Forex Indicator List and How To Use Them ~ day trading strategies in forex
There are over 29 inbuilt Technical Indicators installed on the MT4 Trading Platform and hundredths of custom indicators developed by 3rd Party firms and individuals, which can be downloaded and installed into your trading platform.
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Forex Technical Indicators are programmed trading tools with financial, statistical and mathematical functions, which produces BUY or SELL signals on the chart of a trading platform. The signals gives indications of when to BUY, SELL, EXIT, OPEN, MODIFY, CLOSE a position, and also informs you about upcoming actions in the market.Technical indicators are categorized into two major forms namely; Trend indicators (i.e. indicators that help to access the price direction and detect the turn moments synchronously or with a delay e.g Moving Average Indicator.) and Oscillating indicators (indicators that allows finding the turning moments ahead or synchronously e.g Envelopes, MACD, e.t.c.)
Indicators are sometimes combined to further verify the strength of a signal or to produce certain signals that cannot be derived from a particular indicator. Also note that the re-adjustment of the settings of an indicator can affect the clarity, efficiency, speed and accuracy of the signals it produces either positively or negatively.
Indicators be can placed into the chart from the Navigator window by means of Drag and Drop technique, or by selecting the indicator option from the insert menu on the file menu toolbar, or by clicking the indicator shortcut button on the charts toolbar.
See illustration below.
The sole aim of Forex Technical Indicators is to help our decisions in trading. Understanding their functions and how to use them would help you succeed to a great extent in Forex.
LIST OF INDICATORS BY GROUP (click to expand)
LIST OF INDICATORS BY GROUP (click to expand)
TREND INDICATORS
Average Directional Movement Index
This indicator was designed by Welles Wilder, and it is popularly called the ADX Indicator. It helps to determine if there is a price trend.
How to Interpret:
Recommends buying when +DI is higher than -DI, and selling when +DI sinks lower than -DI. It is used to eliminate false signals and decrease the number of deals.
How to Interpret:
Recommends buying when +DI is higher than -DI, and selling when +DI sinks lower than -DI. It is used to eliminate false signals and decrease the number of deals.
Bollinger Bands
Bollinger bands somewhat measures the volume of volatility, and they adjust themselves to market conditions. They widen or expand when the markets become more volatile, and they contract or reduce during less volatile periods.
How to Interpret:
When the band contract for a significant amount of time due to low volatility then expect a sudden change in the direction of price.
When price breaks above the upper band, then the probability of a continuous trend in that direction is very high. a reverse of trend may occur if the pikes and hollows outside the band are followed by pikes and hollows inside the band.
Price movements in the band usually oscillates from one line to the other i.e. upper to the lower or lower to the upper. Therefore when price gets to the upper band there is likely expectation for it to retrace to the lower band at a later time.
How to Interpret:
When the band contract for a significant amount of time due to low volatility then expect a sudden change in the direction of price.
When price breaks above the upper band, then the probability of a continuous trend in that direction is very high. a reverse of trend may occur if the pikes and hollows outside the band are followed by pikes and hollows inside the band.
Price movements in the band usually oscillates from one line to the other i.e. upper to the lower or lower to the upper. Therefore when price gets to the upper band there is likely expectation for it to retrace to the lower band at a later time.
Commodity Channel Index
Also known as the CCI for short measures the deviation of the commodity price from its average statistical price. A high value of the index point indicates that the price is abnormally high being compared with the average one, and low values show that the price is too low.
There are two basic techniques of using Commodity Channel Index:
1. Finding the divergences
The divergence appears when the price reaches a new maximum, and Commodity Channel Index cannot grow above the previous maximums. This classical divergence is normally followed by the price correction.
2. Checking Overbought or Oversold Levels
Commodity Channel Index usually varies in the range of + or - 100. When the values get above +100 then price has reached an overbought region. On the contrary when the values are below 100 then price has reached an oversold level waiting to reverse.
There are two basic techniques of using Commodity Channel Index:
1. Finding the divergences
The divergence appears when the price reaches a new maximum, and Commodity Channel Index cannot grow above the previous maximums. This classical divergence is normally followed by the price correction.
2. Checking Overbought or Oversold Levels
Commodity Channel Index usually varies in the range of + or - 100. When the values get above +100 then price has reached an overbought region. On the contrary when the values are below 100 then price has reached an oversold level waiting to reverse.
Moving Average
The Moving Average Technical Indicator shows the mean instrument price value for a certain period of time. The result of the moving average is dynamic as price changes i.e. it either decrease or increase as price change.
Moving average comes in four different types namely:
1. Simple Moving Average (SMA)
2. Exponential Moving Average (EMA)
3. Smoothed Moving Average (SMMA)
4. Linear Weighted Moving Average (LWMA)
How to Interpret:
Generally when price goes high above the moving average line, then it implies an opportunity to buy, but when it goes below the moving average line it’s a sell signal. This same system can be used to exit a trade when price goes above or below the opposite direction of the moving average line.
The combination of these Moving average types can further confirm the strength of a buy or sell signal.
Moving average comes in four different types namely:
1. Simple Moving Average (SMA)
2. Exponential Moving Average (EMA)
3. Smoothed Moving Average (SMMA)
4. Linear Weighted Moving Average (LWMA)
How to Interpret:
Generally when price goes high above the moving average line, then it implies an opportunity to buy, but when it goes below the moving average line it’s a sell signal. This same system can be used to exit a trade when price goes above or below the opposite direction of the moving average line.
The combination of these Moving average types can further confirm the strength of a buy or sell signal.
Parabolic SAR
This little dot like indicator was designed primarily to analyze trending markets. The indicator’s functions are similar to the Moving Average Indicator except that they are faster, and are dynamic in position movement in terms of the price.
How to interpret:
When the indicator is below price then it’s a buy signal indicating an Up Trend, but when it appears above the price, then it’s a sell signal.
The indicator can be used for entry and exit points. For example a sell order should be closed when price rises above the SAR Indicator, while a buy order should be closed when the price goes below the SAR line. Also note that the length of the SAR line movement depends on the scale of the price movement, and the faster the price grows or sinks, the faster the indicator approaches the price.
How to interpret:
When the indicator is below price then it’s a buy signal indicating an Up Trend, but when it appears above the price, then it’s a sell signal.
The indicator can be used for entry and exit points. For example a sell order should be closed when price rises above the SAR Indicator, while a buy order should be closed when the price goes below the SAR line. Also note that the length of the SAR line movement depends on the scale of the price movement, and the faster the price grows or sinks, the faster the indicator approaches the price.
Standard Deviation
This indicator measures the value of market volatility. It describes the range of price fluctuations relative to the simple moving average. So, if the value of this indicator is high, then the market is volatile, and prices of bars are rather spread relative to the moving average. If the indicator value is low, the market can be described as having a low volatility, and prices of bars are rather close to the moving average.
Normally, this indicator is used as a constituent of other indicators. Therefore one has to add the symbol standard deviation value to its moving average when calculating Bollinger Bands.
How to interpret:
When the values of the SD indicator are very high then expect a decline in market activity in the nearest possible time. Otherwise if the value is too low then expect a major breakout to occur very soon
Normally, this indicator is used as a constituent of other indicators. Therefore one has to add the symbol standard deviation value to its moving average when calculating Bollinger Bands.
How to interpret:
When the values of the SD indicator are very high then expect a decline in market activity in the nearest possible time. Otherwise if the value is too low then expect a major breakout to occur very soon
OSCILLATOR INDICATORS
Relative Strength Index
The RSI is a price following oscillator that ranges between 0 and 100.
How to interpret:
When the RSI tops above 70 it indicates that price has reached an overbought region and would likely reverse back. The opposite applies for price when it gets below 30 on the RSI.
How to interpret:
When the RSI tops above 70 it indicates that price has reached an overbought region and would likely reverse back. The opposite applies for price when it gets below 30 on the RSI.
Average True Range
The ATR is an indicator that shows volatility of the market. It can sometimes reach a high value at the bottom of the market after a sharp fall in prices occasioned by panic selling. Low values of the indicator are typical for the periods of sideways movement of long duration which happen at the top of the market and during consolidation.
How to interpret:
The higher the value of the indicator, the higher the probability of a trend change; the lower the indicator’s value, the weaker the trend’s movement is.
How to interpret:
The higher the value of the indicator, the higher the probability of a trend change; the lower the indicator’s value, the weaker the trend’s movement is.
Bears Power
As the name implies this indicator shows the balance of “Bears” i.e. Buyers for a trading session or duration against the “Bulls” i.e. Sellers. It also shows market movement in relation to how the “Bears” are performing. This helps to see possible weakness or strength and likely price reversals.
This indicator gives better signals when combined with other trend indicators like the Moving Average. For example if the Moving Average is in an uptrend and the Bears Power Index is below zero but growing then it is a likely signal to buy. If the opposite is the case then it’s a sell signal.
How to interpret:
The lowest price displays the maximum sellers power within the day or session.
This indicator gives better signals when combined with other trend indicators like the Moving Average. For example if the Moving Average is in an uptrend and the Bears Power Index is below zero but growing then it is a likely signal to buy. If the opposite is the case then it’s a sell signal.
How to interpret:
The lowest price displays the maximum sellers power within the day or session.
Bulls Power
This indicator is the direct opposite of the Bears Power Indicator. It reveals the strength of the Bulls Power during a session. The results from this indicator can be used as a forecast for price reversals.
How to interpret:
The highest price displays the maximum sellers power within the day or session.
The Moving Average indicator is the best indicator to combine with the Bulls Power indicator to reveal better signals. For example if the Moving Average is in a down trend and the Bulls Power Index is above zero but falling then it is a likely signal to sell. If the opposite is the case then it’s a buy signal.
How to interpret:
The highest price displays the maximum sellers power within the day or session.
The Moving Average indicator is the best indicator to combine with the Bulls Power indicator to reveal better signals. For example if the Moving Average is in a down trend and the Bulls Power Index is above zero but falling then it is a likely signal to sell. If the opposite is the case then it’s a buy signal.
DeMarker
The Demarker Technical Indicator uses a comparison algorithm of the period maximum with the previous period maximum to evaluate trend reversal.
How to interpret:
When the indicator falls below 30, the bullish price reversal should be expected. When the indicator rises above 70, the bearish price reversal should be expected.
How to interpret:
When the indicator falls below 30, the bullish price reversal should be expected. When the indicator rises above 70, the bearish price reversal should be expected.
Envelopes
Envelopes Technical Indicator is formed with two Moving Averages one of which is shifted upward and another one is shifted downward. It was designed to calculate extremes of trader’s activities i.e. buying and selling which has been pushed to the upper and lower bands. It is expected that prices would normalize after these extremes has been reached.
It has a similar trait with the Bollinger Bands interpretation.
How to interpret:
Signal to sell appears when the price reaches the upper margin of the band, while signal to buy appears when the price reaches the lower margin.
It has a similar trait with the Bollinger Bands interpretation.
How to interpret:
Signal to sell appears when the price reaches the upper margin of the band, while signal to buy appears when the price reaches the lower margin.
Force Index
This indicator which was designed by Alexander Elder measures the Bulls Power at each increase, and the Bulls Power at each decrease. It connects the basic elements of market information such as price trend, its drops, and volumes of transactions. This indicator when combined with the Moving Average Indicator produces better results in opening and closing orders.
How to Interpret:
When the indicator goes to a minus level i.e. falls below the zero line then it is an opportunity to buy.
•The force index signalizes the continuation of the increasing tendency when it increases to the new peak;
•The signal to sell comes when the index becomes positive during the decreasing tendency;
•The force index signalizes the Bears Power and continuation of the decreasing tendency when the index falls to the new trough;
•If price changes do not correlate to the corresponding changes in volume, the force indicator stays on one level, which tells you the trend is going to change soon.
NOTE:
The force of every market movement is characterized by its direction, scale and volume. If the closing price of the current bar is higher than the preceding bar, the force is positive. If the current closing price if lower than the preceding one, the force is negative. The greater the difference in prices is, the greater the force is. The greater the transaction volume is, the greater the force is.
How to Interpret:
When the indicator goes to a minus level i.e. falls below the zero line then it is an opportunity to buy.
•The force index signalizes the continuation of the increasing tendency when it increases to the new peak;
•The signal to sell comes when the index becomes positive during the decreasing tendency;
•The force index signalizes the Bears Power and continuation of the decreasing tendency when the index falls to the new trough;
•If price changes do not correlate to the corresponding changes in volume, the force indicator stays on one level, which tells you the trend is going to change soon.
NOTE:
The force of every market movement is characterized by its direction, scale and volume. If the closing price of the current bar is higher than the preceding bar, the force is positive. If the current closing price if lower than the preceding one, the force is negative. The greater the difference in prices is, the greater the force is. The greater the transaction volume is, the greater the force is.
Ichimoku Kinko Hyo
This indicator which works best at weekly and daily charts was designed to detect the market Trend, Support and Resistance Levels, and to generate signals of buying and selling.
It consists of four time intervals of different lengths, which determines the values of the individual lines:
1• Tenkan-sen: shows the average price value during the first time interval defined as the sum of maximum and minimum within this time, divided by two;
2• Kijun-sen: shows the average price value during the second time interval;
3• Senkou Span A: shows the middle of the distance between two previous lines shifted forwards by the value of the second time interval;
4• Senkou Span B: shows the average price value during the third time interval shifted forwards by the value of the second time interval.
Chinkou Span shows the closing price of the current candle shifted backwards by the value of the second time interval. The distance between the Senkou lines is hatched with another color and called "cloud". If th
More info for Forex Indicator List and How To Use Them ~ day trading strategies in forex:
It consists of four time intervals of different lengths, which determines the values of the individual lines:
1• Tenkan-sen: shows the average price value during the first time interval defined as the sum of maximum and minimum within this time, divided by two;
2• Kijun-sen: shows the average price value during the second time interval;
3• Senkou Span A: shows the middle of the distance between two previous lines shifted forwards by the value of the second time interval;
4• Senkou Span B: shows the average price value during the third time interval shifted forwards by the value of the second time interval.
Chinkou Span shows the closing price of the current candle shifted backwards by the value of the second time interval. The distance between the Senkou lines is hatched with another color and called "cloud". If th
More info for Forex Indicator List and How To Use Them ~ day trading strategies in forex:
