Any Forex indicator represents an analysis of the price chart, carried out by a certain mathematical relation and displayed in a chart form for better understanding. Fully automated trading systems are created on the base of the indicators, and they are widely used in manual trading.
There are 3 main types of indicators:
- Oscillators (Stochastic oscillator, MACD, RSI, etc.) work well during a flat market when the price moves in a horizontal corridor for a long time.
- Trend indicators (Parabolic SAR, MA, Bollinger Bands, etc.) allow to successfully enter the market during the pronounced movements of the price chart.
- Psychological indicators. These indicators for MT4 will not predict level to set SL or an ideal point to open a position, but they rather provide a more general analysis of the situation prevailing in the financial market. Psychological indicators summarize the analytical predictions, opinions of the press, the market reaction to important news. Their use in trading is recommended for compiling a long-term trading plan for the trader.
There are dozens of the most popular indicators of different types in MetaTrader4. In addition, the users are able to add any other indicator to the standard set. They just need to copy a desired file with the .mq4 extension to the Indicators folder.
Indicators for MT4: basic mistakes made by the beginners
Almost any beginner in their process of establishment as a trader passes a stage where trading itself seems unthinkable without the use of indicators. They are torn between different trading systems, trying to find the best option, cluttering the screen with lots of indicators. Thus, lucrative trading becomes simply impossible.
When using indicators in trading, it is not recommended to use more than 2-3 indicators at once. Increase in their number will make it impossible to analyze the situation and may cause false alarms. For example, Stochastic performs well during a flat market, but in the trend case it can “freeze” in oversold/overbought area for a long time, confusing the novice trader.
Indicators for MT4 can and should be used in trading, but it is desirable that their values were only part of the trading system and were confirmed, for example, with chart building. In such a case, the probability of working out the received signal multiplies.
How to use indicators for MT4 in everyday trading
You can create two types of trading systems using MT4 indicators:
- Strategy based solely on the indicators reading. Ideal for trade automation. To develop such a trading system, you need a thorough knowledge of the principles of the indicator operation and the ability to correctly interpret its reading. Before using the developed strategy, it should be thoroughly tested on history.
- System where indicator plays an auxiliary role. In this case, the decision on opening a deal will be taken by the trader depending on, for example, technical analysis, and the indicator will act as a filter for the received signal.
System based on Alligator (by Bill Williams) can be regarded as an example of a viable strategy of the 1st type. It uses only three moving averages with different periods, with a shift along the x axis. In any case, you should remember that the indicators are not a panacea, but rather a powerful tool capable to increase efficiency of trading if applied properly.Social button for Joomla