Types of Indicators for traders
Any trader, from beginner to professional, uses indicators in one way or another. Novice traders tend to view indicator signals as a call to action. Such an attitude will inevitably lead to a complete drain of the deposit, since indicators can give false signals in addition to useful signals. In order not to fall into such a trap, you need to understand what this or that indicator is intended for and what it may indicate. There are a huge number of indicators, but they are all divided by type into: trend, oscillator, volume and custom. They have their pros and cons, depending on the type of indicator. Some of the best trend indicators are: ADX, System SAR (Parabolic SAR), Bollinger Bands. The volume indicators are very similar to each other. The Volumes indicator is very effective and easy to use. You can learn more about the effect of volumes on Forex in this article. Among the oscillators, it is worth highlighting: Stochastic Oscillator, RSI (Relative Strength Index), RVI (Relative Vigor Index), CCI (Commodity Channel Index) and MACD.
Let's discover types of indicators in more detail.
Trend indicators. The name speaks for itself, such indicators indicate the direction of the global trend in the market. They, as a rule, are weakly responsive to noise and are considered delayed. They perform well on large timeframes. They help to determine the direction of the market, which is sometimes quite difficult. The use of trend indicators alone sets a restriction on trading. Trading will be carried out on timeframes above H4, due to the nature of indicators and trend indicators ignore reversal signals. The main disadvantage of such indicators is the fact that they are lagging. When you enter a deal on such a signal, there is always a chance of getting to the end of the movement or a rollback.
An example of the work of three trend indicators.
EUR / USD pair on H4. Red circles indicate trade entry, blue - exit, the arrow indicates the direction of movement. In the latter case, we see that the indicators' signals for closing a trade diverge. The question arises: Leave the position open or close? In such cases, you need to use indicators of a different type.
Volume indicators. Serve for the relative determination of the amount of investment. Help detect large capital infusions.
Oscillators. They can predict market changes and trend reversals. They are highly sensitive to noise and are considered leading. They perform well on all timeframes, but due to the sensitivity they give a lot of false signals.
Corrections are clearly visible here, and the issue with the last deal, which arose earlier, is being resolved, since the oscillators indicate the formation of a correction. In this case, you should close sell positions and prepare for purchases.
Custom indicators. Indicators that combine other types of indicators are usually created by experienced users. In the open spaces of the boarding school, you can find a huge number of different custom indicators that contain different properties and modifications. Such indicators are created individually for each terminal and this should be taken into account.
An example of oscillators and trend indicators.
To install a new indicator on the Metatrader 4 terminal, you need to follow a few simple steps:
- Files of an indicator with extensions: .ex4 and / or mq4 must be copied.
- Then open the terminal and click File -> Open data directory.
- A new window will appear, in it go to the MQL4 -> Indicators folder and insert files with the extensions: .ex4 and mq4 there.
- Then, for the indicator to work properly, you need to set the settings. In the terminal, go to: Service -> Settings or the keyboard shortcut Ctrl + O.
- In the window that appears, in the Expert Advisors tab, set the settings as in the picture and click the OK button.
- If there is a file with the .dll extension, copy it to the MQL4 -> Libraries folder.
- Turn off and turn on the terminal again.
- Now the new indicator will be located: Insert -> Indicators -> Custom
For successful trading, it is good to use all types of indicators or indicators that combine all types. To enter a trade, you need to wait at least 3 signals. If we work, for example, with 2 clubs and 2 oscillators, we will get a complete picture from the existing trend and correction points. Such actions will greatly increase the effectiveness of your strategy and help multiply your deposit.
Complex use of indicators makes it possible to see the full picture and get maximum profit.