There are a lot of Forex advisors and algorithms in the Internet – up for grabs. In fact, an effective robot is hard to find and expensive to buy. This is not the best idea for a beginner. But the basic Forex indicators, built into the trading platform, can be used free of charge. Let’s start with them.
- What are Forex Indicators – definition for the humanities
- Types of Forex indicators in the MT4 trading platform
- How to use market indicators
Surely you’ve been dreaming about a robot which would do everything for you: take out the trash, wash the dishes, clean up cat’s mess. And it would be perfect if he traded on Forex instead of you with a huge profit. There are a lot of Forex advisors and algorithms in the Internet – up for grabs. In fact, an effective robot is hard to find and expensive to buy. This is not the best idea for a beginner. But the basic Forex indicators, built into the trading platform, can be used free of charge. Let’s start with them.
What is Forex Indicators – definition for the humanities
Forex indicators are mathematical formulas that predict the future price movement. The initial data of these formulas are past prices and volumes.
Market indicators are a technical analysis in action, i.e. an intelligent algorithm collects data about past behavior of price and trading volumes, analyzes them and provides a forecast for the future.
The results of indicator calculations are displayed graphically and imposed upon the graphs of currency pairs in the trading platform so a trader can apply them.
Technical analysis is a forecasting of price movement based on data on its behavior in the past.
Every indicator gives a trader some tips – specific patterns or crossings with the price line which are considered by a trader as the signals to the market entry or exit. In the same graph you can use a combination of indicators to get a complete picture.
Pattern is a secret meaning, which traders see in the interweaving of graphs. In a same way ancient astronomers gave names to the constellations.
Forex market indicators are not the same as advisors (expert advisors) or robots. They do not make deals instead of a trader, but give him recommendations.
Types of Forex indicators in the MT4 trading platform
There are a lot of indicators. Theoretically, every trader can create his own indicators. You can earn on the sale of indicators, so the network is full of paid offerings.
The MT4 Forex indicators can be used free of charge. These are the basic indicators that are perfectly proven. It makes no sense to buy something without using these free possibilities, so let’s start with the key indicators in MetaTrader 4.
Trend indicators – where are we going?
“Where Do We Come From? What Are We? Where Are We Going?” (1897-1898, one of the most famous paintings by French artist Paul Gauguin).
Trend indicators help to understand what a trend dominates in a particular time interval. Trend indicators add to the price graph a line, which indicates a continuation of the trend or its change simultaneously with the price movement.
The trend is a direction of the price movement on the Forex market in a certain period of time. There are up, down, sideways (flat) trends.
Trend indicators negate false market signals and show the trend clearly. Most often, traders use such indicators:
- Average Directional Movement Index;
- Bollinger Bands;
- Moving Average;
- Parabolic SAR, etc.
Oscillators – history repeats itself
“History repeats itself, first as tragedy, second as farce” (Georg Wilhelm Friedrich Hegel).
The term “oscillator” is derived from the Latin word oscillo, i.e. “to sway”. The market situation is constantly changing, the price is increasing, then it is falling – swaying. Unlike trend indicators, which follow the price, oscillators are ahead of it. They are trying to predict the future trend of the price movement based on speed and magnitude of price swings in the past. The idea that everything repeats.
Oscillators are indicators that show the levels of overbought and oversold market and predict the future direction of prices.
The oscillator by itself looks like a curved line, which is located in the bottom of the price graph. It keeps moving between defined levels: maximum and minimum. The maximum level means that the market is overbought. The minimum level – it is oversold. When the oscillator curve is close to one of these levels, the signal goes to buy or sell.
An overbought market is a situation that occurs after prices rose too high and fast, and the prices reduction is expected soon.
An oversold market is a situation where prices dropped too low and fast; the growth is expected.
Traders prefer following oscillators:
- Force Index;
- Bears Power;
- Bulls Power;
- Moving Average of Oscillator, etc.
Volumes indicators or Volumes – all things are number
“All things are number” (Pythagoras of Samos).
To get information about the Forex market is difficult since it does not have a specific location. But the MetaTrader4 terminal has a tick volumes indicator in it.
Tick is a one-time price movement in one direction or another.
The volumes indicator shows a trader a number of ticks in a given period of time. This is not the real volume of trading on the market, it is only the number of price changes.
Volumes indicator is displayed in columns.
The higher the column, the greater the price change. Tick changes give an approximate idea of the real volumes. It is necessary to know when the trend reverses. So, if the tick volumes have greatly increased, it is likely that soon the price will move in the opposite direction.
Types of volumes indicators:
- Money Flow Index;
- On Balance Volume;
Bill Williams indicators – genius can handle chaos
“Order is for idiots, genius can handle chaos” (attributed to Albert Einstein)
Bill Williams Indicators are author indicators that define the structure of the market in five dimensions. It is one of the most controversial types of indicators.
Bill Williams, a brilliant trader and developer of a separate indicators class, consider Forex to be a chaotic system. He argues that the standard prediction methods in technical analysis are meaningless. The financial market is total chaos for him, which is run by some drivers. Williams indicators are defined by these forces:
How to use market indicators
Forex indicators facilitate trading, if you know how best to use them. In following articles we will look in detail, how to read the indicators signals in the graph. And now, we have prepared some general tips:
- Combine 3-4 indicators simultaneously in the graph.
- Be ready to spend money on an effective author indicator. Do not trust sellers of “Grails”.
- Buy indicators carefully – read reviews, learn the characteristics, advantages and disadvantages.
- Do not trust indicators fully, be objective.
- Always consider the fundamental analysis. Indicators may be useless in strong fluctuations of the market at the time of important political and economic events.
We wish you successful trading with Forex indicators!