in this case, that the Momentum signal confirms the Stochastics signal.
The «Bollinger Bands» indicator is designed to determine extremes and is best suited for determining the entry point to trading on a distinct trend. That is, it is more suited to work in a volatile market. Using the indicator, you can try to determine how high or low the price of an asset is to the moving average for a certain time, which, in turn, allows you to predict an increase or decrease in price. The central bar of the indicator is, in fact, the price moving average, the upper and lower bands show the price level to the moving average. Thus, when the price reaches the upper Bollinger bands, the asset is overbought, if reaches the lower band then asset is oversold. Based on this, a trader can decide on further actions, given that these price movements themselves do not necessarily indicate a trend reversal. That is, the Bollinger bands indicator should be complemented by another indicator.
The distance between the lines also gives certain information about the market. A large distance between the upper and lower line confirms the high volatility, a small distance indicates a low volatility. As a rule, when adjusting the indicator, 20 periods are indicated on the terminal. If there are fewer periods, that is, for example, candles, the indicator will respond to price changes faster, but at the same time, the number of false signals will increase. If the period is longer, the indicator responds more slowly, but its indicators are more reliable.
An atypical non-trend indicator Detrended Price Oscillator is highly appreciated by many traders as an additional indicator, since it helps to effectively track small movements – pullbacks and corrections on short-term frames. Therefore, despite the irregularity, it is integrated into trading platforms. It is not recommended to use it as the main one, since it is clearly lagging one. The oscillator is a curved line of closing prices and a moving average that serves as the zero line. When setting in the terminal, two parameters are indicated for Detrended Price Oscillator – moving average and the number of the last bars for calculations. At the same time, the indicator always gives a significant number of false signals.
So, the Detrended Price Oscillator generates fairly simple and clear signals: if a chart is built up above the zero mark, then an uptrend is formed, this can be a signal to buy. If it is below zero, this indicates a downtrend and is a signal for a possible sale. But these signals require confirmation by other indicators.
More significant signals – if the zero level breaks through the bottom and this is accompanied by a similar price movement, this is a buy signal, if the zero mark intersects at the top along with the price, this is a sell signal. But these indicators require the confirmation by other indicators, too.
The number of indicators for Forex trading is huge, but number of main, most frequently used and proved their reliability is, most likely, no more than hundred. Of these, several dozens are consistently in demand. All indicators, whose usefulness is proven by time, are integrated into trading terminals. For them, the most detailed method of application has been developed; Internet provides a description of all the peculiarities of working with them, all the shortcomings and all the advantages, as well as the most effective combinations of indicators among themselves. However, none of these indicators provide any guarantee of the profitability of trading.
When loading the indicator on the chart, the trader should clearly understand why he needs this indicator and be able to work with it, only in this case the indicator is useful. It is necessary to fully understand the principle of displaying information by the indicator, in what conditions it is useful, in what conditions it can lead to losses. Before using the indicator on a real account, you need to test it on a demo account.
As for user indicators, they copy the already well-known indicators in their functionality, they may be more useful in certain conditions, but in general, their effectiveness is not higher than the standard ones. In order for user indicators to do no more harm than good, you need to be well aware of how standard indicators work. The third-party indicators loaded on the chart should be tested for rewriting.
For МТ4, the greatest number of explanatory materials on the work of indicators has been developed. The same terminals are represented by the overwhelming majority of brokers. The principal terminals for trading are MetaTrader 4, MetaTrader 5, cTrader, they are used by majority of traders, the most popular terminal is МТ4. Same terminals are provided by large majority of brokers. The maximum illustrating materials about the operation of indicators is developed for МТ4.