Beginner MetaTrader indicator — a very simple custom indicator that displays the local tops and bottoms on the chart with the red and blue dots near them. It analyzes the maximum and minimums on the certain period and then compares them to the range, in which the currency pair was trading, and if the top/bottom is significant enough, it marks it with the dot. This indicator redraws itself and thus should not be used for generating trading signals as the dots' positions may change. Both MT4 and MT5 versions of the indicator are available. Input parameters AllBars (default = 0) — the amount of bars to use for calculations (0 — all bars). There is no reason to change it. Otstup (default = 30) — the number of percents that are cut from the range before comparing maximums and minimums to determine their significance. The higher this number is the more frequent are the dots. Per (default = 9) — the period, on which the maximums and minimums are calculated at given moment. The higher is the number the fewer dots are drawn. Indicator It is very important to understand that this indicator cannot be used for actual trade signals. For example, you cannot sell when the red dot appears or buy when the blue one is drawn — you will end up losing. This indicator can only be used to quickly find the support and resistance levels if you trade some breakout system or to develop your own indicators.
BB MACD MetaTrader indicator — is a basic MACD (Moving Average Convergence Divergence) indicator variation, which helps in detecting the trend change points and measuring the current trend's strength. The indicator is drawn in the separate window on the chart and consists of two lines (blue and red) and the dots, which can be either green or magenta. The change of the dots' color is a good signal provider, while the width of gap between the two lines indicates the strength of the current trend. This indicator is available for MT4 and MT5. Input parameters FastLen (default = 12) — the period of the fast moving average (the one with the lowest period), which is used in this indicator's dots calculations. SlowLen (default = 26) — the period of the slow moving average (the one with the highest period), which is used in this indicator's dots calculations. Length (default = 10) — the period of the moving average and the standard deviation indicators that are used in this indicator's lines calculations. barsCount (default = 400) — the maximum amount of bars on the chart to apply these calculations to. StDv (default = 2.5) — weight multiplier for the standard deviation indicator in its part in the calculations compared to the moving average. EnableNativeAlerts (default = false) — if true, MetaTrader's native pop-up alerts will be used on BB MACD color change. EnableSoundAlerts (default = false) — if true, sound alerts will be used on BB MACD color change. EnableEmailAlerts (default = false) — if true, MetaTrader's email alerts will be sent on BB MACD color change. Email should be properly configured in MetaTrader via Tools->Options->Email. EnablePushAlerts (default = false) — if true, MetaTrader's push notification alerts will be sent to your device upon BB MACD color change. Notifications should be properly configured in MetaTrader via Tools->Options->Notifications. SoundFileName (default = "alert.wav") — sound file name to play on alert if EnableSoundAlerts is set to true. As the chart example suggests, the signals to buy are when the magenta dots turn into the green ones and the signal to sell is when the green dots become magenta. Trading is better to be performed when both blue and red lines are rather wide.
Overview The Ichimoku Kinko Hyo, Ichimoku Cloud, Equilibrium Chart was developed by Japanese newspaper writer Goichi Hosoda in 1968, and it is more familiar to futures and equity traders than to forex traders. In spite of its lacklustre popularity, however, the indicator is powerful, and innovative, worthy of greater attention than it receives currently in the trader community. Note: Past performance is not indicative of future results. To understand how this indicator functions, we need to recall that the ichimoku cloud is a strategy more than an indicator. It combines two support/resistance levels to create a cloud, or reversal zone, and depends on the crossover of the tenkan and kijun sen to generate trade alerts. But since it is a strategy, it is not as versatile as some of the other, more basic tools like moving averages or the RSI. Thus it performs better in a more specific market type in which it is more effective as a strategy. A typical trading scenario is generated when the red and blue lines generate a crossover, as observed on first and second vertical bars on the chart above. The purple and reddish dotted, areas, termed the cloud, or kumo, function as support/resistance levels where a possible reversal is indicated. Let’s a take deeper look at how the indicator is calculated. Calculation The Ichimoku Kinko Hyo indicator is calculated from four components with the following formulae: 1. Tenkan Sen: (Highest High + Lowest Low)/2 over 7-8 bars 2. Kijun Sen: (Highest High + Lowest Low)/2 over the past 22 bars 3. Senkou Span A: (Tenkou Sen + Kijun Sen)/2 plotted over 26 bars into the future 4. Senkou Span B: (Highest high + Lowest Low)/2 over the past 44 bars, plotted 22 bars ahead Tenkan sen and kijun sen are essentially moving averages, and are used in a similar way with tenkan sen being the more sensitive of the two. The senkou span A and B are the main features of the ichimoku indicator separating it from an ordinary oscillator. These two values come together to create a cloud, or kumo, which is used a support or resistance level by traders depending on market conditions. Usage of Ichimoku Kinkyo In spite of the apparent of complexity, the Ichimoku cloud is very simple and easy to use once you get a grasp of how it works, and what it is. As we mentioned at the beginning, the indicator is more of a strategy than an indicator. It combines four separate tools into a single visual framework for trade decisions. Trade signals are generated as the tenkan sen moves below or above the slower moving kijun sen, in a way very similar to the interaction of moving averages in the MACD, or the stochastics indicators. A bearish trend is indicated by the tenkan sen moving below the kijun sen, and vice versa. Once such a signal is generated, and we anticipate the development of a trend and open a position, the kumo (cloud) of the indicator comes into the picture. As mentioned elsewhere, the cloud is the support/resistance zone of the trade. In a bearish position, we expect that the price action will remain outside of the kumo most of the time, and if it remains in that region for too long, it may be time to reconsider or close the trade. Conversely, we will maintain our position for as long as the support/resistance zone established by the cloud holds. This makes ‘letting profits run’ a much easier task than it is with a simple crossover/ support/resistance strategy, since the problems created by volatility are handled better by the ichimoku cloud. Take profit orders can be placed at any point outside of the cloud. Stop-loss orders should be placed in or at the edge of the cloud, and money management methods must always take into account the possibility of maximum losses being incurred as the cloud support fails. Conclusion There are a couple of conclusions that we can draw from our discussion of the indicator. The Ichimoku cloud indicator is a complex tool that provides a lot of information when it is depicted on the chart. Two moving averages, and a layered support/resistance area makes the implementation of complex strategies a possibility, but also renders the addition of any extra moving averages, vertical Fibonacci levels, or arbitrary support/resistance data superfluous. Understanding the components of the indicator, and the rationale behind its usage will be helpful in avoiding noise on our charts. If we possess credible information about where order clusters are, it is not a good idea to utilize the ichimoku kinko hyo. The kumo, or cloud component of the indicator is useful in conditions of high market volatility where strict adherence to single support/resistance levels on the chart may result in lots of false signals and small failed trades. By providing a zone, instead of a line, this indicator can be helpful in isolating more reliable signals from noise. We could easily construct a support/resistance zone with multiple Fibonacci indicators, or simple support/resistance lines, and decrease the number of generated signals by refusing to act on mere breaches of the outer and inner lines. The strength of the Ichimoku cloud against such a strategy is automation and speed. You have to depend on the same basic formulae in all market conditions, with little manual intervention,but at the same acquire greater flexibility in your decisions. In conclusion, we can summarise the advantages of the Ichimoku cloud as concision, automation, and simplicity. Its disadvantages are a lack of customizability, and blanket coverage for lots of possible market configurations. If you think that the particular market situation is suitable for trading with two support/resistance lines, and two moving averages, the indicator is a perfect choice. If you conclude that other or more tools are necessary, it is a good idea not to take much time with the Ichimoku cloud.
Basing Candlesticks MetaTrader indicator — is an automatic indicator that detects and marks basing candles on the chart. A basing candle is a candle with body length less than 50% of its high-low range. The indicator highlights the basing candles using histogram lines (in MT4) or custom candles (in MT5) directly in the main chart of the platform. The percentage criterion can be changed via input parameters. You can also turn on alerts for when a new basing candle appears. Input parameters Percentage (default = 50) — percentage value to compare the ratio of the candle's body to its high-low range. TriggerCandle (default = 1) — candlestick number to check for alerts. "1" is the latest fully formed candlestick. "0" is the current candlestick, which hasn't yet finished forming. EnableNativeAlerts (default = false) — if true, MetaTrader's native pop-up alerts will be used on new basing candle appearance. EnableSoundAlerts (default = false) — if true, sound alerts will be used on new basing candle appearance. EnableEmailAlerts (default = false) — if true, MetaTrader's email alerts will be sent on new basing candle appearance. Email should be properly configured in MetaTrader via Tools->Options->Email. EnablePushAlerts (default = false) — if true, MetaTrader's push notification alerts will be sent to your device upon new basing candle appearance. Notifications should be properly configured in MetaTrader via Tools->Options->Notifications. AlertEmailSubject (default = "") — additional text for alert's email subject. AlertText (default = "") — additional text for alerts. SoundFileName (default = "alert.wav") — sound file name to play on alert if EnableSoundAlerts is set to true. Examples MT4 MT5 Basing candles represent the period of indecision and consolidation. They are also important in supply and demand analysis techniques of technical analysis.
Aroon Up & Down MetaTrader indicator — detecting the local tops and bottoms of the chart it was applied to, this indicator provides the signals for buying and selling the currency pairs when they rise up from the bottom and fall from the top. The cross of the indicator lines provide a good signal to take the profit or to exit with a minimum loss. This indicator can send sound and e-mail alerts on the cross. It is available in both MT4 and MT5 versions. Input parameters AroonPeriod (default = 14) — the period in chart bars for the indicator to look up for the bottoms and the tops. As with many other indicators, the higher is the period the smoother the output lines are, the lower the period is the more signals are generated. MailAlert (default = false) — if true then the e-mail alert will be sent on cross according to the mail options of your MetaTrader platform. SoundAlert (default = false) — if true then a simple sound and visual alert will be activated on cross. As you see, trading is quite easy if you follow this indicator. Just buy when the blue line rises from the bottom and the red one is near the middle of the range; sell when the blue line falls from the top and the red one is near the middle of the range. Exit for profit or for minimum loss when the red line reaches the opposite side of the range.
3rd Generation Moving Average is an advanced version of the standard moving average (MA) indicator for MetaTrader. It implements a rather simple lag-reducing procedure based on the longer MA period. The method was first described by M. Duerschner in his article Gleitende Durchschnitte 3.0 (in German). The presented version uses λ = 2, which provides the best possible lag-reducing. Higher λ increases similarity with the classic moving average. The indicator is available for both MT4 and MT5. It does not require using any DLL. Input parameters MA_Period (default = 50) — a period of the 3rd generation moving average. MA_Sampling_Period (default = 220) — a sampling period of the 3rd generation moving average. Should be at least 4 times greater than MA_Period. MA_Method (default = MODE_EMA) — method of the moving average. MA_Applied_Price (default = PRICE_TYPICAL) — applied price for the moving average. As you see, the 3rd Generation MA (red line) offers slightly less lag than the conventional EMA (blue line) and reacts to the price changes faster. Unfortunately, it is still prone to lag and may produce false signals. You can use the 3rd Generation Moving Average Forex indicator the same as the standard moving average — to detect the current trend direction. This indicator is used for trading in the Adjustable MA 3G expert advisor for MetaTrader.
WRB Hidden Gap MetaTrader indicator — detects and marks WRB. WRB is either a Wide Range Bar (a very long bar) or Wide Range Body (a candlestick with very long body). As WRB by themselves do not offer much information, the indicator also detects Hidden Gaps based on the WRB. It also shows filled and unfilled Hidden Gaps differently, so that it is easier to see the current market situation at a single glance. Optional alerts can be used to get signals when the current price first enters an unfilled Hidden Gap. The indicator is available for both MT4 and MT5. Input parameters: UseWholeBars (default = false) — if true, the indicator will search for Wide Range Bars instead of Wide Range Bodies. WRB_LookBackBarCount (default = 3) — how many bars to use in WRB comparison. The bigger the value the rarer and wider detected WRB. WRB_WingDingsSymbol (default = 115) — a symbol used to mark WRB. A small diamond by default. HGcolor1 (default = clrDodgerBlue) — the first (default) color for Hidden Gap rectangles. HGcolor2 (default = clrBlue) — the second color for Hidden Gap rectangles. HGstyle (default = STYLE_SOLID) — line style for the Hidden Gap rectangles. StartCalculationFromBar (default = 100) — number of bars to look back to mark up the Wide Range Bodies and Hidden Gaps. HollowBoxes (default = false) — if true, the rectangles marking the Hidden Gaps will be empty, otherwise — filled. DoAlerts (default = false) — if true, alerts will be enabled when price enters a Hidden Gap territory. The chart shows an example of Hidden Gap markup on the EUR/USD daily timeframe with default settings. The cyan diamonds are drawn inside WRB bars. Hidden Gaps are depicted using light blue and blue rectangles. Unfilled Hidden Gaps are shown with rectangles spanning past the right edge of the chart. Hidden Gap rectangles change color when an unfilled Hidden Gap of another color currently exists and intersects with a new Hidden Gap. The image shows only Wide Range Bodies (UseWholeBars = false). As you can see, there is not much difference when switching to Wide Range Bars (UseWholeBars = true): This indicator does not generate any trading signals. It offers information about price action to aid a trader with entry and exit signals generated by some other strategy. WRB bars are nearly meaningless, but only WRB can show a Hidden Gap. A Hidden Gap, in its turn, can be treated as a sort of pivot or support/resistance zone. Hidden Gaps can also be treated as the usual price gaps (weekly, for example). An entry signal (by some trading system) coinciding with the price entering a Hidden Gap rectangle can be considered confirmed, while the opposite edge of the rectangle can be used as a target level. If your system generates a trade outside the Hidden Gap territory, the latter can be used either as take-profit or as stop-loss.
Ichimoku combines a set of trending indicators and projects a unique “cloud” of anticipated resistance and support points to arrive at its take on market activity. As with any set of indicators, specific intersections between the various items produce high-probability trading signals, subject to the trader’s interpretation and bolstered by his experience using this novel tool. Experience has shown that this system works more reliably with longer timeframes, making it more suitable for position, rather than, day traders. The longer periods help to eliminate market “noise”. Trading keys revolve around those instances when pricing candlesticks traverse over and under the various oscillating components. Newcomers often wince, due to the visual complexity presented, but once the newness passes, most appreciate how each part works in unison over time. From a forex perspective, let’s begin by reviewing the 4-Hour chart for the “EUR/USD” currency pair presented below: Here is a brief description of the four component parts presented above: Kumo Cloud: The shaded area represents the “cloud”, which oscillates between orange and red. Transition points are indicative of imminent changes in pricing behavior, but the borders depict projected support and resistance, derived from previous pricing activity. Traders key on those instances when candlesticks pierce the “cloud” or when various indicator lines traverse through the clouded sections; Tenkan-sen and Kijun-sen: These moving averages are calculated from previous highs and lows over 9 and 26 periods, respectively. They behave much like other dual-line scenarios where one line is quicker than the other. The “Green” line, or Tenkan-sen, is the quicker of the two. Trade alerts occur when it intersects with other components, while its slope is sometimes indicative of momentum; Chinkou-span: In this case, current pricing behavior, based on current closing prices, is moved backward 26 time periods. Experience has shown that, if Sellers or Buyers are dominating the action, its relative position to candlestick data indicates a type of market sentiment. Its position relative to the cloud can also be read as either a positive or negative signal, as well. Commentaries on the forex market from Asia typically focus on where the pricing candlesticks are relative to the Kumo Cloud. Conservative traders can use this simple rule to gauge high-probability entries and exits in the forex market, as demonstrated in the annotated example of the same chart shown below: In this example, the entry positions occur when the candlesticks have risen above the cloud and both moving-average lines (Note the two “Green” circles). The exit points are then delivered when the price closes below one of the two indicator lines (Note the two “Red” circles). With this simple trading formula, two favorable trades occurred, but volumes have been written describing a host of other signals that this useful tool can reveal, but more study is required. Of course, no trading system is ever correct all the time. As much as we wish it were not so, the past is never a guarantee of future results, but a trader’s objective is to gain an “edge”. A “60/40” ratio is all that is needed to be successful, but discipline, prudent money and risk management principles, and emotional control can help. If “one view” helps, let Ichimoku guide you.
The yield curve is the line that shows determined interest rates of bonds with different maturity levels but with equal credit. Often, it is reported to compare set periods such as six months, two years, and three decades. As it is the best indicator of a change in the market, it’s best to have an extensive understanding on it. So, to dish you some info, here’s more on the topic. Shape of the Yield Curve On a graph, the yield curve is usually sloping asymptotically. It goes in the direction that’s either upward or downward depending on factors including the maturity of bonds and marginal increases. Mainly though, it is influenced by the laws of supply and demand and tends to move continually to reflect the market’s state. Three Types of the Yield Curve Flat Curve A flat curve means that there is no movement and it’s due to there not being a clear projection of the trend. If you spot it, you are given a hint that investors along with other matters on the market are uncertain with how their short-term trades will end. Inverted Curve If it’s apparent that there won’t be a break from losses later on and that things will just get worse, an inverted curve is shown. This signals investors to sell their interest rates and use the money they acquired from it for securities. Steep Curve With a steep curve on a graph, there are a number of indicators that indicate that the economy will improve drastically. Having this on a graph is a good thing especially to investors who are looking to put in more money in the industry. The Yield Elbow On the yield curve, it is the point that suggests that the highest interest rates have been achieved. More importantly, it is a representation of the time to realize the maximum return of various kinds of investments. Because of what it shows, investors feel less reluctant to take risks during a particular period. The Segmented Market Hypothesis A theory concerning the yield curve is the segmented market theory. This is the argument that explains that any financial group is not substitutable. For instance, it is you, the investor, who affect the flow of prices in the forex industry the most. Moreover, the segmented market hypothesis provides a discussion on the dependency of short-term and long-term markets on each other. According to it, the investor’s decision on what investments to make needs to be carefully thought-out. Having an idea of what the yield curve is, its three types, and the yield elbow will help you make wiser investments in the forex market. The currency exchange rates may rise and fall but if you are familiar with the trend for a given season, you could predict outcomes. As a result, you get to bag more value for your money.
Multi timeframe forex trading is essentially aligning your trade to flow in the direction of the larger wave, since the larger wave can take you in the correct, and often larger trend. While most of the time we see discrepancies between the various timeframes, there are occasions such as the trade below, which prove the effectiveness of this trading strategy. On the Metatrader 4 platform we have the default 1min, 5min, 15min, 30min, 1 hour, 4 hour, daily, weekly and monthly charts, so looking at multi timeframes is easy. Below we will apply multi time frame analysis on Ichimoku charts using 1 hour/4 hour/daily charts, starting with the largest timeframe, and entering the trade on the smallest timeframe: USDCAD Daily Chart In this USDCAD daily chart, we note a distinct kumo break 2 bars ago, in the right side blue circle. This happens right about the same time when the Chikou Span breaks above price, circled to the left. The bullish momentum is strong but we will be careful of the red horizontal line resistance, which is the recent high. Next we visit a smaller timeframe, the 4 hour charts. USDCAD H4 Chart Again, we see strong bullish setups. In the left circle, Chikou Span broke out of the kumo. In the centre circle, we see a Kumo break, and up ahead on the right circle we see a bullish kumo twist. Next we visit the 1 hour charts. USDCAD H1 Chart With the daily and 4 hour charts pointing up, a trader would have the confidence to enter a long trade on the hourly chart, right where the green Tenkan Sen crosses above the red Kijun Sen (circled in blue). Since this bullish crossover happens above the Kumo, this qualifies the cross as a strong crossover, another bullish confirmation. We also see a thickening bullish kumo cloud ahead. Notice how this strong trend sees prices staying well above the red Kijun Sen line. Once the larger trading timeframes signal a direction, traders can look to enter long trades during retracements on the shorter time frame. This can improve the reward to risk ratio and fully take advantage of a high probability trend play.
Forex trading is the buying and selling of currencies in a global market. It is a decentralized industry where traders interact over the counter. This market is huge and immensely liquid due to a trading volume which exceeds $5 trillion every day. Individual traders as well as major institutions are free to engage in this industry. It is also known as the FX market and is a core part of international business. That’s because goods and services bought or sold across borders require the exchange and transformation of currencies. Due to its size, volume and necessity, many people are attracted to trading in the Forex market. By utilizing elements such as currency pairs, bid and ask prices as well as the spread, they keep this market running all day, every day. Every beginner Forex trader needs to know a number of indicators so as to trade and make profits in this market. Some of the best indicators that they should know include: - The Moving Average - The Slow Stochastic - The Relative Strength Index (RSI) - The Fibonacci Retracement - The Moving Average Convergence & Divergence (MACD) - The Bollinger Band Read on to discover each one in detail. The Moving Average This indicator assists a trader to spot some opportunities that follow the direction of the general trend. If the Forex market is generally trending upwards, traders can use the Moving Average to identify the right time to buy or sell currencies. They can also multiply this indicator for the same purpose. This indicator takes the form of a line on a chart which measures the mean price of a currency pair over some time such as 200 days. This is done so as to detect the overall direction of the pair. The Moving Average allows you to trade by relying on the momentum of a currency pair. Traders can buy when the pair is moving according to the chart and sell when it begins to move in the opposite direction. The Slow Stochastic This is an indicator that can be used to trade in Forex environments where the currency pairs are overbought or oversold. This form of activity in the pairs usually results in a reversal in their prices. The Slow Stochastic can be described as an oscillator. By monitoring the direction of the K line in relation to the D line, a beginner trader can identify the signal to buy or to sell a particular currency pair in an open demo account. The Relative Strength Index (RSI) This is a simple and very helpful Forex market indicator. It is an oscillator by nature. Therefore, it can help you to discover if a particular currency pair is overbought or oversold. This sort of environment normally leads to a reversal. Hence, you can identify the opportunity to buy or sell depending on the Relative Strength Index (RSI). The traders who like to buy currency pairs low and then sell them high can use this index successfully. This indicator is quite versatile. Hence, it can be used to identify entry and exit prices in a ranging market. The Moving Average Convergence & Divergence (MACD) This is a highly effective indicator for beginner traders. It is a major oscillator. This means that it can be applied in trending or ranging markets. By using Moving Averages, this indicator can show adjustments in momentum from a visual point of view. A MACD chart will display either an upward or a downward bias of a particular currency pair. It also indicates cross unders and crossovers. Based on these elements, you can discover whether to buy or sell a currency pair. The Bollinger Band This indicator is used to identify and measure volatility in the market. It is essentially a volatility channel. The Bollinger Band relies on the fundamental principle that if the price of a currency pair exceeds the Moving Average and surpasses it by a specific amount, a trend is beginning. This indicator utilizes two main parameters. They are the specific number of days involved in the Moving Average and the number of Standard Deviations as well. The Fibonacci Retracement This indicator works on the principle that if a currency pair makes a move which is extreme, the market will recover by retracing specific proportions. These proportions are derived from the Fibonacci sequence. The Fibonacci Retracement relies on 3 key ratios. By applying this indicator, a beginner trader can identify movements in the price before they happen. Hence it is a leading indicator. Conclusion Forex trading is quite profitable in nature. Beginner traders can use the indicators described above so as to create and apply their strategies successfully. They are reliable units for creating and maintaining short and long term trading strategies.
Leveraging the benefits of the Relative Strength Index (RSI) in forex trading is easy when you know how to go about it. All it takes is a keen eye and in-depth understanding of how this particular indicator works. It may also require the utilization and analysis of other key indicators for surety. In this article, you will get to learn everything about the RSI – what it is, how it is used, and its complementary indicators. What is the Relative Strength Index? The RSI is one of the common indicators popular among forex traders. Like other indicators, it is designed to aid with analysis and help traders place accurate trades. In some ways, the RSI functions in a similar manner to the stochastic indicator in that it identifies oversold and overbought currencies – it helps to identify tops and bottoms. The RSI is scaled from 0 to 100, and the key readings are divided into four main categories. Two of these categories have to do with oversold and overbought market conditions – readings below 30 indicate oversold conditions while readings above 70 indicate overbought conditions. The third and fourth categories split the range in half – readings above 50 indicate that there is a possible uptrend while readings below 50 indicate otherwise. Using the RSI in Forex Trading It becomes easier to analyze the RSI with the aforementioned categories in mind. The following is a look at what each of these categories does, and how you should apply them in the market: - Below 30 – Oversold - Above 70 – Overbought - Below 50 – Possible Downtrend - Above 50 – Possible Uptrend Consider a EUR/USD trade. Taking the normal fluctuations into consideration, should the RSI drop to below 30 then it is an indication that the pair has been oversold and it is highly likely that there are very few sellers left to fuel the current downtrend. In this case, this is an indication that the current downtrend may be over, and the ideal response is to bank on an uptrend as the price will likely reverse. Sticking with the EUR/USD trade, an RSI rise to above 70 is an indicator that the pair has been overbought. This means that there are too few willing buyers in the market to sustain the uptrend and is an indicator that prices will reverse soon. Ideally, a smart trader would bank on a downtrend. Getting in on the right trend at the right moment is often rewarding. The RSI also comes in handy when determining whether a trend is forming and whether it will hold. Readings below 50 are an indication that a downtrend has been forming and likely has a strong momentum that will hold for some time. Readings above 50, on the other hand, show that an uptrend has been forming and will likely hold for some time depending on the market’s volatility. One tip that you should remember is that it may become necessary to adjust the overbought and oversold readings to 80 and 20 depending on the market conditions. Complementary Indicators To Use In the Forex and Stock Market Like many other indicators, the Relative Strength Index also has shortcomings that compromise its accuracy. The forex and stock markets need deep analysis and thus require a wider analysis. It is for these reasons that additional indicators become necessary when analyzing using the RSI. Several indicators help complement the RSI, but none is as convenient as the following two: - The Moving Average Convergence Divergence - The Average Directional Index The MACD If the MACD shows divergence from price, then this is an indication that a retracement is imminent and trade is profitable. Divergence would come up if, for instance, the price makes a new high but the MACD turns from a downward slope to an upward one. The Average Directional Index (ADI) If the ADI matches the direction of a possible retracement, then this is an indication that a trade would be rewarding. One vital tip you should consider is that in addition to these signals, you may also need to use a stop-loss order just beyond the low and high prices just to be safe. Forex and Stock Trading – A Lucrative Endeavor Trading stocks and forex is not a privilege for a select few as the common misconception goes. Anyone can do it given the right know-how and resources such as the RSI and other indicators. It is a lucrative endeavor that enriches and enlightens, and you have nothing to lose by giving it a try.
The simple moving average (SMA) is widely used in forex analysis. It is the simplest of all forex analysis moving average methods. The premise of the SMA is comparing the closing price of assets to the period of trade. The total price at the end of a particular trading period is thus divided by the amount of time during that period. Such calculations are essential to the trade since they give traders proper insights that allow them to trade effectively. In order to understand the SMA, it is important to look at the various aspects of the indicator. Simple Moving Average Indicator (SMA) Explained How the SMA is calculated The SMA is calculated by adding up the price over the trading periods and then dividing it by the total time. If the chart has 5 sessions of 10 minutes each, for instance, the SMA would be calculated by adding up the closing prices of the number of sessions and then dividing that by 5. In this case, the total closing price over the 50 minutes would be divided by 5. The great thing about the charting packages that come with trading programs is that the calculations are done automatically. But it is important to know how the program arrives at the results so as to have a proper understanding of your trade. Understanding the mechanisms of the indicator allows you to make different adjustments and strategies that suit you. The market changes a lot and traders are required to have a variety of strategies in order to succeed. It is also important to note that the calculations are based on the historical events of the market. This means that the results that you get from calculating the SMA are not real-time. Instead, they are simply meant to show the general trend of the market over a trading period that has already elapsed. A key thing to note when using the SMA is that calculations for longer periods of time are not as accentuated as short-term calculations. The long-term calculations thus take more time to react to price movements. The indicator is therefore great for showing the general broader view of the market and the possible general future trend. Indeed, the SMA is known for its ability to show pairs that are either trending down or up. The SMA is nevertheless susceptible to sudden spikes. False signals are thus common with the indicator. The significance of the SMA in analysis The moving average indicator is one of the most used analytical tools in the forex market. This is because of its power when it comes to giving a simple and straightforward view of the market. It has a lot of significance in the forex trading realm for many reasons. Its ability to identify current price trends as well as the possibilities of short-term change is invaluable. The SMA is nevertheless often used as an additional tool when more complex situations are involved. When it is combined with other analytical tools, it can be able to act as the basis of signal tracking in the market. Popular SMA patterns Just like other kinds of tools, the SMA can be used in multiple ways. There are a number of trading patterns that traders associate with the SMA. The most popular of all are the death cross and the golden cross. The death cross is basically a 50-day simple moving average the has crossed below the 200-day moving average. It is called the death cross because it is a bearish signal that marks the end of profit-making. The golden cross, on the other hand, is the short-term version. When the short-term indicator rises above the long-term moving average, there are likely to be more gains for traders. In Summary The simple moving average is one of the many moving average (MA) indicators in the market. This tool is probably the most popular indicator by every standard. There are other kinds of MA indicators in the market as well, including the exponential moving average (EMA) and linear weighted moving averages. They are not as popular as the SMA though. When used properly, the SMA can be valuable to forex trading as it gives some of the clearest signals. The power of the SMA can also be boosted when it is used alongside other tools.
For allowing a trader to determine the market movement direction the trend indicators were worked out. As a rule, they are not restricted by moving averages. They include such instruments as price models, support and resistance lines, trend lines. As a rule, each indicator has a mathematical formula by means of which it can be calculated. To the trend indicators the following can be related: Average Directional Movement Index — ADX Technical indicator (Average Directional Movement Index, ADX) helps to determine the price tendency presence. It was worked out and described in the book “New Concepts in Technical Trading Systems” by Welles Wilder. The simplest trading method on the basis of the directed movement system implies comparison of two indicators of 14-period directivity+DI and 14-period -DI. For this purpose the graph indicators are laid on each other or +DIis deducted from –DI and ticks down lower than -DI. These simple trading rules are filled up by W.Wilder with the “extreme points rule”. It serves for eliminating false signals and reducing the number of concluded deals. According to the extreme points principle, at the moment of crossing +DI and –DI the “extreme point” should be noticed. If +DI lifts higher than –DI this point is the maximal price for crossing. If +DI moves below –DI this point is the lowest crossing price. Further the extreme point is used as a market entry level. Thus, after the buy signal (+DI elevated above –DI) it is necessary to wait for the price to exceed the extreme point, and then buy. In case the price cannot overcome the extreme point level then the short position should be kept. Calculation: ADX = SUM ((+DI - (-DI)) / (+DI + (-DI)), N) / N Where:N — the number of periods used for calculation;SUM (..., N) — amount of N periods;+DI — the indicator value of positive price movement direction (positive directional index);-DI — the indicator value of positive price movement direction (negative directional index). Bollinger Bands — BB The Bollinger Bands are similar to Envelopes. The difference between them is in that the bounds of Envelopes are located above and below the moving average curve at a fixed percentage distance, while Bollinger Bands are formed at the distances equal to a certain number of standard deviations. As the value of a standard deviation depends on the volatility the bands regulate their width by themselves: it expands when the market is unstable and reduces in more stable periods. The Bollinger Bands are usually put on the price chart as well as on the indicator chart. As in the case of Envelopes, the Bollinger Bands interpretation is based on the price feature to stay within the upper and lower bands. A distinctive feature of Bollinger Bands is their variable area caused by the price volatility. In the periods of significant price changes (i.e. high volatility) the bounds are widening giving the prices a space. In sluggish periods (i.e. low volatility) the bounds are narrowing keeping the prices within the bounds. Among the indicator peculiarities the following can be distinguished: 1. Sharp price changes which usually occur after band narrowing equal to the volatility lowering. 2. If the prices come out of the bounds then it is needed to wait for the current tendency continuation. 3. If after the peaks and drops out of the bands come the peaks and drops within them the trend turnout is possible. 4. The price movement started from one of the band borders usually reaches the opposite one. The last inquiry is useful for forecasting the price reference points. Calculation The Bollinger Bands are formed by three lines. MIDDLE LINE, ML – is a simple moving average. ML = SUM (CLOSE, N) / N = SMA (CLOSE, N) TOP LINE, TL is the same middle line removed to the upside by certain number of standard deviations (D). TL = ML + (D * StdDev) BOTTOM LINE, BL is the same middle line removed to the downside by certain number of standard deviations. BL = ML — (D * StdDev) Where:SUM (..., N) — amount of N periods;CLOSE — closing price;N — the number of periods used for calculation;SMA — simple moving average;SQRT — square root;StdDev — standard deviation: StdDev = SQRT (SUM ((CLOSE - SMA (CLOSE, N))^2, N)/N) It is recommended to use 20-period simple moving average as a middle line and 2 simple deviations for calculating the band boundaries. Besides, the moving averages of less than 10 periods are low efficient. Moving Average – MA The technical indicator Moving Average, MA shows an average instrument price for some period of time. During the Moving Average calculation the mathematical averaging of the instrument price for this period is implemented. In proportion to the price changingits average value rises or falls. There are several types of moving averages (also called arithmetical), exponential, smoothed and weighted. Moving Average can be calculated for any sequential data set, including the opening and closing prices, maximal and minimal price, trading volume and other indicators values. Frequently, the moving averages of the moving averages are used. The only thing which distinguishes different types of Moving Average from each other – is various weight coefficients which are assigned to the last data. In case of Simple Moving Average all prices of the considered period have the same weight. Exponential Moving Average and Linear Weighted Moving Average make the last prices weightier. The most wide-spread interpretation method of the price moving average is its dynamics comparison with the price dynamics. When the instrument price moves above the Moving Average a buy signal emerges, and when the price is below the indicator line – sell signal. This trading system by means of Moving Average is not meant for providing the market entry strictly at its lowest point, and exit – strictly atop. It allows to act corresponding to the current trend: buy just after the prices reach the bottom and sell after the top shaping. The Moving Averages can be applied to the indicators as well. Amid this, an interpretation of the indicator moving averages is similar to the interpretation of the price moving averages: if the indicator moves above its Moving Average – it means that the upward indicator movement will go on: if the indicator moves below the Moving Average – the downtrend is to be fixed. Variety of Moving Averages: Simple Moving Average (SMA) Exponential Moving Average (EMA) Smoothed Moving Average (SMMA) Linear Weighted Moving Average (LWMA) Calculation Simple Moving Average, SMA Simple and arithmetical moving average is calculated by means of summing up the instrument closing price for a certain number of singular periods (for example 12 hours) with further amount division by the number of periods. SMA = SUM (CLOSE (i), N) / N Where:SUM — amount;CLOSE (i) — the closing price of the current period;N — the number of calculation periods. Parabolic SAR The technical indicator Parabolic System SAR was worked out for the trend markets analysis. The indicator is constructed on the price chart. In its own way this indicator is similar to the moving average with the only difference that Parabolic SAR is moving with big acceleration and it can change the position related to price. At the “bullish trend” (Up Trend) the indicator locates below the prices, at the “bearish” one (Down Trend) – above them. If the price crosses the lines of Parabolic SAR then the indicator turnout takes place, and its next values are placed on the other side from the price. With this indicator “turnout” the starting point will be the highest or lowest price for the previous period. The indicator turnout is a signal of the trend continuation (transit to a correction or flat) or its turnout. Parabolic SAR perfectly determines the points of market exit. Long positions should be closed when the price decreases below the line of the technical indicator and short – when the price moves above the Parabolic SAR line. Often this indicator is used as a trailing stop line. If long position is opened (i.e. the price is above the Parabolic SAR) then the indicator line will be moving regardless of the prices direction. The value of the Parabolic SAR line depends on the price movement value. Calculation For long positions: SAR (i) = ACCELERATION * (HIGH (i - 1) - SAR (i - 1)) + SAR (i - 1) For short positions:SAR (i) = ACCELERATION * (LOW (i - 1) - SAR (i - 1)) - SAR (i - 1) Where:SAR (i - 1) — value of the Parabolic SAR indicator at the previous bar;ACCELERATION — acceleration factor;HIGH (i - 1) — maximal price for the previous period;LOW (i - 1) – minimal price for the previous period. The indicator value is advancing if the current bar price is bigger than the preceding one on the bull market and inversely. And the acceleration factor will be doubling that will cause binding of the Parabolic SAR with the price. Standard Deviation The technical indicator (Standard Deviation, StdDev) measures the market volatility. This indicator characterizes the size of price fluctuations in relation to the moving average. Thus, if the indicator value is big then the market is volatile and the bar prices are rather scattered relatively the moving average. If the indicator value is not too big the market has low volatility and the bar prices are quite close to the moving average. Usually this indicator is used as a component of other indicators. Thus, at calculating the Bollinger Bands the value of a standard instrument deviation is added to its moving average. The market dynamics consists of interchange of quiet and violent activity periods that is why approach to this indicator is simple: If the indicator value is too small, i.e. the market is absolutely quiet then activity surge should be expected soon; To the contrary, if the indicator is extremely big then this activity is most likely to go downwards. Calculation StdDev (i) = SQRT (AMOUNT (j = i - N, i) / N) AMOUNT (j = i - N, i) = SUM ((ApPRICE (j) - MA (ApPRICE (i), N, i)) ^ 2) Where:StdDev (i) — Standard Deviation of the Current Bar;SQRT — square root;AMOUNT(j = i - N, i) — sum of squares from j = i - N to i;N — smoothing period;ApPRICE (j) — applied price of j-bar;MA (ApPRICE (i), N, i) — any moving average of the current bar for N periods;ApPRICE (i) — applied price of the current bar. These indicators are the most widespread. Others are based on them being their derivatives.
Average Directional Index (ADX) ADX staying below 20 level — there is no trend or the trend is weak. ADX moving above 20 level — trend is strong. ADX passing 40 level — trend is extreme. ADX value rising — trend is going stronger, falling — trend is weakening. +DI stays on top of -DI — uptrend is in place. -DI stays on top of +DI — downtrend is in place. Two DI cross — trend is changing. Average Directional Index (ADX) The Average Directional Index (ADX) depicts a presence or absence of a trend. ADX advices on the strength of the dominant forces that move market prices here and now. In other words, ADX advices on trend tendencies: whether the trend is going to continue and strengthen or it is about to lose its positions. The author of Average Directional Index J. Welles Wilder considers his ADX indicator as a primary achievement; and only because signals given by ADX are not an easy to take a grasp of from the first look, many Forex traders avoid using ADX in favor of more visually comprehensive indicators. How to interpret ADX ADX indicator has 2 lines: ADX itself (white), +DI (green) and -DI (red).Traders then need to draw a horizontal line at the level of 20.All readings of ADX which are below 20 suggest a weak and unclear trend, while readings above 20 indicate that a trend has picked up. That is, basically, the simplest explanation of the purpose of ADX. ADX allows Forex traders to determine whether the trend is strong or weak and thus choose and appropriate strategy to trade with: a trend following strategy or a strategy fit to consolidation market periods with no significant price changes. There is also additional line to be added to ADX indicator window - at 40 level. How to trade with ADX Trading with ADX looks as follows: If ADX is traded below 20 - there is no trend or the trend is weak, thus a non-trend-following strategies should be used, otherwise losses may occur as a result of false signals and whip-saws taking place. An example of non-trend-following method is channel trading. If ADX is traded above 20 but below 40, it is time to apply trend following methods. An example would be: Forex trading Moving averages or or trading with Parabolic SAR indicator. When ADX reaches 40 level, it suggests an overbought/oversold (depending on the trend) situation on the market and it is time to protect some profits of at least move Stop loss order to a break even. When ADX passes 40 level, it is a good time to begin collecting profits gradually scaling out of the trades on rallies and sell-offs and protecting remaining positions with trailing stops. ADX -/+ DI lines are used for spotting entry signals. All -/+ DI crossovers are disregarded while ADX remains below 20. Once ADX peaks above 20 a buy signal occur when +DI (green) crosses upwards and above -DI (red). A sell signal will be the opposite: +DI would cross -DI downwards.If after a newly created signal another opposite crossover happens within a short period of time, the original signal should be disregarded and position protected soon or closed. ADX indicator is never traded alone, but rather in combination with other indicators and tools. ADX indicator most of the time gives much later signals comparing to faster reacting moving averages crossover or Stochastic, for example, however, reliability of ADX indicator is much higher than for other indicators in traders' toolkit, which makes it a valuable tool for many Forex traders. And just one more idea to test out:When ADX rises above 20 for the first time and then goes flat for some time, there is believed to be a new trend being born and the reason for ADX being currently flat is because market reacts to this new trend formation by making first initial correction. During this correction it is a good time to initiate new orders.
Each trading day in Forex is a struggle of buyers (Bulls) and sellers (Bears). Bulls are interested in pricegrowth, Bears — in price decrease. The result of ending of the day depends on who has strongerpositions: buyers or sellers. But intraday fluctuations, the highest and lowest price in the day also showhow strong positions have members of the market. The main idea The assessment of the balance of Bulls and Bears forces has the great influence. Prerequisites of changesin this balance are one of the first signals that can lead to changing trends. Bulls Power and Bears Powerwere invented by Alexander Elder (the famous trader and financier). These indicators are perfect to usewith one of the trend indicators.Bulls Power and Bears Power are based on 13th Exponential Moving average and maximum or minimumprice. Bulls Power: definition and formula Bulls Power is the difference between the highest price and 13 - period exponential moving average.Accordingly, it is calculated using the formula:BULLS = HIGH - EMAWhere:BULLS - Bulls Power;HIGH - the highest price;EMA - Exponential Moving Average.When there is a rising trend in the market, the indicator is bigger than zero. When there is a decreasingtrend, Bulls Power indicator is less than zero. Bears Power: definition and formula Bears Power indicator is opposite than the Bulls Power indicator. It measures the strength of the bears inthe market. Accordingly, it is calculated as the difference between the minimum value of the price perday exponential moving average with period 13.It is calculated using the formula:BEARS = LOW - EMAWhere:BEARS - Bears force;LOW - the lowest price;EMA - Exponential Moving Average.Then the downward trend is weak, the indicator Bears Power will be less than zero. If prices rise, it willalso be above the zero line.As a rule, these two indicators are used in conjunction with trend indicators (moving averages, or other).In this case the slope of the last shows the direction of prices. This should be taken into account duringthe decision-making opening and closing positions.So, when the strength of the Bulls shows a value greater than zero, but is reduced at the same time, amoving average also goes down - it is a signal for the sales. In this case, the discrepancy can amplify thesignal peaks (divergence).Similarly used Bears Power indicator: when the moving average shows the upward trend in prices, andthe indicator is trading below zero, it is a signal to buy. Divergence also strengthens it. Signals for buy are: - Rising movement of the moving average- Growth indicator Bears Power at a value less than zero- Divergence (divergence of the maximum and minimum values of the indicator and the price chart)It is not necessary to trade with a downward motion (Bears Power index is less than zero). A good signalis a long-term decline after a turn-up (below the zero line). Signals for sale are: - Decrease movement of the moving average- Decrease indicator of Bulls Power which locates above zero- DivergenceWhen you open a position for sale, to limit losses, you can put a stop-loss at a level above the lastmaximum value for money.
Bollinger Bands: quick summary Created by John Bollinger, the Bollinger Bands indicator measures market volatility and provides a lot of useful information:- trend direction- trend continuation or pausing - periods of market consolidation- periods of upcoming large volatility breakouts- relative market tops and bottoms and price targets. Bollinger Bands interpretation Bollinger Bands indicator consists of three bands, which 85% of the time retain price within their boundaries:- Simple moving average (SMA) in the middle (with default value of 20) - Lower band - SMA minus 2 standard deviations- Upper band - SMA plus 2 standard deviationsThe default value for Bollinger Bands in Forex is (20,2) - the settings we'll be using for our screenshots. When the market becomes more volatile, the bands will correspond by widening and moving away form the middle line. When the market slows down and becomes less volatile, the bands will move closer together. How to trade with Bollinger Bands Price moves in upper bands channel – uptrend, lower - downtrend It is very simple to identify dominating price direction by simply answering the question: in what part of the Bollinger Bands the price is currently trading? If price stays above the middle line – in the upper channel – we’ve got a prevailing uptrend. If below the middle line – in the lower channel – we have a prevailing downtrend. And just in case you’ve missed the beginning of the trend, Bollinger Bands can help you get in the trend with good risk to reward ratio on a pullback.Simply look for dips towards the middle Bollinger Bands line and enter in the direction of the trend. Low volatility, followed by high volatility breakouts When Bollinger Bands start to narrow down to the point when they are visually forming a neat tight range (measured no other way than by eye), as shown on the screenshot below, the situation signals of an upcoming increase in volatility once market breaks outside the bands. It is similar to a quiet time before the storm. The more time passes while price is contained within the narrow Bollinger Bands range, the more aggressive and extensive breakout is expected. Price moves outside the bands – trend continuationWhen price moves and closes outside the Bollinger upper or lower bands, it implies a continuation of the trend. With it Bollinger Bands continue to widen as volatility rises. But it is not always straight forward: at some point closing outside Bollinger Bands will mean price exhaustion and upcoming trend reversal. Bollinger Bands alone are not able to identify continuation and reversal patterns and require support from other indicators, such as often RSI, ADX or MACD – in general all types indicators that highlight markets from a different than volatility and trend prospective (momentum, volume, market strength, divergence etc). Trend reversal patterns with Bollinger BandsAs a rule, a candle closing outside Bollinger Bands followed later by a candle closing inside the Bollinger Bands serves as an early signal of forming trend reversal. It is, however, not a 100% assurance of an immediate trend reversal. Since long aggressive trend develop not that often, there will be on general more reversals than continuation cases, still only filter signals form other indicators may help to spot true and false market tops and bottoms. Speaking of the last, Bollinger Bands are also capable of aiding double top and double bottom pattern recognition and trading. W and M patterns with Bollinger Bands A double top or M pattern is a sell setup. With Bollinger Bands it occurs when the following sequence take place:- price penetrates the lower band,- pulls back toward the middle line, - a new subsequent low is formed, and this low is above the lower band and never has touched it.- a setup is confirmed when price reaches and crosses the middle Bollinger line. In fact, a very conservative trading approach requires price to cross and close on the other side of Bollinger Bands middle line before the trend change is confirmed. As you have probably noticed, the middle Bollinger Bands line is simply a 20 SMA (default) line. This Simple Moving Average (SMA) is by itself a widely used stand alone indicator, which help Forex traders identify prevailing trends and confirm trading signals. Facts Bollinger Bands® is a registered trademark of Bollinger, John A.The trademark is registered for "Financial analysis and research services".
Trading with Parabolic SAR involves the following signals: PSAR dot is above the price - downtrend.PSAR dot is below the price - uptrend. Parabolic SAR Parabolic SAR indicator is a trend indicator, which tells Forex traders about price stop-and-reverse points as well as trend direction. Its concept of usage is easy to understand from the first look. Parabolic SAR appears as a set of dotted lines, where each dot represents certain time period. When price is above Parabolic SAR dots, Forex traders should be holding Long positions only. Once Parabolic SAR dots come on top of the price - it is time to change trading positions to Short. Parabolic Sar indicator literally allows being in trade all the time. How to trade with Parabolic SAR indicator However, trading with Parabolic SAR is not that simple; not all Parabolic SAR reversal signals can be traded profitably. Let's turn to advice given by the developer of Parabolic SAR indicator - J. Welles Wilder. He suggests using Parabolic SAR, first of all, for trailing stops and finding the best exits. The way Forex traders use Parabolic SAR is by simply setting a Stop loss order at the level of the most recent SAR dot appearing on the chart. Stop is then trailed along with each new Sar dot till trend remains intact. Once Parabolic SAR indicator changes its position - SAR dots appear on the opposite side of the price - the trade is closed. Welles Wilder doesn't recommend using Parabolic SAR as a stand alone indicator. The main reason for that is: Parabolic SAR can easily create whip-saws (false signals) during periods of market consolidation. The Parabolic SAR works best during strong trending periods, which Wilder himself estimates occur roughly 30% of the time. Thus Forex traders will need other Forex indicators to identify those strong trending periods. For himself, Welles Wilder developed ADX indicator - another trend indicator - which tells what kind of trend is dominant and how strong the trend is. Upon knowing the trend and its health Forex traders can pick appropriate signals from Parabolic SAR and disregard the rest. How do you determine the trend if you don't want to use ADX. Try 50 EMA. Price readings above it would suggest an uptrend, below - downtrend. Parabolic SAR settings So, Parabolic SAR is developed to keep stop loss level moving adjusting to new prices and thus locking profits on its way. The formula of Parabolic SAR includes an "acceleration factor", which allows to react to market changes fast as the trend starts to accelerate. At the beginning, new Parabolic SAR dots are placed close together and then accelerate as the trend advances. Parabolic SAR has two variables: a step and max step. Settings recommended by W.Wilder are: a step of 0.02 and the max step of 0.2. The step sets sensitivity of Parabolic SAR indicator. If the Step is too high, Parabolic SAR becomes more sensitive and will flip back and forth more often, with lower step Parabolic SAR will become smoother. Maximum step sets a cushion between price and Parabolic SAR. The higher the max step the closer the trailing stop will be to the price. Parabolic SAR - useful tips: Tip 1:When space between Parabolic SAR dots increases significantly, it indicates that acceleration formula for SAR is already working. Thus, if you have missed out on an entry, it might be better to avoid late entries at all and rather wait for an opportunity to re-enter the trade with a help of, for example, Stochastic indicator. Tip 2:Parabolic SAR is only a mathematical interpretation of the price. Even though it helps to identify initial place for a Stop, it may not be the final or best one sometimes. Forex traders who also look at support/resistance levels, round numbers, trend line etc may find even better place for Stops to be set. Parabolic SAR indicator Formula
Moving Averages (MAs) are among most commonly used indicators in Forex. They are easy to set and easy to interpret. Speaking simple, moving averages simply measure the average move of the price during a given time period. It smooths out the price data, allowing to see market trends and tendencies. How to use Moving Averages Moving Average is a trend indicator. Besides its obvious simple function a Moving Average has much more to tell: In Forex moving average is used to determine: 1. Price direction - up, down or sideways.2. Price location - trading bias: above Moving average - buy, below Moving average - sell.3. Price momentum - the angle of the Moving average: rising angle - momentum holds, falling angle - momentum pauses or stops.4. Price support/resistance levels. Types of Moving Averages SMA - Simple Moving Average - shows the average price for a given period of time. EMA - Exponential Moving average - gives priority to most recent data, thus reacts to price changes quicker than Simple Moving Average. WMA - Weighted Moving Average - puts emphasis on most recent data an less - on older data. Most common settings for Moving Averages in Forex 200 EMA and 200 SMA100 SMA50 SMA34 SMA20 EMA and 20 SMA10 EMA and 10 SMA Try and test and then choose your favorite set of Moving Averages.
Trading with MACD indicator includes the following signals: MACD lines crossover — a trend is changingMACD historam staying above zero line — market is bullish, below — bearish. MACD histogram flipping over zero line — confirmation of a strength of a current trend.MACD histogram diverges from price on the chart — signal of an upcoming reversal. MACD MACD is the simplest and very reliable indicators used by many Forex traders.MACD (Moving Average Convergence/Divergence) has in its base Moving Averages. It calculates and displays the difference between the two moving averages at any time. As the market moves, moving averages move with it, widening (diverging) when the market is trending and moving closer (converging) when the market is slowing down and possibility of a trend change arise. Basics behind MACD indicator Standard indicator settings for MACD (12, 26, 9) are used in many trading systems, and these are the setting that MACD developer Gerald Appel has found to be the most suitable for both faster and slower moving markets. In order to get a more responsive and faster performance from MACD one can can experiment with lowering MACD settings to, for example, MACD (6, 12, 5), MACD (7, 10, 5), MACD (5, 13, 8) etc. These custom MACD settings will make indicator signal faster, however, the rate of false signals is going to increase. MACD indicator is based on Moving Averages in their simplest form. MACD measures the difference between faster and slower moving average: 12 EMA and 26 EMA (standard). MACD line is created when longer Moving Average is subtracted from shorter Moving Average. As a result a momentum oscillator is created that oscillates above and below zero and has no lower or upper limits. MACD also has a Trigger line. Combined in a simple lines crossover strategy, MACD line and trigger line crossover outperforms EMAs crossover. Besides being early on crossovers MACD also is able to display where the chart EMAs have crossed: when MACD (12, 26, 9) flips over its zero line, if indicates that 12 EMA and 26 EMA on the chart have crossed. How does MACD indicator work If to take 26 EMA and imagine that it is a flat line, then the distance between this line and 12 EMA would represent the distance from MACD line to indicator's zero line. The further MACD line goes from zero line, the wider is the gap between 12EMA and 26 EMA on the chart. The closer MACD moves to zero line, the closer are 12 and 26 EMA. MACD histogram measures the distance between MACD line and MACD trigger line. MACD indicator Formula MACD = EMA(Close)period1 - EMA(Close)period2Signal Line = EMA(MACD)period3 whereperiod1 = standard settings are 12 barsperiod2 = standard 26 barsperid3 = standard 9 bars The following are the steps to calculate MACD 1. Calculate the 12-days EMA of closing price2. Calculate the 26-days EMA of closing price3. MACD = 12-days EMA - 26-days EMA4. Signal Line = 9-days EMA of MACD Formula for EMA EMA = (SC X (CP - PE)) + PE SC = Smoothing Constant (Number of days)CP = Current PricePE = Previous EMA Trading MACD Divergence MACD indicator is famous for its MACD Divergence trading method. Divergence is found by comparing price shifts on the chart and MACD values.MACD Divergence phenomenon occur as a result of shifting forces on the Forex market. For example, while Sellers may seem to be dominating the market at the moment and price continues to trend down, there already might be signals for an overall weakening of Sellers power. This key warning moments can be observed with MACD indicator. What Forex traders would see is that despite price making new Lower Lows, MACD doesn't confirm that and instead registers a Higher Low, signaling that Sellers are running out of steam and a trend change is on its way. Opposite will be true for Buyers. How to trade MACD Divergence When MACD line (on our screenshot it is a blue line) crosses Signal line (red dotted line) - we have a point (top or bottom) to evaluate. With two most recent MACD line tops or bottoms find corresponding tops/bottoms on the price chart. Connect MACD tops/bottoms and chart tops/bottoms. Evaluate the lines received, as shown on the larger screenshot (click on the small picture to enlarge). With MACD divergence spotted Enter the market when MACD line crosses over its zero point. Another entry strategy is to find 2 most recent swings high or low on the chart and draw a trend line trough them; and then set an Entry order on the breakout of that trend line. MACD divergence trading method used not only to predict trend turning points, but also for trend confirmation. A current trend has high potentials to continue unchanged in case no divergence between MACD and price was established after most recent tops/bottoms evaluation.