A Guide to the Best Forex Indicators MT4
The foreign exchange market is the largest in the world. It boasts of a daily volume that is calculated to be at around two trillion US dollars! As with any other market, it is constantly changing. To excel in Forex, traders need to learn how to identify what the future price movements and behaviour of the markets might be. In order to do this, traders need to implement different types of analysis.
One of the most well-known is technical analysis. This is based on assessing previous market data to determine potential future behaviour in the market. With this type of analysis traders use many tools and it is frequently associated with the use of indicators. In this article, we will provide traders with an overview of the best Forex indicators MT4 (MetaTrader 4) to incorporate into your trading in 2021.
What is a Forex Indicator?
Forex indicators are tools that allow traders who use price action strategies to better understand what is happening in the market and to predict what direction the price may take next.
It is any type of metric with a value derived from a general activity of the price of a stock or other financial asset. As part of technical analysis, such indicators are used by traders to predict future price levels or the overall price direction of a particular security. They do this by analysing previous patterns or previous market performance.
The most common indicators include:
Technical indicators are differentiated by the simple fact that they do not analyse fundamental factors that can affect the price. Fundamental factors include earnings, revenue and profit margins. Active Forex traders use technical indicators most extensively, because these indicators are designed to analyse and detect price moves in the short-term.
Many indicators offer their results directly inside of the price chart. This makes the analyst's job easier when they are comparing the indicators with the market price. Some indicators, such as oscillators, offer their results in a separate window.
Many long term traders or investors will not pay much attention to most technical indicators. This is because they don't reveal much information about the fundamental factors that can also affect price. However, long term traders are still able to benefit from using technical indicators, because they are helpful in finding ideal entry and exit points, through analysing the long-term trend.
The Best Forex Indicators MT4
Different indicators serve different purposes and, therefore, are more suitable for some trading strategies than others. For this reason, there is no real answer to the question of which Forex indicator is best. However, there are many indicators all traders should be aware of. In the following sections, we will take a look at some of the best free Forex indicators found in MT4:
- Money Flow Index or MFI
- On-Balance Volume
- Accumulation/Distribution Line
- Bollinger Bands
- Market Facilitation Index (BW MFI)
One of the most popular Forex indicators in MT4 is MACD - The Moving Average Convergence Divergence (MACD) indicator. This is a trend-following momentum indicator, which demonstrates the relationship between two moving averages of prices.
The MACD is calculated by subtracting the 26 session Exponential Moving Average (EMA) from the 12 session EMA. In addition, a 9 session EMA (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 drops below the signal line, this is a bearish signal that suggests it may be a good time to sell. On the other hand, if the MACD indicator rises above that signal line, then your indicator is showing a buy signal.
Most FX traders wait for a confirmed cross over the signal line prior to entering into a position, in order to avoid entering a position prematurely.
The second method is '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, which is a sign that the security is overbought and will return to normal levels.
Traders usually are watching for a shift either under or over this zero line, because this informs traders about the short-term average position relative to the long-term average position.
Also, when the MACD finds itself above the zero mark, the short-term average is sitting above the long-term average. This signifies momentum in an upward direction. The opposite is true when the MACD is below zero. Actually, this zero line often serves as an area of support and resistance for this indicator.
Depicted: Admirals (Formerly Admiral Markets) MetaTrader 4 - GBPUSD Daily Chart. Date Range: 4 February 2020 - 26 March 2021. Date Captured: 26 March 2021. Past performance is not necessarily an indication of future performance.
Money Flow Index (MFI)
The Money Flow Index (MFI) is a momentum Forex indicator in MT4 that utilises an instrument's price and volume in order to make a prediction on the reliability of the current trend. Since the Money Flow Index adds trading volume to the Relative Strength Index (RSI), it is sometimes referred to as a volume-weighted RSI.
Arriving at the index figure demands several steps. It is recommended by various professional traders to use a 14 day period for your calculations. The first step we take is defining the typical price in the following way:
- (Low+High+Close) / 3
The next step is to calculate the Raw Money Flow:
- Volume x Typical Price
Then to determine the Money Flow Ratio you need to perform the following sum:
- (14 period Positive Money Flow) / (14-period Negative Money Flow)
Positive values of money are created when this typical price is larger than the typical price value from before. 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, that is: 100 - [100 / (1 + Money Flow Ratio)]. It is necessary to mention that many traders are monitoring and waiting for a moment in which the MFI moves in a direction opposite the price. This divergence can frequently be a leading indicator of a change in the current trend.
Depicted: Admirals MetaTrader 4 - EURUSD Daily Chart. Date Range: 4 February 2020 - 26 March 2021. Date Captured: 26 March 2021. Past performance is not necessarily an indication of future performance.
The On Balance Volume (OBV) is a Forex indicator in MT4 which is used to measure the negative and positive volume flows in a specific security, relative to its price over a period of time. 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.
Additionally, this measure goes beyond the basic volume measure. It combines price movement with volume. The logic that this indicator is based on is that volume will precede a price movement. As such, if a security sees a rising OBV, it is a signal that the volume is growing when there are upward movements in the price. Conversely, when a security is seeing a decreasing OBV, this suggests that its volume is increasing when there are downward movements in price.
Depicted: Admirals MetaTrader 4 - USDJPY Daily Chart. Date Range: 4 February 2020 - 26 March 2021. Date Captured: 26 March 2021. Past performance is not necessarily an indication of future performance.
The Accumulation/Distribution Line is one of the most commonly utilised MT4 Forex indicators. This one looks a little bit like the On Balance Volume indicator. However, it has one crucial 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 provide a more accurate illustration of money flow compared with 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 within the specific security.
Depicted: Admirals MetaTrader 4 - USDCHF Daily Chart. Date Range: 4 February 2020 - 26 March 2021. Date Captured: 26 March 2021. Past performance is not necessarily an indication of future performance.
Bollinger Bands is a Forex indicator in MT4 that consists of two bands, or lines, which sit two standard deviations below and above a moving average, which appears between the two bands as a line. When the bands widen, this indicates greater volatility, whereas when the bands move closer together, this indicates less volatility.
Depicted: Admirals MetaTrader 4 - AUDUSD Daily Chart. Date Range: 4 February 2020 - 26 March 2021. Date Captured: 26 March 2021. Past performance is not necessarily an indication of future performance.
Market Facilitation Index (BW MFI)
The Market Facilitation Index (BW MFI) is a Forex indicator in MT4 that offers the change in price for a specific tick. The values of this indicator are simply an indicator of change.
When the BW MFI becomes larger and its volume increases, this suggests that traders are opening more positions, the move has begun and it will begin to pick up pace.
Additionally, this also suggests that the number of traders entering this exact market is increasing. When this indicator falls, the volume does too. This, in turn, means that traders in this market are losing interest.
The BW MFI can rise substantially, however the volume can fall. This suggests that this exact market is not being supported by large amounts of volume from specific traders. In turn, the price will adjust as traders' speculations change.
When the BW MFI falls, but the volume rises, there is an intense battle among bulls and bears. This is characterised by immense buy and sell volume, while the price remains mostly at the same level. This is because the forces are almost equal, resulting in a stable price in that moment. Eventually, one party in this battle wins (bulls or bears). Often, the break will indicate whether the trend will be upheld or if it is ending.
Depicted: Admirals MetaTrader 4 - USDCAD Daily Chart. Date Range: 4 February 2020 - 26 March 2021. Date Captured: 26 March 2021. Past performance is not necessarily an indication of future performance.
The CCI helps inform traders' decisions to enter a long or a short position. This Forex indicator in MT4 features very little lag, and traders believe it has a high accuracy rate. This simple indicator is a great choice for Forex traders who want to keep their trading strategy simple, while avoiding complicated indicators.
The default value for the CCI is 14. The higher the value that is set, the indicator will likely experience more lags, though a smaller number of false trading signals.
This is one of the most popular Forex indicators in MT4. Traders enjoy it because it shows a direct signal for selling or buying.
When the CCI crosses upwards through the +100 line, this is considered to be a buy signal. Conversely, when it crosses downwards through -100, it is considered to be a sell signal. There is one key point to remember with this indicator: if the signal contradicts the overall current trend of the market, you shouldn't enter a trade. Using trailing stop losses in conjunction with this indicator can also be a very good risk management strategy.
Depicted: Admirals MetaTrader 4 - EURGBP Daily Chart. Date Range: 4 February 2020 - 26 March 2021. Date Captured: 26 March 2021. Past performance is not necessarily an indication of future performance.
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MetaTrader 4 vs MetaTrader 5
MT4 was created specifically for Forex traders and is considered the gold standard when it comes to Forex trading platforms. MetaTrader 5 (MT5), on the other hand, was created to give traders access to stock, CFDs and futures. Let's look at each platform in detail:
MetaTrader 4 has a huge range of trading capabilities for Forex traders. It is suitable for all types of traders - whether you are a complete beginner or a seasoned professional. The MT4 platform supports not only standard Forex indicators, but also custom indicators, that users can easily share. Those custom indicators are written in MQL4 programming language - and most of them are can be found for free.
MetaTrader 4 offers three different execution modes for making trades. These include:
- Instant Execution
- 2 market options
- 4 pending options
- 2 stop orders
- 1 trailing stop function
The fast trading functions of MT4 allow traders to execute their orders directly from the chart with just a click. It also offers a built-in tick chart which allows traders to accurately determine entry and exit points.
MetaTrader 4 offers a rich range of functionality that allows traders to implement many kinds of trading strategies on the Forex market.
Installing Custom Indicators on MetaTrader 4
Installing custom indicators on this trading platform is quite simple. In order to add indicators, just follow these simple steps:
- Copy the custom indicator
- Open the data folder
- Open the MQL4 file
- Open the indicators file
- Paste the copied data
- Restart the MetaTrader 4 platform
MetaTrader 5 comes with more features, including the opportunity to trade stocks and Exchange-Traded Funds (ETFs). While it also features the user friendly interface of MT4, it comes with additional timeframes and other services.
- MetaTrader 5 offers 21 timeframes (MT4 offers 9):
- 11 types of Minute Charts
- 7 types of Hourly Charts
- 365 Daily, Weekly and Yearly timeframes
- MetaTrader 5 offers six types of pending orders (MT4 offers 4):
- Buy stop
- Buy limit
- Buy stop-limit
- Sell stop
- Sell limit
- Sell stop-limit
The programming languages of each platform (MQL4 for MetaTrader 4 and MQL5 for MetaTrader 5) are developed to create trading robots and other features like technical indicators, scripts and function libraries.
- More simplistic than MT5
- Used to develop trading programs based on the order system
- Trading operations require multiple functions to complete
- MT4 programs cannot run on MT5 programs
- Efficiency and ease of use
- Ability for traders to write and alter scripts
- Trading operations are completed via single-function trading requests
Some more general differences between the two platforms includes:
- MT4 allows hedging, while MT5 allows both hedging and netting
- MT4 offers 30 technical analysis tools, while MT5 offers 38
- MT4 doesn't offer Market Depth nor an Economic Calendar, while MT5 does
It may seem like MT5 offers more features than MT4 and is the better trading platform. However, it comes down to personal preference.
Specifically, if you're only interested in Forex trading you may find MT4 to be the better choice. However, if you are looking for more versatile software which allows you to trade a range of financial instruments, MT5 might be for you.
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About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.