When you start trading, you might be inundated with many forex indicators that can confuse you if you are not well informed. However, you don’t need all of these indicators to be a successful trader. All you need to do is, to identify the best ones and learn about them. Once you do that, you will already be on your way to excel in the market as a trader.
While we have discussed the most popular trading indicators, keep in mind that the best one for you is an indicator that matches your trading style and psychology. The point is that there is no one indicator that fits the styles of all traders.
A technical indicator is a tool that makes certain calculations according to given formulas based on the price chart and then automatically produces the results. Most often, indicators look like graphical constructions (lines, histograms, etc.) that are automatically plotted on the chart.
Each indicator is based on a formula in which the values of the price chart act as variables. The users can customize some parameters of an indicator. After all the parameters and values are determined, the indicator is implemented on the chart, and the traders receive a visual signal to enter the market or exit a trade.
The automatic calculation is the main feature of technical indicators. Thanks to this, the most complex constructions can be plotted on the chart in a matter of seconds. Thanks to the advent of computer analysis, it became possible to create automatic trading systems, various advisors, and robots.
Forex Technical indicators are calculated using historical price feeds. They are all derivative of the same data – high, low, open, close. There is no other data in your trading platform other than these 4 pieces of data.
Despite the seeming abundance of trading terminals, the MetaTrader 4 platform is still the most popular software. As the statistics show, it is preferred by over 90% of Forex traders.
Is MT4 the best solution for Forex trading, or is there something else behind its popularity?
Despite such popularity, the quality characteristics of the MT4 terminal do not always fully satisfy the users. Candlesticks have a fixed length, time intervals (timeframes) are only standard – you will have to work hard to create a non-standard timeframe. The standard grid on the graphs should be mentioned separately. In alternative trading terminals, round numbers are used to build a grid. In this regard, the MT4 terminal “pleases” the trader with a grid built on the principle, the semantic load of which remained unsolved for us.
So why is it that the overwhelming majority of traders still use MetaTrader 4, especially if there is a more functional MT5 platform available?
It is quite possible that we thickened the colors a little more, and the MT4 terminal is not really so bad. At the very least, it is easy to use, which, in itself, is already quite a lot, especially for non-professional traders.
The reason for the popularity of MT4 lies in its distribution by brokers and dealing centers and not because there are no other alternatives. On the contrary, they exist but we believe that the point here is more about the technical issues.
There is another reason why MT4 is so common. These are the tools that almost every trader uses – technical indicators, trading robots, and scripts. Unfortunately, other terminals do not have options to install robots and scripts.
Traders use several categories of technical indicators to trade Forex instruments and CFDs on stocks, commodity futures, and even cryptocurrency. The instruments of each category perform a specific function, and that is why trading according to a strategy that includes various types of indicators is most effective.
Trend indicators allow you to determine the current direction of the trend and notice the moment of the trend reversal in time. As a rule, trend indicators line up directly on the chart and move parallel to the price, periodically intersect with it and change their position. Such crossovers most often signal a change in trend.
In addition to determining the prevailing trend, trend indicators also help to exit the trade at the right time. As soon as the price reverses and changes its direction, the trend following indicator informs about it, and the trader has time to close the position before the profit from the move is lost.
Oscillators are the second most popular category of indicators. They are usually set in a separate window below the price chart, and their readings are relative. Like trend indicators, oscillators are built on the basis of price. However, their values do not correspond to the price and fluctuate within a certain range (most often 0/100 or + 100 / -100).
The relativity of indicator values is the main feature on which the most effective trading strategies are built. Most often, oscillators help to identify the overbought/oversold moments of the market and the strength of a trend. If trend indicators help a trader understand when to open a trade, then the oscillator will also tell you when it is better to refrain from entering the market.
In Forex, in contrast to the stock market, it is almost impossible to determine the real trading volumes. Therefore, volume indicators have their characteristics. Some instruments analyze tick volume – the frequency of price changes over a certain time interval. This makes it possible to assess the trading intensity, although it does not provide information on monetary volumes. Some brokers have their volume indicators that allow you to assess the positions of traders of a particular company objectively but do not provide information about the entire market.
In general, volume indicators help to determine the interest of investors in a particular asset and understand whether the price change is caused by investors’ real interest or exclusively speculative manipulations.
This category includes tools that provide users with information but do not provide direct signals to enter the market. For example, an information indicator can be a widget with the size of the current spread (in the MT 4 trading platform, the spread has to be calculated independently, which takes time). An informational indicator is also a mini economic calendar that informs about the release of important news right in the trading terminal.
Perhaps these are not all categories of indicators. The analysis direction is constantly evolving, new tools are being developed, and existing ones are being modified. However, these categories are the most basic, and it is with these types of indicators that a beginner trader should start learning technical analysis.
There are numerous MT4 indicators but some have gained a lot of popularity and are very commonly used by traders.
Here’s a brief list of the most popular indicators.
Perhaps it’s no exaggeration to say that the Moving Average is the king of all forex indicators. This is one of the simplest and, simultaneously, one of the most popular indicators. In addition to its direct use in trading, the Moving Average indicator is the basis for calculating many other more complex forex indicators. Moving Average is the average price indicator for a certain period. There are numerous types of moving averages like simple, exponential, smoothed, weighted. These types differ slightly in the calculation. Generally, they have the same essence; they show the dynamics of the average price movement for a certain period.
The RSI indicator belongs to the family of oscillators and it shows the position of the current price in relation to the previous period. The best signals are given in a sideways trend, showing how far the price has deviated from the average values. The RSI indicator appears in a separate window below the price chart. To track trading signals, levels 30, 50, and 70 are distinguished. The area above 70 levels is called the overbought zone. Here, we look for selling opportunities. The area below 30 is called the oversold zone, in which we look for buying opportunities. If there is an obvious trend, it is recommended to take the RSI signals only by trend.
Bollinger Bands indicator belongs to the trend indicators group and is based on the Moving Average. It consists of three lines. The mainline (central) is the classic moving average, and the other two are its standard deviations up and down. The combination of three lines makes Bollinger Bands very visual. The Bollinger Bands indicator is displayed directly on the price chart. The upper and lower lines of the indicator form a price channel in which the price moves. The price rebounds from the indicator lines used for trading. The Bollinger Bands indicator shows the beginning of an impulsive movement after the price exits a narrow concentration zone.
The abbreviation MACD stands for “Moving Average Convergence and Divergence”. As the name implies, the MACD indicator is based on a Moving Average with different parameters. Conditionally, it is referred to the group of oscillators but it is more of a universal indicator. It is displayed in a separate window under the price chart. It consists of two lines, one of which is represented as a histogram. One of the strongest indicator signals is divergence – the divergence of extreme values (highs/lows) of the indicator and the price chart. This signal can predict the end of a price movement and the beginning of a correction or market reversal.
Standard MT4 platform comes with a set of built-in technical indicators and you do not need to download anything. However, if you want to use custom indicators, then you have to download them from any authentic source.
Some of the authentic sources to get MT4 indicators are listed below:
Technical analysis involves the use of various tools. It is also often associated with the use of indicators, in particular, MetaTrader 4 Forex indicators. Many currency traders use Forex indicators in their daily work. They display important information that contributes to successful trading in the foreign exchange market.
MetaTrader 4 is the best trading platform because of its basic features and because it supports a huge number of indicators that you might find useful.
You do not need to spend a lot of time learning how to install custom indicators in MetaTrader 4 since everything is simple and intuitive here.
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