Best Forex Indicators For MT4

What are Forex Indicators?

We trade in order to get a positive result or, in other words, profit. Many novice traders want to know if technical indicators are capable of giving them good trading signals. The whole truth is that technical indicators won’t automatically lead you to profit, but they will do a great job for you. There is no doubt that an experienced trader can make a profit without using indicators, but they can still be very helpful in trading

Each indicator is based on a mathematical formula. These formulas allow you to quickly calculate various price parameters and then visualize the result on a chart. You don’t need to calculate anything yourself, just go to the MT4 menu, click “Insert” and then select the indicator you want to add to the chart.

Technical forex indicators make their calculations only on the basis of price – currency quotes. As a result, the forex indicators have weak points: they can redraw or lag behind the price (for example, the price has already fallen, and only then the indicator gave a sell signal).

The advantage of using indicators is that they save time on market analysis and help you find a trading idea for your strategy.

Best Forex Indicators

Technical indicators are divided into several groups depending on their purpose (trend indicators, momentum indicators, volatility indicators, etc.). Since the targets of the indicators are different, a trader needs not one, but a combination of several indicators to open a trade.

  1. Moving average is the best forex trend indicator
    The Moving Average (MA) is a trend indicator that helps determine the direction of a trend on a chart. Moving average shows the average price value for the selected time period.

In simple terms, the moving average fx indicator follows the price. It helps to smooth out price volatility and get rid of unwanted market noise so that you focus on the underlying trend rather than corrections. It should be understood that this indicator does not predict the future price, but reflects the current direction of the market.

Moving Average Benefits:

determines the direction of the trend;
finds trend reversals;
shows potential support and resistance levels.

Moving Average Disadvantages:

lags behind the current price (will change more slowly than the price chart because the MA indicator is based on past prices).

Varieties of moving averages
There are 4 types of moving averages: simple, exponential, linear weighted, and smoothed. The difference between the two is purely technical. We recommend that you use a Simple Moving Average (SMA) or Exponential Average (EMA) as most traders use these lines. The most popular time frames for SMA are 200, 100, 50, and 20 days. A 200-period MA can help analyze a long-term “historical” trend, while a 20-period MA is suitable for tracking a short-term trend.

How to apply a moving average in trading?
The trend is bullish when the price of a currency pair is above the MA, and bearish when the price falls below. Also, notice how moving averages with different periods behave in relation to each other.

An uptrend is confirmed when a short-term MA (such as a 50-period MA) rises above a long-term MA (such as a 100-period MA). Conversely, a downtrend is confirmed when the short-term moving average falls below the long-term moving average.

Best Forex Indicators For MT4

Best Forex Indicators For MT4
Best Forex Indicators For MT4

2. Bollinger Bands – volatility indicator

Bollinger Bands help measure market volatility (that is, the degree of price change). Bollinger Bands indicator consists of 3 lines. Each line (band) is an MA. The middle line is usually a 20-period SMA. It defines the direction of the trend – just like the MAs described above. The upper and lower bands (or “volatility” bands) are shifted two standard deviations above and below the middle band.

In simple words, the Bollinger Bands indicator builds a channel around the price, which, depending on the current volatility, either expands or contracts. The narrower the range, the lower the market volatility, and conversely, the bands widen when the market becomes more volatile. The price constantly revolves around the center line. She can test levels outside the outer lines, but only for a short period of time, and cannot go far. After such a deviation from the center line, the price should return back to the middle.

Bollinger Bands Indicator Benefits:

The indicator is really good at the flat (when a currency pair is trading in a range). In this case, the Bollinger Bands indicator lines can be used as support and resistance levels from which traders can open their positions.

Disadvantages of the Bollinger Bands indicator:

During a strong trend, the price can stay on one Bollinger line for a long time and not switch to the opposite one. As a result, we do not recommend using Bollinger Bands for trending markets.

How to use Bollinger Bands in trading?
The closer the price approaches the upper border, the more the currency pair is overbought. Simply put, by this time, buyers had already capitalized on the price increase and closed their trade to make a profit. As a result of overbought, the currency pair stops growing and will turn down. An increase in price above the upper band can be a signal to sell, and a decrease in price beyond the lower band can be a signal to buy.

The outer bands automatically expand as volatility increases and narrows as volatility decreases. Periods of high and low volatility usually follow each other, so narrowing bands often means that volatility should rise sharply.

We do not recommend using Bollinger Bands without confirmation from other indicators. Bollinger Bands work well for candlestick patterns, trendlines, and other charting tools.

Bollinger Bands work best when the market is not trending. This indicator can be an excellent foundation for a trading system, but this alone is not enough: you will need to use other tools as well.

Best Forex Indicators For MT4

Best Forex Indicators For MT4
Best Forex Indicators For MT4

3. MACD is the best momentum indicator

MACD (MA Convergence / Divergence) measures the strength of the market. This is the most popular indicator among traders. It shows when the market gets tired of moving in one direction and needs rest (correction).

The MACD histogram is the difference between the 26-period and 12-period exponential moving averages (EMA). It also includes a signal line (9-period MA).

In simple words, the MACD indicator is based on moving averages, but it also includes some other formulas, so it belongs to the type of technical oscillator indicators. Oscillators are displayed in a separate window below the currency pair chart.

Advantages of the MACD indicator:

MACD can be used both in trending markets and flat market;
If you understand how the MACD works, it will be easy for you to work with other oscillators as well.

Disadvantages of MACD:

The indicator lags behind the price chart, so some signals come with a delay and are not accompanied by a strong market movement.

How to use the MACD indicator in trading?

Sell ​​when the histogram bars begin to decline after a prolonged rally. Buy when the histogram begins to rise after an extended decline;
Buy when the MACD-Histogram rises above the signal line. Sell ​​when the MACD-Histogram indicator falls below the signal line;
When the MACD crosses the zero line, it also shows the strength of the bulls or bears. Buy when the MACD histogram rises above 0. Sell when the MACD histogram falls below 0. Note that these signals are weaker than the previous signals;
If the price rises and the MACD falls (divergence), it means that the price increase is not confirmed by the indicator and the price rise is nearing completion. Conversely, if the price falls and the MACD rises, a bullish reversal can be expected.

It is good to use the MACD indicator on a chart as it measures both trend and momentum (rate of change in price). It can be the basis for your trading system, although we do not recommend making trading decisions based on this indicator alone.

Best Forex Indicators For MT4

Best Forex Indicators For MT4
Best Forex Indicators For MT4

See Also:Best paid MT4 indicators free download


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