Technical Indicators

These days, a user only needs to pick out the indicator value and the trading terminal will perform the process of transforming the values with indicator formulae.

We will describe the principle of operation for the most useful indicators that are available on the Meta Trader 4 trading platform and give you some examples of using them. These indicators are often used by traders in everyday trading.

You can put some indicators like a moving average (the red line) onto a price chart.

A price chart can have windows opened below it to display some indicators such as Relative Strength Index (RSI).

All indicators can be divided into two groups for convenience in accordance with their purpose:

* Trend indicators – Show the existing price change direction trend.
* Price oscillators – detects breaking points in the current trend of price change.

As an example, an oscillator would be RSI and a typical trend indicator would be a typical moving average indicator.

Trend Indicators

Moving averages (MA)

Of all the trend indicators, moving averages (MA) are the most widely used. The beginning and end of trends will be picked up by combining them.

The operating principle of this indicator is simple; a moving average averages out price values for a definite time period and displays smoothed values in the form of lines. Depending on the method of averaging out price values, there are four types of moving averages: simple (or mathematical), exponential, smoothed and weighted.

Simple and exponential moving averages are the ones that are most used but there is practically nothing different between all of the moving average types.

The last price value is emphasized by the exponential moving average which makes up approximately 18% of the indicator’s value.

There are simple trading tactics for moving averages; buy when they are moving up and sell when they are moving down. level switch manufacturer

As the redline represents a higher averaging period and the blue line represents the lower averaging period, moving averages are generally used in combination. Buying and selling signals are the cross-points.

It also happens quite often that moving averages of a definite period can be a support/resistance for prices during retracements.

To most effectively use the moving average find a period when most of the price retracements are ‘rebounding’ back from the moving average line.

By studying the principles and properties of moving average you will soon become familiar with the concept of technical indicators.

Average Directional Movement Index (ADX)

By calculating a price corridor for a specific time period this indicator goes beyond the scope of the previous one. The analysis and calculation of this shift will estimate the buyers and sellers potential for raising or lowering prices throughout a definite period in relation to the previous one’s borders.

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