The foreign exchange market is the largest in the world. It has a daily volume evaluated at around two trillion dollars, and as with any other market, it is constantly changing. In order to succeed in Forex, a trader must learn how to predict future market directions, price movements and behaviour. In order to do this, traders need to implement different types of analysis.
One of the most popular and useful is technical analysis. It is based on examining past market data to identify possible upcoming market behaviour. Technical analysis requires the use of various tools, and it is also often associated with the application of indicators, especially Forex MetaTrader 4 indicators. Before we explore the MT4 indicators, we're going to answer the question - what is a technical indicator?
A technical indicator is any kind of metric whose value is derived from any general price activity in either stocks or assets. As part of technical analysis, such indicators aim to predict future price levels or the overall price direction of a particular security by looking at past patterns or past market performance. The most common indicators include MACD, Stochastics, Relative Strength Index, Money Flow Index and also Bollinger Bands. There is also a huge variety of MetaTrader 4 custom indicators.
Technical indicators are distinguished by the fact that they do not actually analyse any fundamental elements, such as revenue, earnings and profit margins. In fact technical indicators are used most extensively by active Forex traders in the market, as they are developed primarily for analysing short-term price moves. To a long-term investor or trader, the majority of technical indicators are mostly irrelevant, because they don't actually do anything to shed light on the underlying fundamental factors which could affect price moves. Long-term traders can still benefit from technical indicators, as they help to define good entry and exit points by performing an analysis of the long-term trend.
We will now move onto the best MT4 indicators, as MetaTrader 4 is the most popular trading platform to work with.
MetaTrader 4 has a huge range of trading capabilities for Forex traders or brokers. It is suitable for all types of traders - whether you are a novice, advanced trader or even a professional.
The MT4 platform supports not only standard technical indicators, but also custom indicators that users can easily share. Those custom indicators are written in MQL4 programming language - and most of them are free MT4 indicators. The process of installing custom indicators onto your trading platform is much simpler compared to a basic download procedure. All you have to do is copy the custom indicator, open the data folder, open the MQL4 file, then the indicators file, and simply paste the copied data. Finally, you just need to restart the MetaTrader 4 platform.
Some traders can get confused, as they do not know how to add indicators to MetaTrader 4 charts. This is actually much simpler than installing indicators. All you need to do is to locate the indicator you want to use from the Navigator window and then follow these three steps:
With the MetaTrader 4 platform, you do not have to be worried or confused, as this platform provides all you require for successful Forex trading.
We'll now present you with the best working indicators in the MT4 platform. They can enhance your trading experience and facilitate your technical analysis. Let us take a look:
Moving Average Convergence Divergence (MACD) is an MT4 trend indicator - a trend-following momentum indicator to be precise.
It demonstrates the relationship between two moving averages of prices. The method of calculating the MACD is simple - you just subtract the 26 day Exponential Moving Average (EMA) from the 12 day EMA. In addition, a nine day EMA of the MACD, known as the signal line, is then plotted on top of the MACD, operating as a trigger for sell and buy signals.
Technically, there are three ways that MACD can be interpreted.
The first one is crossovers. When the MACD falls under the signal line, it is a bearish signal that shows that it may be time to sell. Alternatively, when the MACD rises over the signal line, your indicator presents a bullish signal which indicates that the price of the specific asset is most likely to experience upward momentum. Most FX traders wait for a confirmed cross over the signal line prior to entering into a position, in order to avoid getting faked out or entering into a position prematurely.
To further explore MetaTrader 4 indicators explained, we'll introduce the second method - divergence. This is when the security price actually diverges from the MACD which indicates the end of the current trend.
The last method is the 'Dramatic Rise'. This is when the MACD rises severely. The shorter moving average pulls away from the longer-term MA, and it is a sign that the security is overbought and will return to normal levels. Traders watch for a move over or under the zero line, as this indicates the position of the short-term average in relation to the long-term average. Additionally, when the MACD is above zero, the short-term average is over the long-term average, and that signifies upward momentum. The opposite is true when the MACD is below zero. In fact, the zero line frequently acts as an area of support and resistance for this FX indicator.
As for this MetaTrader 4 indicator, Money Flow Index (MFI) is a momentum indicator that utilises an instrument's price and volume in order to predict the reliability of the current trend. We clarified the MT4 indicators download procedure so if you wish to install MFI you know how. Since the Money Flow Index adds trading volume to the Relative Strength Index, it is sometimes referred to as volume-weighted RSI.
So, arriving at the index figure demands several steps. We suggest using a 14 day period for your calculations.
The first step is to define the typical price as follows: (Low+High+Close) / 3. The next step is to calculate the Raw Money Flow - i.e Volume x Typical Price. Then to determine the Money Flow Ratio you need: (14 period Positive Money Flow) / (14-period Negative Money Flow).
Positive money values are generated when the typical price is greater than the prior typical price value. In fact, the sum of positive money over the number of periods, mainly 14 days, is the positive money flow. The opposite is true for negative money flow values.
The last step is the Money Flow Index, one of the best indicators for MetaTrader 4. That is: 100 - [100 / (1 + Money Flow Ratio)].
It is important to outline that a lot of traders watch for opportunities that arise when the MFI moves in the opposite direction of the price. This divergence can frequently be a leading indicator of a change in the current trend.
The On Balance Volume indicator (OBV) is applied to gauge the positive and negative flow of volume in a security in relation to its price over time. On a side note, this indicator is one of the MT4 indicators free. It is a simple measure that keeps a cumulative total of volume by either adding or subtracting each period's volume, depending on the price movement. Furthermore, this measure expands on the basic volume measure by combining both price movement and volume.
The logic behind this indicator is that volume precedes price movement, so if a security is seeing an increasing OBV, it is a signal that volume is growing on upward price movements. In turn, decreases mean that the security is seeing increasing volume on down days.
Accumulation/Distribution Line is one of the most commonly utilised Forex MT4 indicators to define the money flow of a security is the accumulation/distribution line, also referred to as the A/D line. It resembles the On Balance Volume indicator, but with one distinction. Instead of solely considering the closing price of the security for the period, it also takes into account the trading range for the period. Therefore, this is believed to give a more accurate illustration of money flow than OBV. Additionally, the line trending up is a sign of increasing buying pressure, as the instrument is closing the halfway point of the concrete range. In turn, the line trending downward is a sign of increasing selling pressure in the specific security.
The application of Forex indicators is a daily practice of the majority of currency traders. They can display important information that may benefit your trading experience. MetaTrader 4 is the best trading platform not only for its basic features, but also because it supports masses of indicators that you might find useful. In addition, you do not need spend a long time learning how to install custom indicators in MetaTrader 4, as everything is simple and intuitive.