Forex Education Forex Indicators

The Absolute Best Forex Indicators (and How to Combine Them)

One of the most challenging and time-consuming aspects is trying to find out what your trading style is and the time period that best suits you. From the perspective of technical analysis, that means finding the right tools that you will usually use and learning well.

What are Forex indicators?

Forex indicators are useful in helping you answer these dilemmas. What to do if a currency is making historical maximums and minimums, so there is not enough or no support and resistance to guide you in and out decisions? How do you know if you’re not shopping at the top, or selling right at the bottom, right before the trend ends? Ideally, in any case, you’d wait for a retraction of some kind, but in the meantime, you risk losing the trend!

If you’re in a winning transaction and you’re approaching your planned exit, how do you know if you should take a planned exit, or leave at least some of the position in the hope of letting the winnings run with a trailing stop?

The consensus is about 5 technical indicators that in the balance indicated between sufficient information to make appropriate decisions and not too much for you do not suffer from an information overload, paralysis by analysis. Practically, a precise combination of forex indicators can mean anything from three to seven indicators; ultimately it is your decision. You don’t have to get attached to the same tools all the time; just limit the number you’re seeing at a certain point. Those negotiating over longer periods of time have more time and can afford to see more indicators. They should also be more informed about the key long-term indicators of:

The savings of the currencies they are trading.

The macroeconomic engines of the global economy push the appetite for risk and influence all markets all the time.

This is very critical. As a minimum, it involves following a few fundamental analyses to read and at least an indicator that gives you a big perspective like the S&P 500 index (and what is driving it in the period of time you chose).

Continue reading for more information or start risk-free trading and combine the best fórex indicators in a successful way. Use software to create Expert Advisors to test and optimize your strategy and use it as a fórex robot for automated trading.

Recommended Forex Indicators

While the number of indicators you choose may vary with your preferences, needs, and trading style, the main principle in selecting your toolkit of indicators is to have a balance that gives you a good perspective of the different types of information you need, specifically:

  • Trading trend or range
  • Momentum
  • Support/Resistance
  • Timing or cycles

Trend or Range of Indicators

Indicators that follow trends, as the name suggests, are designed to take advantage of market trends. Examples of these include moving averages (Mms), the average directional index (ADX), and on-balance volume (OBV).

Range-based indicators are mostly designed to show oversold and oversold conditions in a price range that includes Bollinger Bands, the Commodity Channel Index (CCI), the Relative Strength Index (RSI), and the stochastics indicator. Some indicators, such as the moving average convergence divergence (MACD), can be used to generate either a trend-following signal or a range-based signal depending on the time periods used in the calculations.

Probably the best fórex indicator in the world is the Double Bollinger Bands -The Bollinger Bands with a brilliant extension. Dbbs are really a hybrid trend and an indicator of momentum. In markets where there is a certain regression to the average, the DBB provides points of support and resistance(s/r). When there is a trend, they show the momentum of the trend and the power to stay probably.

The euro/yen with 50-day and 200-day moving averages. Image by Sabrina Jiang © Investopedia 2020

Indicators of Momentum

The basic problem traders and investors have is that they are paid to be correct about what will happen later, but the vast majority of the best-known indicators we have covered so far are lagging indicators rather than leading indicators. They inform us of the past, and with that information, what we can do in the best way is form a hypothesis about the future.

What does a trader do? uses momentum indicators. They are leading indicators because:

They can tell if a trend is strengthening or weakening.

They can tell whether an asset is overbought or over-exploited relative to past activity over a given period, and also indicate whether the trend is likely to reverse.

Knowing this can help you predict changes and have better returns.

Momentum indicators give you additional clues to put the odds of being right in your favor. There are many indicators of momentum, but now we will introduce only some of the most effective and easy to use:

Double Bollinger Bands

Three types of basic oscillators: Moving Average Convergence/Divergence (MACD), Relative Strength Index (RSI), and the Stochastic Oscillator. As with any other indicator, you can use these without knowing how well they work, although if you do, you will be able to use them more effectively and know how to adapt them to your specific situations.

You should consider using the Double Bollinger Bands and one or two oscillators you choose, especially the moving average convergence/divergence (MACD). A few lines of moving averages as we saw before (in periods of 10, 20, 50, 100 and 200) not only serve as indicators of momentum, they also provide points of support and resistance.

Points of Support/Resistance

To add to the obvious price levels highlighted in your chart ( and in periods 4 or 5 times shorter and longer) you should always see:

  • The s/r points generated from the trend or range indicators.
  • The s/r points formed by the western style graphs, both their trend lines and the target points involved in new trends.
  • The s/r points transmitted by the pivot points.

The use of pivot points should be taken into account. A pivot point is no more than a technical analysis indicator, normally used to determine the market’s major trend over different time periods. The pivot point for it is simply the average of the maximum, minimum, and closing prices of the previous trading day. On the following day, the negotiation at a higher point of the pivot point indicates a bullish feeling, while if below the pivot point indicates a bearish trend.

The pivot point is the base of the indicator, but it also includes other support and strength levels that are projected based on pivot point calculations. All these levels help traders to try to guess where the price might have resistance or support. Similarly, if the price fluctuates around these tells the trader that the price goes in a certain direction.

Synchronization or Cycle Indicators

Gann, Fibonacci, Dinapoli, Elliott Wave, and other similar studies are synchronization or cycle indicators. For example, the typical toolkit could include, in addition to any obvious s/r points:

A set of moving averages of periods of 10, 20, 50, 100, and 200: Again, these serve as s/r points as well as momentum indicators if they show a cross or a stratification.

Trend lines and channel lines show the trend and provide points of s/r.

Double Bollinger Bands and MACD show the changes in momentum.

Fibonacci Setbacks One of the most recent trends in every period of time possible are the points s/r. If you need to re-draw these for every period of time you examine, do so, as the primary trend can vary dramatically over different periods of time.

If you can locate any pattern on a western graph, note the levels involved of s/r (maxima, minima, necklines, shoulders, etc.). Japanese candle patterns provide short-term signs of continuing trend or a reversal.

Euro/yen cross with 50-day and 200-day moving averages and MACD indicator. Image by Sabrina Jiang © Investopedia 2020

How to Enter MT5 and MT4 Indicators Into Charts

Then you would have to apply this group of fórex indicators to the time period you are negotiating, as well as those 4 or 5 times longer or shorter. For example, if you are trading daily graphs, you should also see the weekly and two or four hours (depending on what defines your trading day whether it is 24 hours or 8 to 10 hours).

A good graphics program that includes the Metatrader 5 will allow you to store any group of indicators you want since a model on the chart can be applied to any chart of any asset your broker offers.

The purpose of this first visualization in a longer period of time (weekly, in our examples) is to find points of support and longer-term resistance that you should see in the graphs you are negotiating, hoping to find a currency pair that looks like it can reach the s/r área and provide an entry point with a lower risk. That is the first step in locating low-risk, high-yield transactions.

The second visualization would be to examine the possible inputs and outputs in the shortest time periods you are negotiating, to see if you can find situations where your entry point is two or three times further away from the exit point than is your stop loss. The point of taking the winnings is usually easy to see. It is where you can reach the correct stop-loss point that usually determines whether you take the transaction.

The third visualization would be to check in the shortest time period (from two to four hours of the time period in our examples) to see any short-term s/r points, just so you are informed of s/r. time points. If these points are held for much or too often, your transaction may be showing signs that it is failing and you would have to reduce the size of your position. However, these are quickly overcome, this is a sign of progress and a signal to consider adding to your position.

  1. Run an MT5 indicator on the graph.

The most appropriate way to enter an MT5 indicator is to remove it from the browser window. You can also use the indicator command to insert them from the Insert menu or the indicator button in the standard toolbar.

  1. Change the settings of an applied MT5 indicator.

The settings of using an MT5 indicator can be changed. Select the required indicators in the list of indicators and click on “Properties” or use the menu of indicators in the graph.

Use the menu to manage the indicators:

  1. Indicator Properties Properties – opens the properties of the indicators;
  2. Delete Indicator Delete Indicator – Deletes the selected indicator from the graph;
  3. Delete Indicators Window Delete Indicator Window – deletes the indicator subwindow. This command is only available in the indicator menu which is in a separate sub-window. ;
  4. List of indicators Indicator List – Opens the indicator list window.
  5. Move the cursor to a line, symbol, or to the limit of a histogram of an indicator, it is possible to define quite precisely the value of the indicator at this exact point.
  6. Customize the MT5 display appearance

You can customize the appearance of the indicators on the trading platform. You can configure the parameters of the indicators on your trading platform. You can configure the indicator parameters when you apply them to the graph or you can modify them later. The appearance of the indicator is adjusted in the tab “Properties”.

The Color, width, and style of the indicator are configured in the “Style” field.

  1. Choose data to draw an MT5 indicator.

Technical indicators can be graphically based on price data and their derivatives as (Median Price, Typical Price, Weighted Close), also based on other indicators. For example, you can apply the moving average to an oscillator and have an additional AO signal line. First of all, it is mandatory to draw the indicator AO, and once drawn apply the moving mean to it. In the MM configuration select the option, “Previous Indicator’s Data” in the “Apply to” field. If you choose “First Indicator’s Data”, MM will be applied to the first indicator, it can be another indicator.

There are nice variants for the construction of an indicator:

  • Close – Based on closing prices.
  • Open – Based on opening prices.
  • High – based on maxima.
  • Low – Based on minimums.
  • Median Price (HL/2) – Based on medium price: (High + Low)/2.
  • Typical Price (HLC/3) – Based on typical price: (High + Low + Close)/3.
  • Weighted Close (HLCC/4) – Based on average heavy closing price: (High + Low + 2*Close)/4.
  • First indicator’s data – Based on values that were first applied to the indicator. The option to use data from the first indicator shall only be available for indicators in a secondary window because in the main window the main indicator is the price.
  • Previous indicator’s data – based on previous indicator values.
  1. Configure additional MT5 indicator levels.

For certain indicators, it is possible to enable additional levels. Open the tab “Levels” and click on “Add” and then enter the value of “level” in the table. You can also add the description of “level”.

The line color, width, and style of the levels can be configured below. To edit a “level”, click on “Edit” or double click on the appropriate field.

For the indicators applied to the price chart, the levels are drawn by adding the values of the indicator and the specified level. For indicators drawn in a secondary window, “levels” are drawn as horizontal lines through the value specified in the vertical scale.

  1. The MT5 display settings.

The display of the indicator for different time periods can be configured in the tab “Visualization”. The indicator shall only be shown for the specified time frames. This situation could be useful when the indicator is intended for use in specific time periods. The “Show in the Data Window” option allows you to manage the indicator information displayed in Data Window.

Euro/yen cross with three-day RSI overbought/oversold indicator. Image by Sabrina Jiang © Investopedia 2020

Combining the Best Forex Indicators

The forex indicators are great to guide us in manual trading. But if what we want is to automate trade and let Metatrader negotiate on its own while doing other things we cannot simply do that using indicators. Metatrader indicators do not contain trading logic. This is where Expert Advisors come in.

There are many tools that will allow you to generate unencrypted fórex robots. This is where we can help you quite a bit. Instead of spending hours coding, testing, changing, and optimizing your robots, we can offer you a tool that does it for you.

Robo-Advisor is designed to help you analyze, test, and generate strategies. It also allows you to export those strategies easily to the Expert Advisors so you can automate your trading on Metatrader.

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Forex Robots: Are they Money Making Machines?

If you have always wanted a robot to clean your house or take your dog for a walk, you would understand how attractive a Forex robot is. These services do not clean windows or take care of your pets, what they offer is definitely something much better: a relatively non-interventional way of trading in forex and other financial markets.

Many people dream of finding the perfect trading system, which guarantees profits and requires minimal effort for users. When many Forex robot programmers are available, there are some important questions to be answered.

What Is A Trading Bot?

As the name implies, a trading robot – also known as Robot Forex goes beyond simply testing trading strategies to currently apply them in real-time to make real transactions with live market data. When the robot generates a buying or selling signal, the platform automatically places the transaction. These systems have often been used by institutional traders for a long time in all markets. During the last few times, trading robots have become quite popular with private traders, particularly because they do not require any programming experience to create, execute and optimize them in an automated forex system.

Assuming the robot is well designed, tested, and its performance monitored, robot-assisted trading has some obvious advantages:

-You never miss an opportunity: the robot can work 24/7.

-There are no emotions, pure discipline: a trading robot eliminates the emotions of forex trading as long as you are disciplined enough to let the system work even when you believe that the rules do not apply under certain circumstances.

So if you do:

-You create a set of clear and unambiguous rules that can be expressed in a programming code.

-You have the time and experience to translate these rules into a program and test it, or use a programmer to do it. So automated trading is the best way to execute a precise forex strategy.

How Does A Forex Robot Work?

Trading robots use algorithms and advanced software to automate trading decisions. Services range from giving you a trading signal to placing and handling the transaction for you automatically requiring minimal or no human intervention. If you have a forex strategy that is strictly mechanical and does not require a human decision process, you can program your robot forex to make transactions 24 hours a day.

The most popular robots for retail customers are programmed on the Metatrader 5 platform. These robots are run on MetaTrader as “expert advisors” (trading robots) and are the implementation of some trading rules in a code that Metatrader or other trading platforms can understand and execute. MQL5 (Metaquotes Language) is the integrated programming language designed to develop forex robots with the Metatrader 5 platform and requires advanced programming skills. But, there are several tools available that allow you to generate unscheduled forex robots, known as “EA Generator” or “Strategy Builder” (EA generators or strategy developers).

What Is the Cost?

Many companies create and sell trading robots, but be careful who you do business with if you are in the market to buy one. It is not unusual for brokers, traders, and different unregulated websites to appear overnight and start selling a “get rich right away” robot, including a money-back guarantee so that your money will disappear within 30 days or less. Most of the robots that are made to be bought are not successful, so please do your research beforehand if you are thinking about buying one. The best thing is to be cautious because there are a lot of risks on the learning curve or mining data in the offers that are for purchase. As mentioned above, the alternative is to use an ea forex generator, designed to help you create, test, and export unlimited robots for Metatrader 5, without writing codes.

A Forex robot is much cheaper than a human manager or an account to copy the movements. Most companies sell robot forex for a one-time fee or a monthly fee as well as an annual fee. Even so, any forex robot needs constant parameter optimization and may fail after a successful start. In other cases, customers have access to an EA generator and even an expert within the company dedicated to consultation and support.

Those conditions do not apply to most of us, so the way most of us should use this option is using retail forex trading. Many forex brokers offer a variety of trading systems as part of their offerings. There’s nothing wrong with these, especially if you’re allowed to check them for a while to see how they work.

Expert Advisors (trading robots) are generally designed to work in specific environments, typically for a trend or markets that tend to regress, but not both. Before choosing a forex robot, you must understand what kind of markets and conditions the robot is designed for. A legitimate vendor will give you clear and concise information on what kind of conditions the robot works in, its performance, the amount of time it has been in operation, the benefit you can expect as well as the maximum you can lose.

As with any business proposition, if the benefits of a robot forex sound too good to be true, the odds are that it will. If the benefits look very out of place and their price is very low, well, I hope they allow you to test it first with a small amount of risk, otherwise, continue your search.

Ideally, as far as possible, review as much time as the robot has been operating and understand market conditions during that period of time. For example, at a time of growth and rising interest rates, the trading robots they buy will work well as the riskier currencies are favored. However, during the crises, these robots will suffer.

Typically, the more benefits you get, the greater the chance of losing. If a salesman offers you big profits and losses, he’s being honest. If the seller offers you high profits without a high risk of loss, you should be suspicious. There are many online trader forums dedicated to automatic trading; there are legitimate robot programmers and there are frauds, so consider yourself warned.

But, the main option is to build your own robot forex.

What is the Best Software for Robot Creation?

ROBO ADVISOR 007 is the only software to create robots online. With Robo Advisor 007 you can automate your forex strategy for Metatrader 5 in a comfortable and safe way. No need for you to know anything about advanced programming since the robot generator is smart enough to write the code for you. The source of the program is a very advanced algorithm that tests the strategy, similar to that of Metatrader, but much faster. The program is so fast that you can automatically create and test the strategies.

Robo Advisor 007 has several components:

The generator – The generator is in charge of creating and testing the systems automatically. The generator saves the most successful strategies in the collection. The moment a strategy is generated, it can be exported as a trading robot or send it to the editor for review and improvement.

The collection – when we are using the generator, the program stores successful strategies in a collection. You can search the strategies collected by a certain parameter and send it to the editor for export or review. You can also export the entire collection for further revalidation and use.

The editor- With the editor, you can create and edit strategies by modifying the indicators and parameters. When you edit a strategy, the program tests the historical data, displays the most important statistics, shows the balance sheet, and charts the curve of profits or losses. Since Robo Advisor tests are so fast you can improve your strategies while looking at the graphs. When you find a strategy you like you can export it as a forex robot.

Report- When a strategy is in the editor you can go to Report to see extensive information about test results in the historical data. The report page contains all statistical information, graphs, and the transaction log.

Exporting robots – You can export your robot forex to use in Metatrader. The exported robots use only standard MT5 indicators, which makes it very easy to use the robots in MT or upload your files to a VPS (virtual computer). You can confirm the operation of your robots with the software to test the strategies of Metatrader Strategy Tester with a demo account or data that are not known. If your tests are good, you can use your robot for real trading.

The idea or intention of Robo Advisor 007 is that software to create Forex robots with a good algorithm to test the strategies as well as an execution of the strategies in real time give you as a result a good benefit. Please be extremely careful when dealing with real money and always consider the risks.

How to Create a Robot with a Generator

With the powerful tools used by hedge funds or global investment managers and institutional traders, you can create forex robots with generators without any programming skills and without programming. You will see real results immediately and with just one click you can download the best robot for free and use it in Metatrader 5.

If you are a novice in the markets, you can generate strategies for forex, stocks, indices, raw materials, and cryptocurrencies with just a few clicks. You will see hundreds of strategies that are already tested and ready to be used. A robotic counselor (Robo-Advisor) gives you the possibility to use many strategies in a single account. This way, you can diversify risk and achieve more stable results.

Forex Education Forex Indicators

Differences Between Price Action and Forex Indicators

If a survey were conducted among Forex and Futures retailers and one of the questions was: “What method or system did they first use to negotiate?” Without any doubt, the vast majority of traders would say that they started with indicators such as moving averages, stochastic, MACD, Bollinger Bands, and the list would follow.

I’m very lucky to be able to talk and help traders with their trading objectives every day, and the list of methods and systems with indicators that I find are endless. You just have to look at any Forex forum to see how many of the new traders are scouring all the “Forex Systems” threads for the latest indicators, because people use new indicator systems whenever they can (not necessarily the most profitable).

The reason the indicators are so popular is that they feed into the new trader’s belief that the indicator can help predict where the price will go. In order to understand the indicators in the right way traders need to understand how the indicators are constructed and project their information. 98% of all indicators are built using old price information to make a late indicator. For example, a moving average is created using the old price to make a mobile line that traders can use in various ways.

The main problem with indicators is that they are always created after the event and traders are using previous information to guide them. In other words, they are using late information to make live trading calls.

A Dangerous Trading Mindset

The other major concern with indicators is that traders rarely stop at an indicator and that’s often where things begin to adjust to the trader mentality. A novice trader will normally have some winners with their first indicator. It doesn’t matter how many losses the trader has suffered or even if they terminate their account. What the trader tends to remember is that the first indicator helped him to make a winning transaction and above all the trader will remember that this first indicator helped to predict correctly the direction of the price. All the losses and bad thoughts have been completely relegated to one side because the trader has already moved on to what comes next and has already solved EXACTLY how it will do everything again and much more.

The trader often thinks: “If an indicator helped me to perform a winning transaction, then two indicators will surely help me to predict even better the direction of the price” and then when two do not help, three have to be even better, etc., but the problem is that, Like so many things in negotiation, this just doesn’t work out this way. Human beings in everyday life are programmed to think that anything worthwhile can’t be simple and new traders often spend a lot of time trying to make trading complicated by adding fantasy indicators for their trading thinking that the more indicators they use, the better they can predict the direction of the price, but this is the exact opposite of what traders have to do.

This mindset is a trap in which it is very easy to fall because the trader may find himself in the usual situation of adding more and more indicators like him begins to have more and more losses, with the erroneous mentality that indicators will help you predict the direction of the price. What ends up happening is that the trader, from the beginning of his trading trip, uses so many indicators in his charts that he ends up in a tremendous mess and in a state of paralysis of analysis. The trader finally ends up with many indicators in his charts, and they all tend to contradict each other and the trader can no longer operate, as he is very confused about what to do. So what does the trader have to do?

Forex Indicators

The simplest and least complicated method of negotiation in the world is the action of price. All that is needed to negotiate according to the share price is a chart of the stock of the blank price and its method of negotiation. The main difference between the indicators and the price share is that with the indicators you are using old and late price share information to try to predict the future, but with the stock price continually reading the live price as it is being printed on the chart.

There are no indicators or external influences at all that are used to trade according to the price share. Basically trading according to the share price is the ability to read the price and make trades on any chart, on any market, in any time frame, and without the use of any indicator at all. Below are two charts, face-to-face, with the price share chart on the left side with just the raw price share and the graph full of indicators on the right.

Training and commitment are required to succeed by operating on the basis of price action as with any other method of trading or worthwhile systems, but the reason why trading with the share price is so successful, and why many professional traders use it, is because it simplifies the negotiation process and the mentality required to be profitable.

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How Do Forex Robots Actually Work?

What’s this about trading robots? Do they work? Are robots bad? Many questions are those that usually roll in the head when you hear the word “robot”. In the article I write today, I will try to expose what is this about Forex robots and everything that affects them, as well as some myths and realities. Let’s discuss…

How Do Forex Robots Work?

Before you start talking about how they work, do you know what a Forex robot is? A robot is nothing more or less than a few lines of code with clear rules of entry and exit to the market that are executed automatically. All this applied to the Forex market would simply be an automated strategy that buys and sells in the currency market. They are also called EA (Expert Advisor).

When I told you what it is, I explained how they work. But hey, can you make money with robots, or are they a scam? The performance or results of these automated strategies will depend on these previous strategies and their supervision, so if they are not profitable from the start, no matter how much they are automated they will not be. But if the strategy that is programmed is good, the result may be better.

Key Advantages

One of its great advantages is to be able to quantify the performance of the strategy that has been programmed. With a programmed strategy, you can perform a backtest and evaluate how that strategy has behaved before. If you have done discretionary or manual trading you will surely have tried different systems without having statistics or results of whether they have worked or not in the past. Come on, you’ve been playing with your money without knowing if what you were doing was profitable or not. Think for a moment, if you don’t quantify, how are you gonna know you’re making progress?

You need objectivity in making decisions when you make decisions. Otherwise, your results will be affected by your interpretation and here you have a good extra factor to make a mistake. How are you going to correct it? Systems or robots allow an objective market approach.

As you know, the accuracy of execution when trading is key. When you trade manually, you analyze wait for the moment and execute the order. When the process is automated, the order is released in less than a second without hesitation or analysis, or thoughts.

Another advantage more than considerable is that to execute the operations you do not have to leave your eyes looking at graphics for hours. You can do it uninterruptedly over time, even if you’re not in front of the screen. If you’re on a trip for a week or you have to do anything to stop you from being there, your operation may be running simultaneously. Be very clear, however, that they must be monitored and that the creation of automated systems requires time and work.

Closely related to the previous one, with robots you can trade in different assets simultaneously. Manually we are limited in this aspect. So you can diversify without problems.

And yes, the psychological approach. As you know, in this trading, psychology is important and it affects a lot. When the strategies are done in an automated way you reduce the psychological component quite a lot since your buying and selling decisions are not biased by your psychology. I say it’s reduced because you have to know that when robots have a negative or positive performance it will still affect you. But the main difference is that the results affect your psychology and not your decisions as it usually happens when operating in a discretionary manner.

Key Disadvantages

Although the advantages are clear, there are disadvantages. Most of the robots that are marketed on the Internet are based on martingales, grid. that reflect very good results and almost perfect performance curves but one day they break. Why? Because of the aggressive risk management rules they use. If you don’t think so, try downloading some for free and look at their results over a long period of time.

Why does this happen? Creating a good, cost-effective automated system is not easy. Programming a martingale or grid is not easy. So before you buy any robot, make sure they don’t use these techniques and that there’s no one hiding under a brand that can disappear tomorrow.

As for disadvantages when trading with robots something important is any technical failure that may arise and cause it not to run well. It is advisable to use VPS (a private virtual server) if this failure can affect your operation. I explain what a VPS is in this video:

Although it’s something that’s never happened to me yet, it is something that can happen. But it is as if the Internet connection fails. Also, failures or errors when programming the strategy (before executing it in real test it in demo or with very little capital).

Disadvantages are anything you might think might affect something that’s running remotely. Many such tasks already exist in different areas today.

What are the Limits of Robots?

We could say that robots do not work (always). I mean, there are systems that work perfectly for many years, but the vast majority die first. So? The solution is to have clear rules to disable these robots. If you don’t have an established plan, what are you going to do if your robot keeps losing money? Learn how to manage them.

Another limitation when using automated strategies is the over-optimization of parameters. What is that? Adjust your variables so that past results are very good. What’s the problem here? That we don’t know what’s going to happen on the market tomorrow, so it’s very likely that that robot won’t work well with new data when you apply it. Solution? Create a strategy and then validate it. Not the other way around. Remember that it is not about looking for perfect results, it is about getting real results.

Robots do not do magic, they have an added value with respect to manual trading that is quite clear, but it is something that you connect and you sit down to see how you drop the money. To take advantage of them is to be intelligent, but to ignore limitations is to be naive.

How to Choose A Forex Robot?

We talked about an important point earlier. Avoid using robots that apply aggressive risk management. If you’re going to choose a robot, spend some time contacting the person who created it, their background.

Don’t buy on pages you don’t know, in fact, I would tell you not to buy a robot as such but have expert supervision. As we’ve already seen, robots need to be managed. Be sure that you are able to learn to do all this by yourself in a simple way. You also have other alternatives in portals like Darwinex.

How to Program a Forex Robot

Today there are many tools to do so. From my experience, don’t get complicated and use those that allow you to start with a short learning curve. Some tips to create a good robot:

Set clear market entries and exits.

These things have to be made as easy as possible. You don’t need a thousand lines to make it work. Use the rule that your logic fits in a post it.

  • Always use stop-loss unless you don’t use any leverage.
  • Do it on assets that have liquidity so as not to pay a surcharge.
  • Schedule them to run in hours where there is volume on the market.

The Best Account Types

The most suitable accounts for trading with robots are the same as for manual trading. Accounts with low spreads, direct market execution, and adjusted swaps. Forex brokers are many, but with these features no longer so many. It is important that no use standard accounts or the behavior on the outcome curve you are going to get will be very different.

The Best Forex Robots

The best robots are the ones you know and create. Those that you can build in a simple way and also do different tests of robustness to know first hand their weaknesses and strengths.

For me, there are no good robots or bad robots. There are robots that work and there are robots that don’t work. I try to apply those who do and discard those who stop. I use more than a hundred strategies that I monitor daily and follow up. In this way everything is dynamic and although there are always strategies that do not work over a limited period of time, which is involved is that there are others that generate more than those.

Manual Trading or Robots?

Within the world of investment and trading, there are defenders of manual trading versus robots and vice versa. To say that manual trading doesn’t work seems very bold to me. In case a person hasn’t worked, why won’t it work?

After all, a robot can be a manual trading system that runs automatically. Provided that there are clear rules and a methodology, it is clear that both can be valid. Now, a forex robot has a number of advantages over manual trading that it doesn’t have. If we have the ability and the judgment that a person can have and the means to carry it out through robots, why not use both?

Forex Indicators

The True Benefits of the ATR Indicator

Instead of using your own judgment, some statistical measures of price volatility are available. One of the most popular is the ATR indicator (Average True Range), which measures the average movement for a given exchange torque ( or action, raw material, etc.) for a given period.

What Is the ATR Indicator?

The ATR indicator moves down and up as the price of an asset becomes larger or smaller. This indicator is based on price developments, so the reading is in dollars. For example, in share trading, a reading of 0.23 of the ATR means the price ranges from $0.23 on each price bar. In the currency market, the ATR will show you pips, then 0.0025 is the same as 25 pips.

A new reading of the ATR indicator is calculated as each period passes. On a one-minute graph, a new ATR reading is calculated every minute. In a daily graph, a new ATR reading is calculated every day. All these readings are plotted as a line continues, so traders can see how the volatility has changed as time goes on.

Since the ATR is based on how much an asset moves, the reading of an asset is not comparable with other isolation assets. To better understand the indicator, here is how we calculated it.

Finding the A, or average first requires finding the true range (True Range TR).

The TR is the largest of the following:

  • The current maximum less previous closure
  • Current minimum minus previous closure
  • Current maximum minus the current minimum

Whether the number is positive or negative, it doesn’t matter. The highest absolute value is the one used in the calculation.

The values are recorded every day, and then you get an average. If the ATR is averaged over the previous 14 periods, then the formula is as follows:

ATR = [( ATR Previous x 13) [ TR Current] / 14

Continue reading about the ATR or start playing a little with a risk-free demo account and see for yourself how the ATR indicator works in real-time.

Setting the ATR Indicator

Typically, the default parameter is 14 periods, that is, 14 days on the daily graph, 14 hours on the hour graph, and so on, but as time goes on you want to experiment with the parameters. Knowing the ATR for a certain period, traders can choose to place a stop loss at a certain percentage of that range, based on the entry point. Let’s take an example, traders with confidence in the trend direction who want to prevent their stop loss from being reached would place the stop loss at 80 or 100 percent of the ATR away from the entry point near strong support. They will accept the long loss if that stop is reached because they believe that the probability of that happening is slim.

Traders with lower confidence and greater risk aversion that they want less loss (even if there are more of them because the stop is reached) can place their stop closer, perhaps 50 percent or less from the ATR indicator outside the point of entry. When you know the usual volatility for a given period of time through ATR, you have a better idea of how far you want your stop loss fixed or dynamic to prevent a random movement from reaching it.

Let’s use an example of how to use the ATR indicator to measure volatility and place a fixed or dynamic stop loss command.

Measuring Volatility

We refer to the example above. In the figure below, we show the same daily graph EURUSD showing the daily candles for the transaction’s entry date on August 11, but this time we include the ATR, which shows that for the past 14 days or candles daily, The average price range was around 210 pips. Those interested in how the ATR is calculated can view it online.

However, if we wanted to decrease the chances of reaching a stop loss in exchange for a risk of further loss if the transaction turned against us, we could have established the stop loss at a distance of 50 percent or more from the ATR, 105 pips, below the point of entry or some different percentage of the ATR.

The point here is that there are two different ways to determine how far you are going to establish your stop loss. In this example of fórex trading, we use the most recent minimums as a guide while we could have used the ATR. Much depends on factors such as your appetite for risk, market conditions, and confidence in the transaction. For example, if you caught a retraction to strong support in a strong general trend, you may be more confident that that upward trend will return and allow a wider stop loss to prevent it from being triggered by random price movements. When you have less confidence, you can keep the stops tighter.

Setting an ATR Indicator in MetaTrader 4/5

This section shows how to configure the ATR indicator in MT5. Assume that you have opened a graph.

Adds an ATR indicator and sets the parameter for this indicator:

  • Click on Insert and move your mouse over Indicators and Trend
  • Click ATR indicator
  • Configuring the common parameters

After you have completed the above step, the settings menu appears. Most indicators can be controlled by many common parameters.

There are two types of parameters:

  1. Indicator calculations: e.g. the number of periods used by the ATR indicator (you don’t need to worry about this much in the beginning)
  2. Display of an indicator: e.g. How will it look? The thickness and colour of the lines, etc.

To change the indicator settings directly on the graph a while later: Right-click on the ATR indicator (you will have to be very exact on the indicator line to see the menu below)

Choose the ATR Properties: The menu parameter appears again where you can change the indicator.

To delete the ATR indicator: Right-click on the indicator you want to delete (you will have to be very exact on the indicator line to get the menu below). Click ‘Delete Indicator’ and the indicator will disappear from your chart.

Final Words

The ATR indicator is not directional like the MACD or RSI, rather as a unique indicator of volatility that reflects the degree of interest or disinterest in a movement. Strong movements, in either direction, are usually accompanied by long ranges, or long and true ranges. This is really true at the beginning of a movement. Not-so-inspiring movements can be accompanied by relatively narrow ranks. As such, the ATR can be used to validate the enthusiasm behind a movement or a rupture. An upward reversal with an increase in ATR would show a strong buying pressure and the reinforcement of a reversal. A break in bearish support with an increase in the ATR would show strong downward pressure on sales and reinforce the break-up of the support.

Understanding how to read the ATR indicator is important, but if you want some help, Metatrader offers a very useful indicator toolkit. Play a little on a demo fórex account and see for yourself how the ATR indicator can give you a lot of money.

Forex Indicators

Everything You Need to Know About Using MACD (Moving Average Convergence Divergence)

Moving averages identify trends when filtering price fluctuations. Under this idea, Gerald Appel, an analyst and portfolio manager from New York, developed a more advanced indicator. He called it Moving Average Convergence Divergence indicator MACD, which consists of not one but three exponential moving averages. It is seen in the graphs as two lines, whose intersections between them provide trading signals. One is called a MACD line and the other is called a signal line.

This oscillator has been involved in some controversy as to its classification. Mainly because there are analysts who classify it as a trend tracking indicator and others who consider it a follower of the cycle. We can be sure of the following: we are talking about the most effective oscillator after long-term cycles, hence the fact that it can be considered a follower of short- and medium-term trends.

Creating MACD

The MACD indicator originally consists of two lines: a solid line (called a MACD line) and a “strokes” line (called a signal line or signal). The MACD line develops from two exponential moving averages. It responds to price changes quite quickly. The signal line is developed from the MACD line, smoothed with another exponential moving average that responds to price changes in a slower way.

Buying and selling signals are given when the MACD line crosses above or below the signal line. The MACD indicator is included in most technical analysis software and is also on the DIF platform. Nowadays, no analyst needs to calculate it by hand as did its creator, Gerard Appel, because computers do this work faster and with greater precision. The MACD indicator is included in most technical analysis software.

Creation of the MACD:

  1. Calculate an exponential 12-day moving average at closing prices.
  2. Calculate an exponential moving average of 26 days of closing prices.
  3. Subtract the 26-day MME from the 12-day MME and draw its difference, as a continuous line. This is the MACD line.
  4. Calculate an exponential 9-day moving average of the MACD hotline and draw the result as a dashed line. This is the signal line.

Additional MACD Applications

Many operators try to optimize MACD by using other moving averages instead of the more commonly used MME for 12-26 and 9 days. Another option is to use MME 5-37 and 7 days. Some traders try to establish MACD links with market cycles. In the case of using cycles, the first MME should be one-quarter of the duration of the dominant cycle and the second MME should be half of the cycle. The third MME is a smoothing instrument, the length of which does not need to be connected to a cycle.

MACD Trading Rules

The intersections or intersections between the MACD and the signal lines identify changes in the market trend. Trading in the direction of crossing these lines means following the flow of the market. This system generates fewer operations and signal investments than an automatic system, based on an MMS.

  • When the MACD indicator passes the signal line, it gives a buy sign. Enter long and place a stop loss below the last minimum.
  • When the MACD indicator passes below the signal line, it gives a sell signal. Enter short and place a stop loss above the last maximum.

This type of oscillator has two uses. It helps to point out divergences. It also helps to identify short- and long-term variations, not only when the short average moves far above or below the larger average, but also by crossing the two.

MACD Histogram

The MACD histogram offers a deeper understanding of the balance of power between buyers and sellers than the original MACD. It shows not only who controls the market, buyers or sellers, but also whether they are strong or weak.

MACD histogram = MACD line – Signal line

The histogram of the MACD indicator shows the difference between the signal line and the MACD line. It graphically represents that difference as a histogram, a series of vertical bars.

When the MACD fast line is above the slow signal line, the MACD histogram is positive and is represented above the zero line. When the MACD fast line is below the slow signal line, the MACD histogram is negative and is represented below the zero line. When the two lines are touched, the MACD histogram is equal to zero.

Each time the distance between MACD and the signal lines increases, the MACD histogram expands. Each time the two lines join, the MACD histogram is shortened. The slope of the MACD histogram identifies the dominant market group. A growing MACD histogram shows that buyers are starting to strengthen. A decreasing MACD histogram shows that vendors are starting to strengthen.

The slope of the MACD histogram is more important than its position above or below the center line. The best-selling signals are when the MACD histogram is above zero but its address is bearish, showing that buyers are starting to sell out. The best buy signals occur when the MACD histogram is below the zero center line and its slope is bullish, showing that vendors are starting to tire.

However, there are systems that consider buying and selling signals at points where the MACD histogram cuts the zero line. In this case, the buy signal is given when the oscillator crosses from the bottom up, while the sell signal is given when the oscillator crosses the reference line from the top down.

Forex Indicators

How To Use the ADX for Forex Day Trading

All that glitters is not gold, they say. The same often applies to everything that is popular. And, if nothing else, ADX is one of the more popular indicators on the market.

Still, is there a way for us to use this tool effectively?

Traditional ADX Indicator

The average directional index (ADX) was developed more than 40 years ago. Nowadays, this tool is typically used by technical traders to measure volume. 

ADX consists of two main components – the ADX line and Directional Index (DI). The indicator aims to show trend strength and trend direction.

ADX line

The ADX line is a single line with a range of 0—100.

As this line is non-directional, it can only show trend strength. Therefore, while it measures the strength of the trend, it cannot distinguish between uptrends and downtrends.

So, the ADX line will rise during both a strong uptrend and a strong downtrend.

When the ADX is above 25 (like in the image below), the trend is strong enough to apply trend following strategies. However, traders who want to get faster signals often use the 20 ADX threshold as well.

When ADX is below 25, the market is in the consolidation stage. The image below portrays this well and, as we can see, there is a lack of a trend. With trends involving ADX below 25, we can no longer apply trend trading strategies but the strategies for ranging markets.

Directional Index

When the ADX is above 25 and the positive directional indicator (+DI) is above the negative one (-DI), the ADX measures the strength of an uptrend. The cross between the two DIs, together with the ADX line that is higher than 25, resulted in an excellent bullish move.

When the ADX is above 25 and +DI is below -DI, the ADX measures the strength of a downtrend. 

Values higher than 50 ADX indicate a very strong trend.

Important Facts

ADX should only be used with higher time frames because it tends to give false information on lower time frames. 

The ADX has a tendency to lag and the volume meter is generally very slow, which can lead you to enter the market too late.

The strategies used with the traditional ADX alone are insufficient and can offer a lot of false signals, but the ADX indicator can be used with other tools to obtain better signals.

Alternative ADX Uses


ADX can serve as an example of how you can apply the moving average (MA) to a volume indicator

In the example below, we removed the ADX line (25) and added the MA, keeping the period at 10.

As ADX does not perform well during market consolidation, it would take a lot of time to go below that line and inform the trader that it is not a good time to trade. That is why traders take many losses with ADX alone when the market goes sideways.

Although this combination is not the best tool you can use, ADX has proved to perform better after the changes have been made.

ADX DMI + OBV + MA (100)

OBV (on-balance volume) shows whether the volume in the market is flowing in or out of the instrument.

The moving average (MA) of 100 is applied to determine is the momentum in the market is bullish or bearish.

A signal to enter appears when the two indicators indicate the same thing.

This strategy, however, always requires higher time frames as well as an instrument with some volatility and a high ATR.

Needless to say, traders must always use risk and money management skills to protect their trades from false signals and limit any potential losses.


Wait for the reading to get the ADX of 25 to know you are in a strong trend and that the trend is likely to develop. 

Use the last 50 candlesticks to determine the trend. Therefore, if the price is heading lower during the last 50 candlesticks, you are in a bearish trend. 

We will ignore the typical rule for using the Relative Strength Index (RSI) as we normally interpret the RSI reading below 30 as an oversold market and a reversal zone. To get an entry signal, use the same settings for both RSI and ADX.

Sell when the RSI indicator breaks, showing a reading below 30.

We will also add a stop loss for maximum protection. To determine the best location for your stop loss, find the last high of ADX before the entry. Then, identify the corresponding high on the price chart from the ADX high and place your stop-loss point there.

We will take profit after the ADX indicator breaks back below 25, which tells us that the strength of the prevailing trend is decreasing. You can also consider RSI going back into the normal zone as the exit point.

For a buy strategy, apply the exact opposite.

Non-Traditional ADX Indicators


Unlike the traditional ADX indicator, which makes it hard to see where the market is headed, ADXm clearly shows both positive and negative ADX half-waves (colored parts of the line in the chart below).

ADXm uses the same method as the traditional ADX. We will use a reading of 20 to 25, depending on the time frame.

The original and this improved version differ with regard to price options. While the traditional ADX offers no price options (i.e. it uses fixed close, high, and low for circulation), ADXm allows traders to use three prices – the price for close, high, and low. 

Still, there are also many similarities between the two (e.g. the results, if default parameters are used).

DMI Oscillator

The original ADX uses SMMA (i.e. running MA or Wilders EMA), while DMI Oscillator allows traders to experiment with the other types of averages as well. 

The improved version also lets traders smooth the results of the oscillator. Moreover, it offers three different color options – on levels cross, zero cross, and slope. Change alerts are triggered according to the trader’s choice of color.

Traders seem to love DMI Oscillator because they can apply different strategies (scalping, swing trading, short term trading, binary trading, etc.) on different time frames and regardless of candle behavior.


The ADX indicator is great for determining trend strength – both bulls and bears at the same time. 

While it is good for identifying trending conditions, the traditional version of this tool may lag quite a lot. Not only does it often cause traders to enter trades too late but it also gives too many false signals, which then result in losses.

The daily time frame is the best option for using the ADX because it offers the least amount of inconsistency and incorrectness. 

The best profits come from catching strong trends and, with the right ADX strategy, you can accomplish your trading goals.

Since the standard version of ADX does not contain all data for the analysis of price action, it must be either used with other tools/indicators or simply replaced by a more recent, modified version.

It is extremely important to note that ADX (in particular) requires traders to rely on money management and risk management – especially with the original version. As Peter Borish says, we want to perceive ourselves as winners, but successful traders are always focusing on their losses. We cannot let the possibility of getting a false trend stand in the way of our (and our account’s) growth.

Finally, all indicators are just tools. We should use them only if they benefit us. Test ADX as well as all other ADX versions and tool combinations, and leave out anything that you feel you cannot use optimally.


Forex Indicators

The Application of the Moving Average on Indicators

Traders worldwide have shown interest in the Moving Average Convergence/Divergence indicator that we all know as MACD. Praised as a two-line indicator that has generated quite a few pips to many content creators, MACD can certainly point us toward the direction of discovering other amazing tools that we can incorporate into our trading systems. Since traders are constantly in search of the best components to help build their own algorithms, they inevitably come across a number of low-performing indicators from which their trades can hardly benefit. As a result, these traders immediately cast off the tools that they believe cannot make it to their favorites’ list, which may not be the approach that you will always want to take. Today, we are going to see how adding a moving average on various MT4 indicators can not only improve a tool’s performance but also prove to be the right move towards lucrative trades. 

Many beginners fail to acknowledge the importance of adjusting settings and learning about the ways to make some changes to the existing indicators in order to gain more profit. While MACD indicators’ fame grew due to the diversity of its functions, few actually know how using the moving average on other indicators can truly generate new and unexpected possibilities in many cases. If you are keen on growing a unique system and testing different options, then the use of moving averages can really become one of your favored solutions down the line. By adding a moving average on some of the less efficient indicators, you can have an entirely different experience with tools that you once defined as utterly futile for trading. Naturally, in some cases this approach will not seem to be applicable or useful; however, by incorporating moving averages in your system, you are introducing an additional layer of protection, as all traders look forward to finding indicators to prevent them from making bad decisions while trading in the forex market.

Today’s selection of indicators is meant to serve as a lesson on how you can improve some of the tools which overall do not provide desired results, rather than tell you which tools you should use in your everyday trading. You can later go back to the indicators you saved on a flash after you had stopped using them, as we will show you how some of the indicators that are already built on MT4 miraculously change after the moving average has been added. You can also open the MT4 while you are reading this article and make the same adjustments as we do while you are reading. Be prepared to take notes on some specific settings as well as remember a few key pieces of advice you should follow when you are attempting to carry out this process yourself. 


Accumulation is one of the indicators that are generally considered as bad in the forex trading community, especially due to the fact that traders cannot make any adjustments that could improve its performance. As you can see from the first image below, Accumulation is essentially a one-line indicator, which barely appears to be able to give any relevant information. However, once we apply the moving average, although you cannot expect drastic changes, the overall performance of this tool immediately improves.

In order to make the most of this, you will need to follow a few rules. Firstly, you should not alter the moving average of oscillators, yet expand the Trend tab in your Navigator window inside Indicators. Once you find the moving average there, you will need to drag it down to the indicator window you wish to apply it on. Then, a new window will pop out where you will be able to make further adjustments. What we did is we left the period where it was (10) and changed the settings from Close to First Indicator’s Data. If you, however, decide to apply the changes at Close, you will not see the line in the same place as in the right picture above, it will simply be applied to the price chart. Therefore, the two essential steps to take are to drag the moving average down and apply it to First Indicator’s Data.

The results these steps can deliver are much better than what you can hope to achieve without. The moving average is mostly going to tell you where the trend is, and after we applied this to Accumulation, we discovered five to six entry signals just by glancing over the chart. A better indicator would naturally offer more quality entry signals and, consequently, serve you better. However, the idea behind this is to change a one-line indicator to a two-line-cross one, which is believed to be one of the best confirmation indicators you can use. Even though these changes prevented you from quite a few problematic points, Accumulation is still not recommended to be used for everyday trading purposes. Some professional traders even claim to have tested this tool and every possible variation only to discover that it is not a viable, long-term option for them.


Similar to the Accumulation indicator, i-BandsPrice is also a single line that does not perform very well in general. You can change this tool into a zero-cross indicator by following the steps we previously described. Although it does not truly get to zero, you can still see some benefits from these changes. What you should first do is alter the period and see the results this solution provides. Naturally, you will not go after every opportunity in the chart because you will want to avoid reversal trading. Nonetheless, what you do gain from making these adjustments, in this case, is the ability to discover when you can enter a trade. As with any other zero-cross indicator, i-BandsPrice can now also tell you to start trading when the indicator crosses over the zero line towards the negative or the positive.

Rate of Change (ROC)

In order to see more benefits from using the Rate of Change indicator, we first moved the period to 70. Then we added the zero line because it will tell us to go long if the line crosses the zero upward and vice versa. However, to make the most of it, you will need to add the moving average and look for the places when the lines are already both below zero: when the indicator crosses down again, you will have the opportunity to enter a continuation trade, which some experts see as their most lucrative trades. As ROC is one of the lower options on the performance spectrum, you will not be able to get many good trades despite the changes. Nevertheless, you can alter the period, moving it from 8 to 10 as we did, and see how it begins to resemble the MACD indicator is thought to successfully provide the greatest number of signals to enter continuation trades. Therefore, if you happen to come across a zero-line-cross indicator that seems to have a lot of potential, you can actually grant yourself more lucrative opportunities just by adding the moving average.

Average Directional Movement Index (ADX)

ADX can serve as an example of how you can apply the moving average to a volume indicator. Whenever the line goes above, trend traders receive the signal that they have enough volume to enter the trade. Likewise, whenever the line plunges, it is a signal to stay out of the market. In the example below, we kept the period of 14 and added another line (like we did before) at level 25. ADX has proved to be performing better once the changes have been applied, although it has also proved to give a lot of false signals as well. Another reason why professional traders typically dislike this tool is that it often lags. However, despite the opportunity to test how this tool performs after adding the moving average, we still have some other better options we can use to trade in this market. 

Once you remove the additional line and add the moving average, you will naturally not bring about some unforeseen, alchemical-like change, but you will be able to improve almost any volume or volatility indicator. Drag the moving average down as you did before and change the option from Close to First Indicator’s Data (we kept the period at 10), and you will see how fruitful the results your volume/volatility indicator gives are. If you kept the line we had before, you would have potentially taken a great number of losses because ADX would need too much time to go below. This way, however, you are improving the overall condition because the moving average always adjusts to the volume indicator. Therefore, you could get a signal to take a break at some point in the chart and another one to resume after a while, which is by far better than what the original, unchanged version of this indicator can provide.

As a forex trader, you will naturally be experiencing passing moments of consolidation and stagnation after trading for a period of time. You will then want your indicator to let you know when and how to avoid these troublesome points in the chart. Since the moving average can limit the negative effect a poorly performing tool can have on your trade and expand its functions in terms of quality, you can immediately start testing the indicators you discovered before but for which you could not find the right use. Now the indicators which could not help you seem to have a newfound potential to help you trade more successfully. What is more, the moving average can be applied in such a vast number of cases that it immediately increases the opportunity to win. You only need to take time to test and find a way to use a specific indicator after the changes have been made. Some indicators can only be improved to a certain degree with the MA, yet some others can truly illustrate a distinct difference in your trading.

Many traders are having a hard time finding the right exit indicator, for example. However, an exit indicator that a professional trader would find to be really good is typically a two-line-cross indicator. Luckily, with the help of the moving average, any one-line oscillator can become a two-line-cross indicator and, therefore, also an exit indicator that you can discover to be a really good solution for you. Improvement sometimes implies tweaking the settings, whereas it may also entail adding the moving average so as to give the tools that have not worked well in the past the chance to make a positive difference. The moving average can be applied to almost anything, as we said before, so it does bring a new sense of hope to traders who have had difficulty finding the right elements to complete their technical toolbox. This knowledge simply opens up a number of tremendous possibilities, as a single oscillator changed to a two-line-cross indicator is the proof that tools that were not very useful can be adjusted so that traders can actually make use of them. Whatsmore, indicators with two lines have first and second indicator data. In this case, you can apply MAs to both and have a kind of momentum gauge in an already established trend, for example, on line cross.

Go to your list of indicators that you considered as poor samples and start testing this solution to find out just how much the moving average can improve your trading. At least then you will know that you can write off a tool for good without having to go through periods of hesitation or doubt. Luckily, sometimes the improvement comes just after adding this second line, so you will never again need to question a decision you made with regard to indicators. According to professional traders, some of their most lucrative deals stemmed from continuation trades which these changes made possible. Hence, just by making these adjustments, you can turn a below-average indicator is a tool that is similar to MACD and experience numerous benefits long term. There are many variations and improved versions of MACD, RSI, and others, with a different type of calculations. Playing with MAs on these tools is a definitive winning combo. All you have to do is try it out.

Forex Indicators

Incorporating the Right Indicators Into Your Trading System

Technical traders are not making decisions on any other input but their set of indicators and rules. As a holistic approach, it is a trading system that combines position or risk management, chart analysis, and volatility/volume parameters, producing three types of signals: enter a trade, exit a trade and do not trade. Technical traders’ decisions are therefore based on a black and white mindset. In other words, their mind is not different than the trading systems they have made.

On a professional level, their mind is just thinking about testing out more to improve the system effectiveness on the forex market. This article will reveal an important view of how to add on an element or an indicator to a system that already has a few synergetic elements, each playing their role, and measure various categories from the market numbers. Using an example from one professional prop trader system structure, we can give an understanding of what to look for when improving your own trading system. 

Technical traders may follow a certain theory, using just John Ehlers’s indicators, for example, but it is proven that risk is mitigated by diversification. Even though the indicators from this researcher are somewhat predictive in nature, having another indicator from other theories that base on historic confirmation might be not only risk-mitigating but also create special chemistry when combined. Traders that are advanced already have a system and are probably familiar with the theories or how their indicators are made. Beginner traders are not familiar with this, and actually, they do not have to be to create effective systems. We will present you with a few shortcuts to finding this special indicator combination.

As an example, a trading system can have a volatility indicator based on which position size and risk management are based on. Having such a variable and adaptive way of controlling risk is imperative as discussed in other articles. ATR indicator is one such volatility measure. The next element in the system is a specialized volume or volatility indicator whose role is to tell us when there is not enough momentum in the market or trend and to just ignore signals from other indicators as the risk of price changing direction is increased. We are looking for quality trends to follow, a scientifically proven method of trading with the best results. When we are looking to exit a position, technical traders also make decisions after an indicator. This type of indicator should be great for finding points when trends exhaust and some think oscillators and reversal indicators are a good pick for this role.

A separate article also explains this in more detail. At the core of the system is the confirmation indicator, when to enter a trade is a starting point when we look at charts. Finding an indicator that proves to be very effective at finding emerging trends is a precious element but we all agree none is close to being right even 70% of the time. As this is the core of the system, why not make it better by adding an additional confirmation indicator? Having two different experts will generate better solutions than just one. Now, if we go on we might think more is better, but there is a thin line after which adding more indicators creates a detrimental effect on the system. It is too complicated. So adding just one additional confirmation indicator is enough. The point here is to make sure that the first trend confirmation signal is not a fake market move that just a whipsaw, so add another one that needs to produce a signal in the same direction before we make a trade. Eliminating losses from these fake moves has the same effect on our account as when we win. 

Confirmation indicators have various calculations, formulas, and ideas behind them, and that is great. As an analogy let’s say your system is a team of players. Each player has its role but we have all witnessed a magic bond between two or more players that are just extremely effective when combined. Of course, having a bad player and another bad player is going to be better but it is no-brainer because we want to have two greats. Finding great indicators is a long and tedious work, once we have one with the best backtesting and forward testing results, it is priceless. The ones that got to the top 10 of your list might be the ultimate additions to your number one. The good thing about these indicators is that they are abundant, unlike the volume indicators, and they are easy to test. 

Trend confirmation indicators can be categorized to make this process beginner-friendly. Starting with the Zero Cross indicators, they are generating signals based on a line crossing a horizontal zero value line. A typical example of this is the Chaikin Money Flow (CMF), an indicator using volume and other market values in its formula. After all, traders are interested in how good it is for their system after backtesting and forward testing. When the main signal line is crossing the zero line it means a new trend or continuation is starting. If your main confirmation indicator is from the same category, you will need to change one to get the diversification effect.

The second category is the Line Cross-type. These are probably the most common type of indicators. MACD can be one example of this, although MACD also has a zero line. If you want to diversify, you will need to pay attention to different signals even the  MACD, for example, belongs to the Zero Line and the Line Cross category. The third category is the on chart indicators. Now, these indicators are the ones when applied are represented on the MT4 chart itself, not in a separate window below it. Moving Averages are a simple example of this type of indicator, and there are many ways you can classify a trade signal with them. Many systems have them and they can be an extremely effective tool. Finding the right Moving Average indicator is surely going to be worth the time. 

Now when we understand how to combine and diversify indicators, understand that the second confirmation indicator is there to filter losses made from the main one. Since cutting losses is the same as generating wins, we are looking for synergy results where the second indicator is filtering the losses but not filtering the wins. Volume indicators have a similar role here but know it is hard to find a volume indicator that does not filter a win in the way. The nature of measuring volatility or volume simply needs more data to be effective, consequently, they lag. Lagging may cause your system to miss the right moment to enter a trade and therefore a possible big win but this is just something we have to accept.

Additional confirmation indicators are not necessarily like this but they still add value to your system. Traders’ focus should be on cutting the losses, it is the main problem once you make your first system. When we find and adjust our second indicator, aim to cut a lot of losses. If a winner is filtered, try to adjust settings a bit but not at the cost of letting the losers in. As we have discussed in previous articles, your indicators should be recent, do not latch on to the popular ones, you will soon find others have better results in your testing. Combining different type indicators with great results is the way to go but know that sometimes the synergy might not be there. Similar to sports, you may collect the best players together in a team but the result can be disappointing. On other occasions, two great players that understand each other can beat the opposition alone. Interestingly, case studies have shown each had a different specialized skillset that adds value to the other. The goal is the same but the formula is based on different measures and the representation is different. 

You will find many times that your two confirmation indicators do not align, and this is good. Pay attention to the main setting adjustment you can make, the period. By having one faster and one slower confirmation indicator, you may find that sweet spot of filtering losses and keeping the winners. Whatever confirmation indicators you find, only testing will show you if this combo is worth keeping. The more pairs you test, the better the odds you will find a golden team. Other elements in your trading system should not be messed with during testing, you need to have control and compare only this confirmation indicator combination.

Here is an example provided by one prop trader demonstrating how this idea works in practice. We are going to use the EUR/USD currency pair. It is the most traded pair with many news, reports, and event that could push the trend the other way. As such it is considered the riskiest pair you can pick and should provide a lot of losses and wins. Losses we should cut by introducing a second confirmation indicator. From the picture below we can see our Aroon indicator is really having a hard time finding a winner. This chart is very nasty for trading trends with many whipsaws.

Red and green vertical lines are added once the indicator gives a signal to go short or long. Aroon was able to give us approximately 3 wins and 8 losing trades. We can see Aroon is a line cross indicator type, signals are generated once the red line crosses above the blue for short and vice versa. Let’s see what happens when we add a second confirmation indicator not belonging to the line cross-type. 

We have added an Exponential Moving Average for 20 periods as the on chart type indicator. Now if you use the EMA for generating signals only when the price crosses it, you will find many conflicting signals with the Aroon. When they are in conflict, we do not take that trade. When we take this rule to the chart, many of the losses are filtered. 

Now we have kept the winners and have only 6 losses. EMA might not give us great loss reduction but the end result is still better than before. Let’s try to find a better indicator. 

We have added the Force Index indicator and adjusted its period to 26 from the default 13. Additionally, a horizontal line is added at zero effectively making this indicator a zero line cross type! The result is we still have 3 winners and now only 2 losses. Before all this, we had 8 losing trades. So we have transformed our system from a 27% success rate to 60%. Note that your system still has a volume filter and other elements that boost this rate to a much better percentage. With good position sizing, money management, you should be profitable. You now have better odds than a 50-50 coin flip.

By the way, having proper money management and using a 50% success rate system can still yield profits. Just pay attention, what is presented is just a couple of trades on a single currency pair. What you need to do is test your indicator combinations on longer periods and other assets. We are aiming to create a system that works on every currency pair, without adjustments. The final product is a universal system you can use professionally for a long, long time. 

To conclude, the hard work you have to put in is necessary to find that perfect combo. Treat it like a treasure hunt, a game with real treasures behind. If this is exciting to you then it is just a matter of time when you complete your trading system and just trade as it says, consistently providing you with treasures. Your score list of tested indicators is useful, you can pick up your second confirmation indicator from there without searching through the forums and indicator websites. Use the tricks described here, add a line, test different periods and settings, add an MA to the indicator. Finally, the synergetic effect is easy to test, as demonstrated, you will not spend too much time to figure out you have a high % combo in front of you.

Forex Indicators

Using Parabolic SAR With Dynamic Stops Losses

One of the best-known indicators in the Forex market is the Parabolic SAR indicator. This is because it tells us when the momentum is changing, arriving early when the momentum changes can give you a winning advantage. SAR means to “stop and reverse” by definition. However, there is another way to use the Parabolic SAR, apart from trying to identify trend changes, either in the short or long term, and it is intended to use the indicator as a form of use of dynamic stops loss, either for a partial or total output.

What is the Parabolic SAR?

The Parabolic SAR formula was developed during the boom days of technical analysis in the 70s by Welles Wilder, who is the person who also designed the Relative Force Index (RSI). The relative strength index is pretty much the only Forex indicator that can produce a winning advantage on its own, so it’s worth taking a look at anything written by Welles Wilder.

The algebraic mathematical formula used to calculate the value of the indicator in each candle is complex, so I’m going to explain it in very simple conceptual terms, using for this a long example. When a candle makes a new maximum, the indicator sets a value below that candle. If the candles keep making new maxima, the value of the indicator rises along with the price but is increased proportionally by a factor selected by the user (0.02 is the most common).

The idea is that “time is our enemy” and that the best of any directional movement where we can be is in the part where the momentum keeps increasing. Thus, it is better to use this indicator in commercial trends or in strong directional movements. In fact, Wilder recommends using the Parabolic SAR indicator along with its ADX (Average Directional Index), which is also recognized as probably the best and most useful Forex indicator.

Parabolic SAR and Technical Analysis

Parabolic SAR is an extremely simple “binary” indicator and is often used in forecasting and trading strategies in the following ways:

-Determination of the trend. When a new candle is opened and the indicator prints its point on the other side of the candle from where it was on the previous candle, this indicates a change of trend and a possibility of entry into a trade.

-In determining the trend as indicated above, use the ADX indicator to determine whether the trend is powerful enough to have a justification for a new commercial entry, always in the direction of the trend.

-When a certain number of candles have been making new lows or highs with the indicator point always remaining above or below each candle, use the point price (or one near it) as a manually adjusted stop-loss (i.e., a dynamic stop loss) to signal an exit from a trade.

The Best Way to Use the Parabolic SAR

I think the best use of the Parabolic SAR indicator is like a trailing stop when it comes to operating in a strong directional movement. I don’t think it has a great value to determine when to enter: entering the trend direction in Forex is best determined by the break or, usually, better yet, by moving the signals from triple moving average crosses.

Normally, when operating in strong directional movements, the best benefit profile comes when trying to capture two different movements:

  • The initial short-term momentum movement; and
  • The long-term directional movement that begins at 1.

Trying to capture only movement 1 is usually not very profitable in the long run. A better trading strategy is to take partial gains when movement 1 ends, letting the rest of the position run in the hope that movement 2 will take place. Successfully capturing movement at 1 can give you the “take off” necessary to enter the trade at a good entry price that is sufficient to capture movement 2.

Understanding the Parabolic SAR Formula

You don’t really need to know the actual formula of any technical indicator in order to build a trading strategy, but it’s worth understanding why SAR parabolic points appear. In addition, if you want to create an Excel Parabolic SAR calculation file to build a decision support system for your daily transaction, you would need to know the parabolic SAR formula. However, here is the formula used to calculate the parabolic SAR values:

Sarn + 1 = Sarn + α (EP – Sarn)

In the formula Parabolic SAR, the Sarn is the current period and as +1 indicates, the Sarn + 1 is the value SAR of the next period. During an upward trend, the PE is the highest price on the trend, which would be the highest of most candles or bars on the trend. On the other hand, you can be quite sure that the EP would represent the lowest candle or bar in a downward trend. Since parabolic SAR points only appear above or below the price, it is not a difficult task for you to identify what the PE value represents.

The most important variable in parabolic SAR adjustments is α, which represents the acceleration factor in the formula. When you try to add the parabolic SAR indicator in the graph, your graphics package would normally set the value of α to 0.02.

You see, during an upward or downward trend when the price makes a new high or low, the acceleration factor increases by 0.02. This is why the gaps between the parabolic SAR points become larger during a strong trend and the size of the gaps shrink during a price consolidation. Although the default acceleration factor is set to 0.02, most graphics packages would allow you to change it. Maybe you’re wondering why you need it with the acceleration factor. Well, some stock prices are more volatile than others, and depending on the length of time you choose, optimizing the acceleration factor can actually improve your commercial performance.

For example, in the Tradingsim, it can reproduce the price action with different SAR acceleration factors to find the optimal value and test the market to see if the new value makes a major difference in the generation of parabolic SAR buy signals or Parabolic SAR Sell signals. If you see a positive result, you must customize the SAR formula to fit the share price feature of the share.

Using Parabolic SAR as Trailing Stop

One of the best things about this indicator is that it is extremely easy to use and does not really require any concern on the part of the user with regard to input values. The default values are perfect. One method is simply to manually adjust the stop-loss price to place it a few pips just beyond the indicator point as each new sail opens. A second option may be to wait for the candle to reverse and close beyond the point. This will most likely contribute to you getting better results in the long run.

Remember that your own calculations on any strategy you are using should be moved to the image. Let’s take an example, if you what you expect make a 50% commercial exit at a risk-reward ratio of approximately 2:1, and get an output signal at 0.5:1, which is far from that desired target, you would best ignore the output signal, or maybe move the stop loss to the balance point.

Warning: Only Use With Trending Markets

There are different ways to know for sure if a market is on a trend, but the Parabolic SAR indicator provides good visual aid. If the graph shows that the indicator is changing the point only occasionally, and fairly long chains of consecutive candles with all the points on the same side, then the market is “swinging” enough to give your operation a good chance of making a profit. If the dots are not in a series and are all displayed mixed, then it is a hectic market and it is probably best to avoid it.

Forex Basic Strategies Forex Indicators Forex Service Review Forex Services Reviews-2

Market Profile Singles Indicator Review

Today we will examine the Market Profile Singles Indicator (we could also call it a single print indicator or gap indicator), which is available on the market in metatrader4 and metatrader5 versions.

The developer of this indicator is Tomas Papp, who is located in Slovakia, and currently has 7 products available on the MQL5 market.

It is fair to point out that four of his products are completely FREE and are in a full-working version. These are: Close partially, Close partially MT5, Display Spread meter, Display Spread meter MT5. So it’s definitely worth a try.

Overview of the Market Profile Singles 

This indicator is based on market profile theory. It was designed to show “singles areas.” But, what exactly is a singles area?

Theory of the Market Profile Singles

Singles, or single prints, or gaps of the profile are placed inside a profile structure, not at the upper or lower edge. They are represented with single TPOs printed on the Market profile. Singles draw our attention to places where the price moved very fast (impulse movements). They leave low-volume nodes with liquidity gaps and, therefore, the market imbalance. Thus, Singles show us an area of imbalance. Singles are usually created when the market reacts to unexpected news. These reports can generate extreme imbalances and prepare the spawn for the extreme emotional reactions of buyers and sellers.

The market will usually revisit this area to examine as these price levels are attractive for forex traders, as support or resistance zones. Why should these traders be there? Because the market literally flew through the area, and only a small number of traders got a chance to trade there. For this reason, these areas are likely to be filled in the future.

The author also adds: “These inefficient moves tend to get filled, and we can seek trading opportunities once they get filled, or we can also enter before they get filled and use these single prints as targets.”

The author points out: Used as support/resistance zones, but be careful not always. Usually, it works very well on trendy days. See market profile days: trend day (Strategy 1 – BUY – third picture) and trend day with double distribution (Strategy 1 – SELL- third picture).

Practical use of the Market Profile Singles Indicator

So let’s imagine the strategies that the author himself recommends. Of course, it’s up to you whether you use these strategies or whether you trade other strategies for the singles area. Here we will review the following ones:

  • Strategy 1: The trend is your friend
  • Strategy 2: Test the nearest level
  • Strategy3: Close singles and continuing the trend

The author comments that these three strategies are common and repeated in the market, so it is profitable to trade them all.

The recommended time frame is M30, especially when using Strategy 2.

It is good to start the trend day and increase the profit, but be aware that trendy days happen only 15 – 20% of the time. Therefore, the author recommends mainly strategy 2, which is precise 75-80% of the time.


Strategy 1 – BUY :

  1. A bullish trend has begun.
  2. The singles area has been created.
  3. The prize moves sideways and stays above the singles area.
  4. We buy above the singles area and place the stop loss under the singles area.
  5. We place the profit target either according to the nearest market profile POC or resistance or under the nearest singles area. We try to keep this trade as long as possible because there is a high probability that the trend will continue for more days.

Strategy 1 – SELL :

  1. The bear trend has begun.
  2. The singles area has been created.
  3. The prize goes to the side and stays under the singles area.
  4. We sell below the singles area and place the stop loss above the singles area.
  5. We will place the target profit either according to the nearest market profile POC or support or above the nearest singles area. We try to keep this trade as long as possible because there is a high probability that the trend will continue for more days.


Before we start with Strategy 2, let’s explain the Initial Balance(IB) concept. IB is the price range of (usually) of the first two 30-minute bars of the session of the Market Profile. Therefore, Initial Balance may help define the context for the trading day.

The IBH (Initial Balance High) is also seen as an area of resistance, and the IBL (Initial Balance Low) as an area of support until it is broken.

Strategy 2 – one day – BUY:

This strategy will take place on a given day.

  1. There is a singles area near IB. (a singles area was created on a given day)
  2. The price goes sideways or creates a V-shape
  3. We expect to return to the singles area or IB. We buy low and place the stop loss below the daily low (preferably a little lower) and place the target profit below the IBL (preferably a little lower).


Strategy 2 – one day – SELL:

This strategy will take place on a given day.

  1. There is a singles area near IB. (a singles area was created on a given day)
  2. The price goes sideways or creates a reversed font V
  3. We expect to return to the singles area or IB. We sell high and place the stop loss above the daily high (preferably a little higher) and place the target profit above the IBH (preferably a little higher).


Strategy 2- more days- BUY:

This strategy takes more than one day to complete (Singles were created one or more days ago)

  1. After the trend, the price goes sideways and does not create a new low (or only minimal but with big problems)
  2. Nearby is a singles area (Since the price cannot go to one side, there is a high probability that these singles will close).
  3. We buy at a low, placing a stop-loss order a bit lower. We will place the target profile under the singles area.


Strategy 2- more days- SELL:

This strategy takes longer than one day (Singles were created one or more days ago)

  1. After the trend, the price goes to the side and does not create a new high (or only minimal but with big problems)
  2. Nearby is a singles area ( Since the price cannot go to one side, there is a high probability that these singles will close ).
  3. We sell at a high, and we place a stop-loss a bit higher. We will place the target profile above the singles area.

Strategy 3 – BUY:

  1. The current candle closes singles.
  2. Add a pending order above the singles area and place the stop-loss under the singles area or the candle’s low. (whichever is lower)
  3. Another candle must occur above the singles area. (If this does not happen, we will delete the pending order) .
  4. We will place the profit-target either according to the nearest market profile POC or resistance or under the nearest singles area.


Strategy 3 – SELL:

  1. The current candle closes singles.
  2. Add a pending order under the singles area and place the stop-loss above the singles area or candle’s high (whichever is higher).
  3. Another candle must occur under the singles area. (If this does not happen, we will delete the pending order) .
  4. We will place the profit-target either according to the nearest market profile POC or support or above the nearest singles area.


These strategies look really interesting.  As the author himself says:

It’s not just a strategy. There is more to it in profitable trading. For me personally, they are most important when trading: Probability of profit, patience, quality signals with a good risk reward ratio (minimum 3: 1) and my head. I think this is the most important.

In this, we must agree with the author.


Service Cost

The current cost of this indicator is $50. You are also able to rent the indicator. For a one-month rental, it is $30 per month. There is also a demo version available it is always worth testing out the demos before purchasing. Though.

After purchasing the indicator, the author sends two more indicators to his customers as a gift: Market Profile Indicator and Support and Resistance Indicator.

Conclusion: There are only 2 reviews for the indicator so far, but they have 5 stars and are very positive.

For us, this indicator is interesting, and it is a big plus that the author shares his strategies. The price is also acceptable since the indicator costs 50 USD = 5 copies (10-USD / 1 piece), and since the author sends another 2 indicators as a gift, this price is really worthwhile.

The author added:

By studying the market profile and monitoring the market, I came up with an indicator and strategies we would like to present to you. Here you can try it for free :





And here you can watch the video:



Also, a complete description of the strategies and all the pictures can be seen HERE :

Other completely free of charge tools:


Forex Indicators

RSI: The Best Forex Indicator?

Far from being something that will help you operate profitably, the usual use of Forex indicators really causes more losses than gains among inexperienced traders. However, if you are going to use them, then you should know that the best Forex indicator is the RSI (Relative Strength Index).

What is the RSI (Relative Strength Index)?

The RSI reflects the momentum and it is well known that following the momentum in the foreign exchange market increases the chances of profits. The RSI is an indicator of momentum in the Forex market and, in fact, it is the best indicator of momentum. If you are willing to use the RSI, probably the best way to use it is to go long when it is above 50 in all time frames, and operate short if it is below 50 in all time frames. It is best to always operate with the trend of the last 10 weeks or so. The formula of the relative strength index was created in the 70s, as were many other concepts of technical analysis. 

Relative Strength Index – Forex Indicators

The calculation of the relative force is performed by calculating the ratio of upward changes per unit of time to downward changes per unit of time during the review period. The actual calculation of the indicator, however, is more complex than we need to know here. What is important to know is that if we look back over a period of, say, 10 units of time and each of those 10 candles closed upwards, the RSI will show a number very close to 100. If each and every one of those 10 closed candles, the number will always be very close to 0. If the financial asset is fairly balanced between drops and raises, the RSI will show 50. The relative force index is defined as a pulse oscillator. Shows whether bulls or bears are winning in the review period, and this period can be adjusted by the trader.

Technical Analysis of the Relative Force Index

The RSI indicator is normally used in forex trading strategies in the following ways:

  1. When the RSI is above 70, a price drop should be expected. A drop below 70 after having been above 70 is taken as confirmation that the price is starting a downward movement.
  2. When the RSI is below 30, a price increase should be expected. A rise above the level of 30 after having been below 30 is taken as confirmation that the price is starting an upward movement.
  3. When the RSI crosses above 50 after being below 50, it is taken as a sign that the price is beginning a bullish movement.
  4. When the RSI crosses below 50 after being above 50, it is taken as a sign that the price is beginning a bearish movement.

Methods 3 and 4 described above in relation to crossing the level of 50 are generally higher than the first and second methods concerning 30 and 70. That’s because more long-term Forex earnings can be achieved by following trends instead of always expecting prices to bounce back to where they were: just be careful not to move the stop loss to the break-even point too quickly.

Forex Indicators

This is a point where we will pay more attention – if it is better to follow trends, or “diminish” them by doing trades against them. There are many outdated tips on this subject, most of which were in the years prior to 1971, at a time when exchange rates, although they were fixed at the price of gold or other currencies. In this era, trading was mainly in shares or, to a lesser extent, in raw materials. It is a reality that commodities and stocks tend to show markedly different pricing behaviour from the exchange rates of Forex currency pairs – stocks and commodities show trends more often, are more volatile, and follow longer and stronger trends than Forex currency pairs, which show a stronger tendency to return to average.

This means that when making Forex trades, most of the time, using the RSI to trades against directional moves using methods 1 and 2 described above, will work more often, but it will generate less utility than the use of Methods 3 and 4 to track trading trends in the direction of the strong prevailing trend, where such a trend exists. Although it may seem attractive to try to earn smaller amounts more often and use money management to increase profits quickly, It is much more difficult to build a cost-effective medium-reversion model than to build a cost-effective trend tracking model, even when trading with Forex currency pairs. The best way to operate at RSI 50 level crossings is to use the indicator in multiple time frames for the same currency pair.

Crossing The 50 Level In Various Time Frames

Open several charts of the same currency pair in several time frames: weekly, daily, H4, up to the minute. Open the RSI flag in all charts and make sure the 50 level is checked. Virtually all forex graphics programs or software include the RSI, so it should not be difficult to use it. A good period to use in this indicator is 10. It is also important that the market review period is the same in all different time frames.

If you can find a currency pair that in all the higher time frames is above or below 50, and in the lower time frames is on the other side of 50, then you can expect the lower time frame to cross again above 50 and should accordingly open an operation in the direction of the long-term trend.

The higher or lower the RSI, the better the operation. In the forex markets, it is a universal law: strong trends are more likely to continue and a reversal that then turns tends to move very well in the direction of the trend. This method is a smart way to use a forex indicator because it identifies setbacks within strong trends and tells you when the setback is likely to end.

Forex Indicators

The Williams %R Indicator: Winning Custom Interpretation Twists

There are special ways we can take signals out of an indicator, ways not described by default. In many cases we find an indicator that is not very good for its role in our system, we have better-performing ones. We try different settings to improve it and this may take a lot of time when we backtest, especially if there are many settings. 

Now, if you are a veteran in technical analysis, you probably have tested many indicators and know about adding Moving Averages on top of indicator data. If not, we have done an article about this customization that could generate very accurate signals out of simple, mediocre indicators we have scratched as bad on our top list before. Whatsmore, even indicators that have a different role by default can be converted to other roles just by adding MAs. 

The Williams %R is a reversal type indicator, an oscillator with overbought and oversold signals. In theory, it does not fit into the trend following method of trading and we might just skip it because our system is designed and needs trend confirmations. When we discuss exit indicators, the reversal type indicators fit very well into this exit signal role. Yet Williams %R is probably not good enough even as an exit indicator for your trend following system. Thorough analysts do not move on until they exhaust all possibilities out of an indicator, be it by adding MA if possible, changing settings, or interpreting signals for other, unorthodox uses. In this article, we will tackle how a mediocre indicator in all categories can become our top indicator just by having a different view of its signals. 

Very few reversal indicators can be made a good trend indicator. They are simply not made for that role. Williams %R is a rare diamond by accident that can be made useful. Williams %R is not in the Bill Williams indicator family where you can find Awesome, Alligator, Fractals, MFI, and others, which are generally not great for trend following algorithms according to professional prop traders. Williams %R is made by Larry Willaims and it is already integrated into the MT4 platform so you do not need to look for it. The settings by default are not optimal if you want to trade it using our algorithm structure but you can try and test different settings, every system is unique. As our traders say, typically they do not test indicators with lower period settings than by default. It is usually done with defaults or a bit longer to smooth the indicator, but Williams %R is another exception.

According to our tests and testimonies from professional technical traders, the daily timeframe is the best choice for many reasons, not only performance-wise. However, Willimas %R seems to be better at lower frames than the daily. This does not mean that if you trade on a daily only Williams %R is not useful. You will need to test. Lower timeframes, even 4 hour is good enough just do not go lower than 15 minutes. Williams %R is a confirmation indicator with the way we use it, but it is not great for continuation trades. The way we use it is completely the opposite of what it is made for. Let’s get into more detail.

In the picture below we have already included Williams %R with a modified period setting to 8, the Kijun-Sen from the Ichimoku indicator on default settings as our baseline and we are on the 4-hour timeframe. Williams %R has another interesting fact – it has a scale from 0 level and below. The area from 0 to -20 is regarded as the overbought area and the area from -80 to -100 is the oversold area. It is rare to see indicators with these values but do not be confused, if you want to add the “zero” line to experiment just add a horizontal at -50. Similarly to the popular RSI indicator, Williams %R generates a signal once the oscillator line crosses the overbought and oversold levels into the middle range. 

When applied on the BTC/EUR chart above we see a lot of signals that didn’t end well, most likely in a loss when interpreted in a classic way. On certain occasions, the signals were very good, as the bullish trend on the left side of the picture. False signals frequency is hard to eliminate here, even if we add the volume filter. Simply, Williams %R has a choppy behavior by default so we need something to counter this issue.

When we observe how and when trends start, it is noticeable every trend starts when the line enters either the oversold or overbought area of the indicator. In the picture below we have marked all entries allowed by the baseline. Out of 6, only one was a losing trade, and that one was a small loss compared to the trends captured. This way gives out interesting and consistent results, even though the indicator was never designed for it. For those not familiar with the baseline element in our analysis, only when the price crosses and closes above or below it we look at the Williams %R for a trade entry signal. If you go to lower timeframes such as H1, 30M, and 15M, this way continues to give you good signals. Beginner traders that like trading on lower timeframes deviate from our algorithm principles, however, Williams %R is a good to go indicator which will likely outperform their current confirmation indicators. When the market is ranging, this indicator will rarely give you a signal, often the line will stay in the normal range, making it a great loss eliminator. When you par it up with the volume filter, you can scratch almost every fake signal in a ranging market

To conclude, we flip the original signal interpretation. A classic way of trading this indicator is going long when the Williams %R line exits the oversold range into the normal -20 to -80 area and going short when the line exits the overbought, upper area. Now we flip this into going long when the line enters the oversold and overbought areas. This is similar to the CCI, and some momentum oscillators, but Willimas %R does the job better according to our testing. As for exit signals and continuations, it does not prove to be as efficient, however, we encourage you to test this out. Finds like this are not so rare if you try to research and test every interesting indicator. When you see it is very bad at its first intention, a small twist in settings, Moving Average addon, or another signal interpretation can flip it into a top indicator. Adding Moving Averages on this indicator is possible which brings a whole new area for interpretations across different roles. Note you need to select Apply to “First Indicator Data” first so the MA is on top of the indicator window.  

Forex Indicators

SSL Indicator Methods that You Can Put to Use Today

As any forex trader worth their salt knows, there are a bewildering number of indicators out there to choose from – which is why you need a quick and handy overview to give you the lowdown.

Introducing the SSL Channel Chart Alert Indicator

Popularly known as the SSL, the Semaphore Signal Level Channel Chart Alert (can you see why everyone knows it by a shorter name?) is an indicator that combines moving averages to provide you with a clear visual signal for dynamics in price movement. In short, it seeks to show you when trends in the price emerge.

It does this by showing you two different-coloured lines that appear on your chart and track price movements. We say they appear on your chart because in most iterations this indicator is overlaid onto your chart, though there are off-chart versions available too. This is really down to your own preferences as a trader – would you rather your chart be clean and simple and have your indicators appearing separately in another window or do you like everything to be displayed in one place, making it easier to cross-reference? There is another thing to factor in here, which is whether you can find a good off-chart SSL. It has been primarily designed as an overlay indicator so if you do opt for an off-chart version, it goes without saying that you should make sure that it works as advertised.

When the two lines intersect, the indicator is signaling that the price movement is changing direction or is about to change direction (from long to short or from short to long). When setting up the SSL on your platform, you will have an opportunity to choose the colour of the two lines – make sure you select colours that make sense to you and don’t clash with anything else you have set up on your chart. Having a cluttered chart can be distracting enough without also having to squint to see colours that are too similar to one another or that clash in some other way.

Another thing to bear in mind when setting up the SSL is that it will have some alerts built-in – it is, after all, called the SSL Channel Chart Alert. Now, it depends a little on how you like to trade but our recommendation is that you turn these alerts off – especially until you have a good sense of how the indicator works and what you want to use it for. There is another reason why switching the alerts off is probably a good idea. And that’s the fact that the indicator might give you false signals as the price teeters back and forth before a candle closes. This would probably result in you getting alerts popping up before you can really use them and also could be confusing and even misleading. Plenty of technical traders who make heavy use of indicators will advise that you wait until a candle has closed before taking a reading or signal from your indicator and this applies just as much to the SSL as to other indicators.

Quick and Simple SSL Strategy

Ok, so the SSL is doing its darndest to show you trends in the price movement but when it gets down to it, how do you actually use it?

Well, first things first, as with any indicator you are considering using as part of your trading system, you are going to want to run this one through a pretty robust testing regimen that includes both backtesting and forward testing through a demo account. And what you will discover when you run the SSL through testing is that here and there it picks out some pretty juicy price trends. Remember, when the two lines intersect, the SSL is telling you that the price movement is changing direction and you can use this as an entry signal if you are confident that this change of direction – or reversal, for want of a better term – is likely to develop into a trend.

But – there’s always a but isn’t there – the other thing you will notice is that the SSL will also lead you down some blind alleys that would result in losses if you traded on them. You’ll notice this particularly when the market is ranging or going sideways, where the SSL will pick out changes in direction that don’t develop into trends.

Now, there’s a chance that in your testing process you will find that these losses are outweighed by the gains made when the SSL does successfully pick out a trend. Nevertheless, you will still want to minimise those losses and the way to do that is to pair the SSL with a second indicator that will help you to eliminate at least some of those losses without also holding you back from getting in on the gains.

The best way to do this is to pair the SSL with a volume or volatility indicator and some strategies will also suggest using a momentum indicator. Examples of indicators the SSL is commonly paired with include the ATR, Force Index, Volume Oscillator, and the Stochastic. Whichever one you go for, the outcome you are looking for is for this second indicator to tell you whether a change in the price direction flagged by the SSL has the strength to turn into a price trend. All of these approaches have their various merits and choosing between them will depend on the indicators you are comfortable with and other aspects of your trading system.

So, how might a typical trade with the SSL look? Well, you will be on the lookout for the two SSL lines to converge and intersect, this will give you your initial signal that the price movement is changing direction and that a trend could emerge. At this crossover point you will want to check what your confirmation indicator is telling you – if, for example, there is an insufficient volume in the market at that point, you should hold back and avoid entering a trade. If, conversely, the volume is there to indicate there would be the strength behind the move, this is an entry signal. You may want to hold back until an extra bar completes before you enter a trade as this will additionally protect you against the price dithering or backtracking. Pairing the SSL with a good second indicator to filter out price movements that lack strength could halve the losses it would otherwise generate.

The SSL and Exit Signals

One other rather neat feature of the SSL is that it provides both entry and exit signals. As described above, you would enter a trade when the SSL lines cross over (assuming your other indicators confirm the trade signal) and that will hopefully take you into a nice price trend. Just as with the trade entry signal, the SSL lines will then again converge and intersect. As we know, this indicated that the price movement is about to change direction – if you are in a trade, this neatly provides you with an exit signal. 

In a sense, if you do end up using the SSL, it kind of ties you into using it both to enter and exit trades. But this doesn’t have to be a bad thing at all. As you will see if you run it through your testing ground, the SSL has the potential to take you into some nice trends and, assuming you are sticking to the system as you design it, you should be able to ride those to grab gains that outweigh the smaller losses that it will also throw up from time to time.

Key Takeaways

The SSL can be used as a combined entry and exit indicator that will lead you to trends in price movements and, if properly paired with a secondary confirmation indicator, can help you to take advantage of those trends. When the market is not trending, the SSL will definitely throw out false signals that could lead you to losses but these can be mitigated by using it in conjunction with a good volume or volatility indicator.

Even if you don’t end up using it as part of your system, the SSL is a great little learning tool. Just taking it for a test-run and seeing which other indicators it pairs well with can help you to develop as a trader. What’s more, it is a useful asset to have around and once you start tweaking it, adjusting the settings, and playing around with combinations of secondary indicators, you might find that this is an indicator that has some real value to it.


Forex Indicators

A Detailed Look at the CCI Indicator, Warts and All

Some market indicators are single-purpose juggernauts that resemble something designed in a Soviet tractor factory to inflexibly do one job and one job only and others look on the surface like sleek, adaptable, multi-function jet fighters that can serve a number of purposes and be used across different markets. But does that make them better? Or even good? Is it good as a confirmation or trade exit indicator? Read on to find out.

What is the CCI?

It’ll take you no time at all to figure out that the Commodity Channel Index – popularly known as the CCI – was originally developed for commodity trading. It was developed back in the 1980s, at a time when spot forex trading wasn’t even a thing, to help commodities traders identify changes in long-term market trends. However, as anyone and everyone in the social media forex sphere (and beyond) will tell you, it isn’t used just for trading in commodities and forex traders regularly make use of its adaptability to hammer it into several different roles. 

Indeed, one of the praise-worthy things about the CCI is how it can be adapted to perform various tasks and how you can use it in different ways. This is partly a result of how it was designed. In short, the CCI takes the current price of a stock or currency and compares it to an average price for that stock or currency over a period that you can adjust. This means that what it’s ultimately telling you is how much from the mean the price is deviating at the moment. Coupled with lines offset at deviations of +100, +200, +300 and -100, -200 and -300 and with the fact that it is used across different timeframes and scooping up different periods to generate the average (typically 14, 20, 30, or 50), which means it can suit numerous different applications.

Common CCI Strategies

If you go online and search CCI strategies or how to use the CCI you will easily find a plethora of different approaches. There are probably about five or six main ways The CCI gets packaged but of those, there are three dominant categories that will crop up again and again – which is why these three merit a closer look.

Before we get started, however, it is worth pointing out a few basics. As mentioned, the CCI is pretty flexible – meaning that adjusting its settings allows you to use it in different ways and with different outcomes. One aspect of this is that the strategies below often rely on the CCI to be set up differently and to be used in different approaches to trading, including different timeframes and trading styles.

A crucial setting of the CCI that you need to adapt to the way you are using the CCI is the period it covers. It is important here that you are aware of the trade-off you are making when adjusting the indicator’s period. The CCI uses the period to generate the average price from which the actual price of the currency is deviating. It is fundamental to how the CCI works. A short period (for example, 14 or 20 – both of which are common CCI defaults) will give you more signals and they will appear earlier in the price movement but they will contain more inaccuracies. And inaccuracies here could spell more failed signals so that’s something to really watch out for.

Increasing the time period the CCI scoops up to generate its average price will result in more accurate signals but the downside is that they will often appear late when the price movement is already well underway. So while this might mean you are getting more reliable trade signals, you are not necessarily getting them on time to make the most of your trades. It’s a trade-off you will need to play around with to get the hang of it but it is also something that affects how you will end up using the CCI in your trading. 

Another thing to bear in mind is that CCI trading signals usually come in the form of it crossing the +100 line into “overbought” territory or the -100 line into “oversold” territory. In forex trading, currencies can’t be overbought or oversold in the same way as commodities but these signals nonetheless remain the crux of using the CCI to trade forex. It is worth remembering that some strategies will rely on an even more cautious approach where the trade signal is defined as the CCI crossing the +200 or -200 line and that some traders also use a zero-line cross strategy.

By covering some of the more popular strategies here it is not our intention to recommend any of them – they are here to give you a basic overview of how the CCI is commonly used and what it can potentially do. It should go without saying that you are not advised to start using the CCI – or any other indicator, for that matter – without first taking it through a rigorous testing phase (including both back and forward testing) where you will check and double-check both that it works as you need it to and that it suits your own personal trading style.

The Zero-Line Cross

In most cases, the zero-line cross strategy with the CCI is used on short or very short timeframes to catch price movements that develop into small mini-trends. This approach gives better results during those times when the market is particularly active and are also better at catching trends on short timeframes than they are on longer timeframes.

A popular version of this approach would be to combine two CCI indicators operating on different periods (for example, 20 and 50) with an exponential moving average on a short timeframe – say, the one-minute chart. An entry signal would then be generated when the 50 period CCI crosses the zero-line and is confirmed by the shorter-period CCI and the moving average. If the price movement is long and the 50 CCI crosses the zero-line, the confirmation should come in the form of the 20 CCI line remaining below the zero-line and the price is above the moving average. If either one of these confirmations fails to occur, the trade signal is false and you should not enter the trade.

This same set-up will also generate a handy exit signal. If you entered a long trade, like in the above example, and you are still in the trade when the indicators line up again to give you a short trade signal, this is your cue to close the trade. The kicker is that this will sometimes happen before your trade has had a chance to become a winner. To mitigate against this, you should be particularly careful about the market conditions when entering into short-term trades. It will take a great deal of backtesting and time spent on your demo account before you be comfortable about when this approach is likely to reliably and consistently give you winners.

Reversal Hunting with the CCI

Another popular trading strategy that is advertised for the CCI across online trading guides is its use in reversal trading. Reversal trading is an inherently risky business and should not be entered into lightly. Whether the CCI is the right tool for this approach or not is something that is hotly debated and only those who have thoroughly tested a reversal strategy to the point at which they are happy with its results should attempt it. That said, there are a huge number of reversal strategies out there relying on the CCI so it is worth looking at what a typical one might involve, even just for completeness sake.

In most of these strategies, you are waiting for the CCI line to cross the +100 line or the -100 line and then cross back. As you can already guess, this will throw up a lot of failed trades so most strategies seek to limit those by adding in more lines for the CCI to cross. If you do this your trade signal will be generated when the CCI crosses one of these outlying lines (say the +250, for a short trade) and then drops back down to cross the +100 line as well. Reverse this for a long trade, where the line crosses the -250 line, crosses back, and then also crosses the -100 line. Adding in that extra line will, of course, drastically reduce the number of trade signals you get out of this thing but the hope is that it will also drastically cut down the number of false reversals it leads you into. Combine this approach with a filter indicator, such as a good volume indicator to further reduce the number of false signals.

Whether an approach such as this is viable is something you will have to figure out yourself through a robust testing regimen, which will also give you an opportunity to try out tweaks to the approach, such as the distance between the overbought and oversold lines or the period of the CCI.

Breakouts with the CCI

Of the three most common uses for the CCI, hunting down breakouts from low or high bases is probably the most workable. The neat thing about this approach is that it works on a greater variety of timeframes, making it more appealing to a broader range of traders. The crux of the strategy is to wait until the market enters a high or low base (i.e. it goes sideways and forms a base after a strong movement upwards or downwards). Here the hope is that a signal from the CCI will confirm that the price is about to break out of the base and continue its previous movement. 

As with most other strategies using the CCI, this one also relies on the overbought and oversold lines at +100 and -100 but here the market conditions and how the price has been moving before the signal are critical. To enter a trade using this strategy, wait until the price forms a base after a strong movement in one direction or the other. In this example, let’s assume the market has gone to a high base after it has trended upwards for a while. If that’s the case, you are looking for the CCI to cross the +100 overbought line – and that’s your trade entry signal. To catch low bases, you are simply looking for the mirror image of this to occur, where the CCI crosses the -100 line after a low base has formed. Again, this is your signal that a breakdown from here is likely. 

As with anything in forex trading, there are a couple of problems with this approach. The first of these is that you are relying on the market to provide you with the right conditions for entry and that might leave you hanging around and waiting for quite a while. This is because in a market where there isn’t a clear trend, you will still get these signals but they will burn you if you use them outside of the price movement pattern described above. This makes the CCI a potentially useful indicator to have as a backup. You can use your usual setup to trade in more varied market conditions and then only pull the CCI out for those occasions when you feel you can really put it to work. Getting this right will, of course, take a lot of testing and long sessions in a demo account, making sure that this approach fits with the system you have in place and with the way you like to trade. 

The second serious problem is that even if you wait until the ideal conditions are in place, the CCI will still throw up false signals that will lead you into losing trades. You can mitigate this somewhat by waiting for it to cross the +200 or -200 line (depending on whether you’re looking at a high or low base). But this is a trade-off where what you gain in risk reduction, you lose in responsiveness. So, if you’re waiting for it to cut across an overbought or oversold line that’s further out, you might miss trades that would have been winners and you also might enter winning trades later, which could cut into your profits.

A third problem with using the CCI in this way is that it will cause you serious angst once you are already in a trade. Let’s say you followed all the rules, waited for a high base to form, waited for the CCI to give you your trade entry signal, and pulled the trigger on that trade. Now you’re in it, wondering how long you should stay in to maximise gains. Well, this is where the CCI can easily trip you up by tumbling in the other direction and crashing through that oversold line. This will look like a pretty hefty exit signal and many traders would take that as a sign that it’s time to bug out. But even if you do get out when it looks like the CCI is telling you, you could easily end up watching the price simply carry on in the same direction it was already going as though the CCI wasn’t even there. Well, that’s not a happy sight for any trader, you feel like you’re watching money you could have made simply sailing away. The trouble is these exit signals are often false. The upshot is that if you used the CCI to get you into a trade from a high or low base breakout, you shouldn’t also use it as an exit indicator. It simply won’t give you reliable enough signals for that.

Troublesome Hurdles or Insurmountable Problems?

So as you can see from these preferred strategies for using the CCI in forex trading there are different things you can use it for. It’s clearly easy enough to adapt to a variety of trading strategies and the sheer volume of suggested strategies out there on the forex internet tells you that this thing is popular. But, here’s the catch, just because something is flexible and popular doesn’t automatically mean it’s any good.

The first red flag that should pop up in your head when you look at the CCI is that it was designed well over a decade before the spot trading of forex was even a thing. Now, on its own, that doesn’t necessarily have to translate into a major problem for the indicator itself. You might even wonder whether the fact that it was designed so long ago doesn’t lend it a certain kind of venerability. Like, if it was designed so long ago and is still used today, doesn’t that mean it has survived the test of time? Well, let’s put it like this, how many items of technology do you use on a regular basis that are from the 1980s? Are you still using an 80s cell phone? Are you watching shows on an 80s TV? You might still have an 80s car in the garage and you might even love it but you know that it is by now a classic car and that if you really needed a car to do a job – because ultimately that’s what you need from an indicator – you’re going to want something more up to date. At the end of the day, the age of this thing should at the very least make you think, “Hey, I wonder if there are more recent, better indicators out there that are designed for what I need?” And, of course, there are.

That’s another thing about the CCI – not only was it designed in the early nineteen eighties but it was also designed with commodity trading in mind. At its most basic level, measures whether a security is overbought or oversold and that alone should make you think twice. Because, while it’s important to know if stocks or commodities are overbought and oversold since they have intrinsic value, this isn’t particularly useful for forex. That isn’t to say that there are no limits on the price of a currency, that the price can go as high or low as it wants with nothing holding it back. If the price movement in either direction is drastic enough, then a government or national financial institution is going to step in and try to rein it in. But that isn’t the same kind of thing as the limits of supply and demand that perform the role of, let’s say, natural checks and balances in the equity and commodity worlds. Moreover, that intervention might take a long time to get agreed upon and could come many thousands of pips down the line and even when it comes, it will bear no relationship to the overbought and oversold lines on your indicator. 

Now, these are pretty fundamental problems with the CCI but if its age and the fact that the way it functions is basically completely divorced from the way forex markets work aren’t enough to give you pause, there’s another thing for you to think about.

Circular Popularity

Reading all of this, you might be wondering, if it’s old and designed for different markets, why in the world would the CCI continue to be popular. There are a couple of main reasons for this. The first is that it is pretty popular in commodity trading where it is used pretty commonly and is more suited to doing a good job. What then happens is that traders who come over to forex trading from commodities are familiar with it and want to go on using it. So they try to make it work by bashing what is basically a square peg into a round hole. But they don’t just stop there, in addition to carrying on trying to use it for forex trading, they also make tutorials about it for youtube and sing its praises on forex social media.

The second reason it’s popular is simply because it’s popular. The forex internet can sometimes become its own little group-think bubble. Not only do people happily regurgitate what they’ve heard without actually giving it a try but they also often tell each other what they want to hear. Now, the first part of this is a big enough problem on its own because when lots of people – even people with a certain standing in the community, for want of a better term – talk about a thing as though its good they can amplify it to the point where the voices of those people who’ve tried it and might have something critical to say get drowned out.

Add to that the fact that there are people out there trying to get likes and views and follows and that they can do this by telling you what you want to hear and you’ve got a much more serious problem on your hands. There are no magic bullets in forex trading and no one indicator can solve all of your problems but if you put out a video or blog saying, “Hey, this indicator is a magic bullet that solves all your problems” then people are going to tune in. And not just that but you’re going to get way more viewers or readers than the guy saying, “you know what, this indicator doesn’t work too well”.

Lastly, this vicious popularity circle gets compounded by the fact that people are not too willing, generally speaking, to own up to their own mistakes and failings. So even in the comments under a blog piece or video or social media post you won’t get too many people saying, “Hey, I tried this and it didn’t work at all for me, in fact, I lost money using it.” This is pretty understandable since most forex traders are more likely to assume they were doing something wrong with the tool they were using than that the tool itself was the problem. That and no one likes shouting from the hilltops about something that went wrong – we’d all much rather boast about the things that went right.

But it goes further than that even because sometimes you will see people skating over the losses the CCI generates even in the videos and posts they put out to sing its praises. Sometimes you can see these on the very chart they’ve pulled up to show you how well it works but they’ll just mention them in passing or not mention them at all. Now, this is kind of cherry-picking is downright misleading – especially for people who are new to trading and who might not spot those losses because they’re working so hard to understand the wins properly. As disingenuous as this is, it still contributes to an indicator’s popularity because it gets people talking about it.

Okay, so it’s popular but not necessarily because it’s genuinely good – you’ve got that by now. But, in this case, popularity is a problem all on its own. You see when an indicator is as popular as the CCI (or a few others out there that also seem to draw a crowd even though they aren’t very useful) then people coming into trading see it and get it into their heads that this is all there is out there. If you’re just starting out as a forex trader and you see thousands of people out there talking about the CCI, you’re going to start to think that there aren’t other indicators that can fill this role. But nothing could be further from the truth.

So What Now?

First thing’s first. There is no harm in trying to understand how the CCI works and how you might use it in its optimal role. By trying it out harmlessly and at no risk to yourself or others in a backtesting/forward testing trial, you can view the whole process as an incredibly useful learning experience. Not only will you see what it can and can’t do but you will also learn something more about your own trading habits and the system you use will naturally evolve as you become more experienced.

That said, by testing this thing thoroughly, you will also be able to evaluate whether it can be put to use in some limited scenarios and in specific market conditions – such as, for breakouts from high and low bases as described above. Ultimately, however, the best thing to do would be to take the contents of this piece and use them as a springboard from which you can embark on a search for newer, better indicators. Rest assured, there are indicators out there that perform similar roles to the CCI but are specifically designed for forex trading and for integration with the kinds of platforms forex traders use.

All you need to do is get out there, search around, and do your own research and testing. After all, why would you use an old jack of all trades indicator designed for the commodities markets at a time when personal computers were barely a thing when you could instead find more modern, better tools out there for free on the internet. You will have to put in the work, of course, but the rewards are out there for the taking. 

Forex Indicators

Top 5 Forex Trend Indicators for New and Experienced Traders

There are thousands of indicators out there. In fact, there are so many that it is impossible to look at them all. What you may find when going through them is that a lot of them are actually different variations of a few different major indicators, with the creator having simply made a few small changes here and there. The underlying principle and method behind the indicators are fundamentally the same, in fact, for most of them, you would not actually see much difference at all.

So we are going to be looking at some of the more widely used trend-based indicators that are out there. You most likely will have heard of some of them or even used a variation of one yourself. Let’s take a look at what these major and popular trend indicators are.

Price Action

This is probably the one that most people would have heard of. In fact, some people who know nothing about Forex or trading may well have heard of this one too. When it comes to trading, price is the number one variable that we will be looking at and it is one that dictates the majority of moves within the markets. So getting a good understanding of what price action does and how the trends work is often the first thing that people set out to learn.

There are multiple different ways to look at price action. There are higher highs or lower lows and it is something that every trader should understand. We are not going to be going into detail here on how you actually analyse it, but there are hundreds of indicators out there that you are able to add onto your charts which give a fantastic overview of the current price action that is going on within the markets. The current price can tell you a lot about the current trends. The good thing about some of the price action indicators is that they also include trend lines, making it far easier to see where the current price sits within the current trend, a valuable tool for any trader or any experience level.

Moving Averages

One of the most used indicators when it comes to trading forex would have to be the moving average indicator. It is used to help identify the trends within the markets. There are multiple different forms of moving averages but they all follow the same ideas and aim to plot the average prices of a currency over a specific period of time over the price itself.

What the indicator suggests is that if the current price is above or below the current average price. It should indicate whether the markets are currently bullish or bearish. You are also able to work out the possible strength of a trend by looking at the steepness of the moving average slope. The steeper that the slope is, the stronger the trend would be. More often than not, you would use a long term in a short term moving average at the same time to help confirm any possible bullish or bearish movements.

The moving averages indicators are often used in conjunction with other indicators to help set up trades for specific strategies. Even if you do not use it for your trading, having a general idea of the current trend and where that trend sits above the average price can be invaluable to your trading, including both entry and exit positions.

The Parabolic SAR

Parabolic SAR, which stands for Stop and Reverse, is a great indicator that a lot of people use. The way it works is by identifying the short term trends within the markets. It will simply place dots on the charts which will be either above or below the high or the low in the price.

It works by using a number of different variables to help calculate its values. It uses things like acceleration factor and extreme price to do this. It is extremely useful when looking at the short term trends and the changes that are happening within these trends. It can be used to help with both entry and exits of trades as it is good at showing where the reversal could happen. It should also be used multiple times to enable for better correlation and confirmations of the short term trends and the changes that could be taking place.


Also known as Moving Average Convergence, divergence, it is an oscillator which means that it will usually measure variables and changes in things like momentum and volatility. The MACD indicator is slightly different though because it also acts as a trend indicator, as well as calculating the momentum in the price of a currency.

The MACD indicator includes a histogram which will oscillate around the 0-level. The fast and slow lines are known as the MACD line and the signal line. The indicator gets its values from the exponential moving average indicator with a setting of 12 and 26 periods. The trends that are shown in the price charts are validated by using a combination of variables in the MACD indicator. MACD is widely used and there are a lot of indicators and expert advisors out there that have implemented it into their strategies and into their indicators, so you do not need to look far to see MACD being mentioned.

Ichimoku Cloud

This indicator is also known as Ichimoku Kinko Hyo, is a pretty unique one as it is a trending system within itself, not needing any additional input. It was developed to work as a trend following indicator which has a large number of variables included in it for customisation and adaptations.

The cloud within the indicator is often seen as the support and resistance level areas within the markets. The Chikou, Kijun-sen and Trinjensen measure the 9-period and 26-period levels on the charts. The Ichimoku Cloud indicator is fast becoming one of the most used trend indicators and is now getting used more and more by new and experienced traders. On first impression, it can look a little daunting due to the vast numbers of options and variables available, however, during a time of sustained trend in the markets, the indicator is able to give very good and very accurate results, which is why it is now so highly used.

So those are some of the most popular trend indicators that are being used right now. Which one you should use is entirely up to you. Some match and combine with certain strategies while some do not, some are far simpler than others, but the decision of which to use will need to be based on what will work best with your current strategy. All we know is that they are all incredibly helpful and potentially powerful tools that you can add to your trading arsenal.

Forex Indicators

What is the Best Forex Trading Software?

Several software categories could fit into this question, depending on if you are looking for a platform that connects to a broker market feedback, automated trading software, trade analysis software, standalone or web-accessible, or some other utility with a specific role such as the one that copies trading signals. Forex trading software that brings the market to your screen is also called a trading platform or a client. To other people trading software is an automated solution that trades autonomously, commonly known as trading robots. However, we are going to give you some insight into what software might be the best for you if you are starting with forex trading. 

Firstly, you need to know that MetaTrader 4 and 5 from MetaQuotes is the most supported trading platform and probably the only one you will ever need. Metatrader platforms are at the top of the market share in their category. There is no need to tell you about the history of how this came to be, but more about why. 

MetaTrader platforms pushed to the top for several reasons. Their products are easy to use and set up. Metatrader is supported by Microsoft operating systems, Apple OS and it is also developed for Android. Additionally, to completely leave no uncovered space, Metatrader is also available through the web browser. So if you do not have it installed, you only need an internet connection and trading account credentials. Metatrader platform is also free. When you have this combination of availability and no barriers to entry it is very easy to conquer the market. Although that software needs to cope with the traders’ needs and also be supported in various ways.

Metatrader developed great options for analysis such as their Strategy tester module, good customizability of charts, a good overview of the trades, markets, and easy orientation. The platform became popular and the network of supported broker grew to the point almost all brokers have this platform offered. The main advantage of the Metatreder platforms is their ability to have custom indicators and scripts. The MQL language is easy to learn and is a no brainer for established coders. MQL language paved the way to make so many indicators and utilities for the MetaTrader platforms traders can make specialized strategies and chart analysis not possible with any other software.

Modified MT4 or MT5 with these utilities can become unrecognizable from the default looks. Many traders have gathered together to create forums, coders enjoyed the demand to create customized indicators but also customized automated scripts. MetaTrader platforms allowed Expert Advisors or EAs to be plugged in like any other indicator or utility. Everything became big enough to form a completely new marketplace for these products, some are free while some are sold for a couple of thousand dollars. MetaTrader platforms became the mainstream and there is no sign anyone new will come in to replace all this.

The platform locked down and denied the competition with this huge support and network. Metatrader 5 is the newest iteration and it is not very well received. Mostly because it does not deliver a much better experience and the huge support is slow to adopt the MQL5 language. MQL4 made indicators and tools are not compatible with the MT5, they have to be rewritten. This problem created an adaptation gap to the point MetaQuotes stopped issuing new MT4 licenses to brokers to force the shift to the new MT5. MT4 is still the most used platform and most supported yet the MT5 is slowly taking over. 

MT4 and MT5 are not that different, you will barely notice the difference, however, MT5 has better options and follows new developments in the technology, but nothing revolutionary. As a new trader, it is better to start with these platforms right away than to get accustomed to broker proprietary software.

Proprietary trading software is developed with ease of use as the primary goal. When you look at the MetaTrader platform the first impression is that you do not want to mess with its unattractive layout. There are a lot of details, numbers, lines and everything is crammed into a few windows. It will seem you will have to face a steep learning curve to trade with this platform while the proprietary platform is very easy. Brokers will want to get you into trading quickly, before you lose interest, as many do. That is why everything is hidden that seems too complex, sometimes even missing key trading information such as the spreads. Proprietary platforms partially serve as marketing more than as a functional trading platform. Furthermore, even they look better, they may not perform better. 

Not all brokers offer their own platforms, and not all proprietary platforms are inferior to the Metatrader. Two such examples are with the OANDA and brokers. OANDA has a very beginner-friendly platform with good utilities and presentations about the position sizes. If you are starting with a demo account and find Metatrader just too much, consider this proprietary platform for practice. You will get a feeling about proper money management as it has more calculation options. also has a proprietary platform that has a lot of advanced features not found in Metatrader.

The analysis is more advanced, has more modules and news plugged in, and many more options. Additionally, the platform has an incredible array of markets and assets. Simply, Forex. Com is a large broker brand and can afford to develop such platforms. On the other hand, know no proprietary platform allows custom made indicators and utility as the MetaTrader. If you really want to dive into forex charting and analysis tailored to your strategies, Metatrader will probably suffice even when you get advanced. 

When we talk about other, web-accessible trading platforms, TradingView is unavoidable. This is a subscription, web-based portal that offers a great way to charting and advanced technical analysis. It is packed with tools, it is easy on the eyes, and has a good structure. Definitely more attractive than the Metatrader, however, it does not quite match the tools range Metatrader has with its vast community. TradingView also supports indicator making, has some other abilities Metatrader simply lacks but is not quite trading oriented. It is more an analysis platform than trading. In that sense, you can do many useful things such as making your own currency baskets, indexes, advanced chart comparisons, and so on. Most experienced traders use this platform as an additional analysis utility. If you are new to trading, try it as you learn the basics. 

Other trading platforms are also good and in some aspects more advanced than the Metatrader. One such standalone platform is the Nninjatrader. The platform surpasses the analysis potential however it still cannot match Metatrader’s third-party add-ons availability. If you want to trade live with this platform, you will also have to purchase it. 

Now, if you do not want to spend time learning forex trading, you have other investment options, options where you invest your capital into managed portfolios or use copy trading platforms. One such popular platform is ZuluTrade. Copy-trading became popular and is still booming for people who just want to copy what good traders are doing, so they can copy their performance too. Copy-trading also requires some research on how to recognize a good trader.

Typically, you will want to seek out long term consistency, steady growth, and noting extreme like triple-digit percentages in a single month. People get hooked on performance rates, neglecting the long term risk. Drawdown and trading frequency are also parameters you will need to pay attention to with this platform when copying others. Also, consider diversifying and follow different traders or strategies as this platform also supports aggregated subscriptions. 

Forex Indicators

All You Need to Know About Manual Trading Vs. Copy Trading

These days, there are a lot of different ways that you can trade, two of the main ways that people trade include manual trading the art of performing all the market analysis yourself and then placing the trades, ad copy trading, the simple act of finding a trader that you believe has a good strategy, and simply copying their trades onto your own account. The latter is fastly becoming one of the more popular ways to trade with multiple platforms appearing allowing people to copy other traders’ trades. We are going to be looking at the advantages and disadvantages of both so you can compare which method of trading may be best suited for you.

Manual Trading

If we start by looking at manual trading, this is the traditional style of trading that you see in the movies or have most likely read about online. This form of trading involves you looking at the markets, working out the direction of your trade, and then placing your trade in line with your strategy and any risk management plans that you have in place. There are a number of different advantages when it comes to manual trading, the first point to make is that when you are trading in a manual manner, you are less susceptible to certain events such as economic news, simply because you are in control of your trades and can decide not to put any trades on during these times.

You are also able to perform better than a computer in regards to placing trades, simply due to the fact that you have experience, your own intuition, and are able to make decisions based on real-world events that a robot may not be able to. The other main advantage is simply the fact that as a human trader you have the ability to analyse more variables that influence the markets whereas a computer will not be able to.

Having said that, there are also some disadvantages to trading in a manual manner, this includes the fact that as a human, you are prone to emotions, these emotions can have an effect on your trading and can potentially cause you to make mistakes. Trading can also take a long time, time that you do not always have and so you may need to make sacrifices to other parts of your life to trade properly. Due to this, he may also have to sit at the computer for long periods of time, making it a little boring if nothing is happening. Your trading will also be limited to your availability, you can only trade when you are there at the terminal, so this will be limited by things like sleep and work.

So that is manual trading, but what exactly is copy trading? There are actually a few different versions of copy trading including, signals, mirror trading, and social trading. Each one has a similar concept, you are finding a trader and then simply taking their trades and putting it onto your own account, hence the term copy trading. It takes a lot of responsibility, but you are putting your accounts and trades in the hands of someone else. So let’s take a quick look at the different versions and advantages of these trading methods.

Copy Trading

Specifically for copy trading, there is a master account that is controlled by a person. Then there are then a number of copy or save accounts that are linked to that original account. When a trade is placed on the master account, it is automatically copied to the copy accounts. The advantages of this sort of trading include that you can trade with very little knowledge of forex, there is no need for you to monitor your trades all day long, you won’t miss any trades as you are taking the same ones as the trader is, you have the opportunity to learn from the taker by watching what they are doing, you are also able to diversify your portfolio while at the same time keeping your risk low.

There are of course some downsides to copy trading, these include the fact that your account is out of your control, you are automatically copying trades, so if bad trades are made, you will make them too. You also can’t make any decisions based on your own findings or initiatives. Finally, you won’t gain as much knowledge and experience simply copying someone rather than doing the work yourself.

Mirror Trading

There is also mirror trading. It probably sounds pretty similar due to the names of copy and mirroring. The main difference is that with copy trading you are copying from a single trader, with mirror trading, you are taking trades from a basket of traders, you don’t necessarily have a choice of which traders and which trades to mirror, just that you will get some from that basket of traders.

Some of the advantages of this style are the fact that it does not take a lot of time at all, the trades and analysis are done by other people. There is a reduced risk when compared to copy trading due to there being a choice of multiple traders rather than just one. The potential for consistent profits are higher and can be expected due to the trading models generated from mirror trading, there are also no emotions when trading like this as they cannot affect the trades that are being put on.

There are of course some disadvantages too, including the fact that you are not in control of the trades that your account is making, the algorithms used to choose the trades are also often not known which can make it hard to know why certain trades are being made. It is also important to note that this form of automated trading is not recommended for beginners, as you need some form of understanding when choosing which traders to have in your basket.

Social Trading

The other style of trading is social trading, this is a mix between the other two, this is where there is a kind of marketplace where you can view other traders or trades and choose which ones to copy, it gives little more control over what you trade and copy.

The advantage of this style of copy trading is that you have more control over what you are trading. You are also able to engage with other traders, getting and giving ideas on trades, and working out different reading strategies. There is often more information available on the traders so you can better analyze their trading strategy to work out exactly what you want to trade.

There are once again some downsides, including the fact that it can take a long time to work out who to follow due to the amount of analysis that you will need to perform, you may also miss opportunities for trades if you are not at your computer, some traders and news events can have more hype than expected, giving a false sense of confidence in certain traders and some of the social trading platforms can have transparency issues, keeping their workings and costs hidden from the copiers.

So that is manual trading and copy trading, there are advantages and disadvantages both, you need to work out which one will work for you, or maybe even try a little bit of both. There Is no harm in trying multiple methods, as a beginner, copy trading is perfect, but it is always good to learn on the side so that you can later be an independent trader with the ability to trade fully yourself and not have to rely on others.

Forex Indicators

Parabolic Sar Need Not be Complicated – Read these Best Practices Today!

In forex trading, some indicators are a case study in making sure you’re using the right tool for the right job and what can go wrong when you take something at face value without doing your own research.

The Parabolic SAR is a great example of an indicator that absolutely crushes some traders – particularly beginners and traders who aren’t properly testing their tools. Like a lot of forex trading tools out there, the SAR is advertised as being good at one thing but it turns out that this superficial understanding of it leads you down a dead-end and can cause your portfolio serious harm if you use it wrong. And, just like a lot of other indicators out there, there may well be legitimate and effective uses for it that lurk beneath the surface but that you will never discover if you just use it out of the box, without taking the time to examine it properly.

This is precisely why the parabolic SAR merits a closer look. That means both that we’re going to talk about it here but also that you should put in the work and properly test how it can fit in with your trading setup.

What is it and Why is it?

There’s a recurring theme in the forex world and the world of trading in any kind of securities more broadly and that’s that the people who dream up and develop indicators and tools are just downright bad at naming them. So many times you’ll come across a tool or method or indicator and you’ll think it’s good at doing one thing because of what it’s called but, on further examination, you’ll realize that it’s actually no good at that thing and you end up using it for something completely different – sometimes you’ll straight up use it for the opposite of its intended application.

That’s kind of the case with the parabolic SAR, which is an acronym of Stop and Reverse. The indicator was the brainchild of pretty much the daddy of a whole host of technical trading indicators – you may have run into him before but if you haven’t, his name will still crop up often enough that you’ll end up remembering it anyway: Welles Wilder Junior. He came up with some of the most-used indicators out there, the Relative Strength Index (RSI), the Average True Range (ATR), the Average Directional Index, and, among them, the Parabolic SAR.

Now, it’s true that he came up with a lot of these indicators to assist equities traders rather than forex traders – they were mostly developed in the 1970s and 80s, well before spot forex trading was even a thing – but the fact that they are still so familiar to us today speaks to the fact that there is often still some value in them. And there is potentially some value in the parabolic SAR, it’s just that it may not be in using it as it was originally intended.

Wilder developed the SAR because he was looking for a way to measure an asset’s momentum in such a way that it would be possible to calculate the point at which it becomes more likely than not that the momentum would switch direction. The idea he had was that a strong movement in the momentum takes on the shape of part of a parabolic curve. A parabolic curve looks a little like a graph of exponential growth and traces a gentle arc from the near horizontal to the near-vertical. In the SAR, the momentum doesn’t always follow through the whole curve and might only mark out a section of it – nonetheless, that’s where the first part of its name comes from.

Wilder also noticed that when the price catches up to the curve mapped out by the momentum, the odds that it would change direction became higher than the chance of it continuing in the same direction. This meeting point of the momentum arc and the price is then the stop point and a reversal here becomes likely – hence stop and reverse.

Reversal Hunting

There’s one great thing about the Parabolic SAR that’s immediately obvious to everyone who comes across this thing and that draws traders into actually using it and that is that it’s almost ridiculously easy to read.

Now, to the more seasoned traders out there that might seem like a bit of a nonsensical thing to say, they would immediately see that as a red flag and be like, “well, you know what, just because something is easy to read doesn’t automatically mean that it’ll actually work the way it’s intended”. And they’d be right of course but once you’ve been trading a while it becomes kind of difficult to take yourself back in time and put yourself in the mindset of someone who’s just starting out.

Traders who have never seen anything like the SAR before will be immediately impressed with how clear and simple it is and how straightforward the signals it sends you are. And that’s its initial appeal – it looks like it does exactly what it was advertised to do and there’s zero input required from you the trader. You just plug it in and it’s ready to go.

On the surface of it, the SAR was developed as a reversal indicator that tracks momentum and then tells you, “hey, momentum has bumped up against price here, there’s a reversal unfolding”. And if you don’t look at it in any greater depth than that, this superficial approach to it is going to lead you down a blind alley where you could find yourself embroiled in some very serious losses.

The first thing to point out here is that reversal trading is a very dangerous, high-risk business and if you’re not 100% sure of what you’re doing, it is very hard to be in the small, elite club of traders that can make it reliably and sustainably work for them. If you are new to trading or even if you have a couple of years of experience under your belt and you decide to go hunting reversals using the parabolic SAR, you are doubly in trouble. Not only will you almost certainly run into big losses running reversal trading without an array of measures and systems (such as risk assessment, money management, and a thoroughly tested and evaluated toolkit of indicators and strategies) designed to cut back on bad trades, you will also be applying the wrong tool to the wrong job.

Reversal trading is not for the faint-hearted and it most definitely is not for beginner traders. But more than that, the parabolic SAR just isn’t a good indicator for the job. It will, almost without fail, call out reversals that are immediately followed by retracements – go test it out, it’s almost uncanny.

Alternative Uses

So if it sucks at doing what its name says it’s good at, what is the SAR actually good for? Well, those of you who have by now become accustomed to taking indicators for a spin around the testing range will be familiar with this one phenomenon that crops up all the time.

What happens, even with quite experienced traders, is that you’ll take a tool or an indicator and start backtesting it, and when you see it takes you into a trade, you’ll measure out how much of a win that trade would have been. So, if you see it take you into a trade that runs for, say 600 pips, you’ll say to yourself, “awesome, this thing is great, I just took home 600 pips!” Well, no, no you didn’t. If you were really making that trade in real-time, there’s no way that you would have taken all 600 pips of that run. Your trade entry and exit just cannot be that perfect in the real world. If you’re lucky, you might have grabbed half of it and taken a 300 pip win but more likely you’ll only have been able to realize something like a third of the whole movement and taken 200 pips.

Now, of course, the reverse is also true and you might have seen that move switchback early on just far enough to blow out your stops so you would have to count it as a loss. One would hope that you have the right money management approach to cut down on that loss by ensuring that you are going into the trade with the right stake that allows you to set your stops at a point that allows a bit of leeway in the price movement. The other thing that you can do here to maximize your win is to apply the right technical trading tools to ensure that you can reap as much of the reward as possible.

This is where the SAR comes in. Not, probably, as your primary entry indicator but more as a secondary, confirmation indicator that helps you to see out a trade to the maximum possible point. In short, you can use it as a trailing stop.

On your chart, the SAR will appear as a series of dots above and below the price that appears as lines – those are the sections of the parabolic curve that we talked about before. When the lines of dots cross the price line, they will flip across to the other side. In reversal trading, this is supposed to be a signal that a reversal is happening but – as we saw – that’s not the best way to use these things.


It’s important to know when to use the SAR because, like a lot of other indicators, it only works in certain market conditions. The main thing to remember is to absolutely never use the SAR when the market is choppy. If you see that the market is ranging or heading sideways or even if there’s a weak trend then you are not going to want to use SAR because it will throw up lots of little false signals that will make it impossible for you to make any money out of the trades it leads you into.

So, the best way to approach the SAR is to use it once you have already identified a strong trend in the market and in conjunction with a primary indicator (or set of indicators) that will lead you into a trade. Under these conditions, the SAW can really shine.

When your system identifies a trade entry on a strong trend and you make the decision to pull the trigger, you can use the SAR as a continuation indicator to lead you down the movement to the point at which you can exit and still walk away with as many pips as possible.

To get accustomed to how this might actually function out in the real world, you will have to put in the work and try this thing out on your historical charts and through a demo account – making sure you combine it carefully with the tools you already use.


In short, the main things to take away from the SAR are that you should never ever use it in either of the following scenarios: a) as any kind of reversal indicator – it does not do this job well and it will lose you money; b) in any way shape or form if the market is not in a clear, strong trend – if there is any fuzziness to the market or even a weak, watered-down trend, don’t use the SAR.

But in its capacity as a secondary or confirmation indicator that you use as a trailing stop or continuation indicator that leads you through a trade you are entering (when the market is already in a strong trend), it has the potential to help maximize your wins.

Finally, make sure you test it for yourself and that it works in the system you have set up to suit your trading needs and preferences. If it doesn’t fit into this, never fear, there are plenty of other trend indicators out there that will do a similar or better job and all you have to do is get out there and find them.


Forex Indicators

What You Need to Know About Trading with the Williams %R Indicator

Do you trade using indicators? Still do not know this indicator created by Larry Williams? The Williams %R indicator, although less popular than others, is worth studying.


The Williams %R is an impulse indicator developed by Larry Williams. It moves between 0 and -100, providing information about the weakness or strength of a financial instrument, i.e., stocks, currencies, or commodities. It can be used as overbought/oversold levels, impulse confirmations, and trading signals. Readings from 0 to -20 are considered overbought. Readings from -80 to -100 are considered oversold levels.


The formula used to calculate the Williams %R is:

% R = (Maximum – Closing) / (Maximum – low) * -100

Minimum = lowest minimum over the period analysed.

Maximum = highest maximum in the period analysed.

The default setting for the Williams %R is 14 periods. It can be days, weeks, months, or an intraday period of time. An R %of 14 periods would use the most recent closure, the maximum of the last 14 periods and the minimum of the last 14 periods. The Williams %R has only one line by default.

When the indicator is:

-Near zero shows that the price is quoted near or above the maximum during the period analysed.

-If the indicator is close to -100, the price is traded near or below the minimum of the analysed period.

-Above -50, the price is traded within the upper part of the period analysed.

-Below -50, the price is traded at the bottom of the period analysed.

If we look at the daily chart, AAPL shows overbought at the -4 level. Back sessions were at the -80 oversold level.


Williams’ interpretation of %R is very similar to that of the Stochastic Oscillator, except that %R is traced backward and the Stochastic Oscillator has internal smoothing. Williams’ interpretation of %R is very similar to that of the Stochastic Oscillator. Values in the range of 80% – 100% want to tell us oversold, while readings in the range of 0 to 20% suggest that it is overbought.

Like other overbought indicators – oversold, the most favorable thing will always be to wait for the price to change direction before trading. The over-purchase may remain for an extended period of time. For example, if an overbought indicator – oversold (such as Williams’ Stochastic Oscillator or %R) shows an overbought condition, it is advisable to wait for the price to fall, before selling if you already have a long position or a stop loss.

Often, the %R indicator helps to find a turnaround in the stock market almost at the right time. The indicator usually forms a peak and then turns offa few days before the value price turns. Similarly, the %R usually creates a drop and goes up a few days before the price resumes.

Like the vast majority of overbought indicators – overbought, it is much better that we wait for the price to change direction before trading.

Using the William %R Indicator Correctly
  • To identify over purchases in an Index or stock.
  • Centre line of the WILLIAMS %R indicator.
  • Divergences

Let’s look at each of them in the most detail.

To identify levels of over-purchase:

The indicator ranges from 0 to -100. No matter how fast action moves or falls, the Williams %R indicator fluctuates in this range. Oversold and overbought levels can be used to make an identification price extremes, which appear to be unsustainable.

-Williams %R above the threshold of -20 is considered overbought.

-Williams %R below the threshold of -80 is considered to be oversold.

As is known, a market may remain overbought for an extended period of time. Trends with some strength usually present a problem in these oversold levels – overbought already classic. WILLIAMS %R can be overbought (> -20) and prices can simply continue to rise when the uptrend is strong. In contrast, the WILLIAMS %R may be oversold (-80) and prices may simply continue to fall when the trend is strong.

Amazon has a WILLIAMS %R at 14%, in a daily chart. Seeing, from left to right, Amazon came to overbought at -3 in early December, when it traded around 696. Amazon did not reach the peak level as soon as the overbought reading appeared. It took a few days but then we saw a drop of almost 149 points. 19%. From overbought levels of -3.1, the WILLIAMS %R moved around -98 in mid-January towards the oversold terrain. Despite this oversold reading, Amazon continued to fall to the ground on January 20. Traders must always confirm the WILLIAMS %R indicator with price action or price action. On 20 January a Hammer sail was formed with the oversold WILLIAMS %R. This confirms that the short-term soil was reliable and recovered up to $638 a share. The WILLIAMS %R indicator was overbought and again we saw drops. Overbought and oversold levels are marked on the charts.

Centre line of indicator WILLIAMS %R:

The WILLIAMS %R indicator detects bullish and bearish movements in the market by observing when crossing above or below the WILLIAMS% R-50 level. After being overbought and oversold, if the Williams %R crosses the -50 line, it usually indicates a change in movement.

If you can find the Microsoft chart from April 20, the DOJI formed by Microsoft suggests a trend change. It also broke -50 which also suggests a change. In the example illustrated above, the %R of MSFT was overbought, then the share price began to fall and the %R crossed below the -50 line quickly, before most of the bearish movement occurred.

It is advisable to use the price stock with this Williams-based %R strategy to increase the odds of success. . As you may have observed, in the above example, the bar that pushed the reading of the Williams %R, below -50, was a DOJI. This usually warns of a change of trend if the next candle is also bearish. Traders should open short positions in MSFT with Stop Losses just above the DOJI sail. The trader would have entered the market when the bearish momentum was at its highest. Therefore, you could have managed to place a tighter stop loss, which in turn would increase your risk/reward advantage in this particular operation.

It is possible to use this strategy to be able to open a long position when the %R is above -50after it has been oversold for a period of time.

It is highly recommended to use price action in combination with this Williams-based %R strategy to increase the odds of success.


The WILLIAMS %R divergence occurs when there is a difference between what the price action indicates and what the WILLIAMS %R indicates. These differences can be interpreted as a sign of an imminent turn. There are two types of divergences. Bearish and bullish.

Bullish divergence WILLIAMS %R:

A bullish divergence occurs when the WILLIAMS %R is oversold, below -80, increases above -80, remains above -80 in recoil, and then breaks over its previous reaction at a higher level. A bullish divergence forms when prices move to a lower minimum, but the indicator forms a higher maximum.

WILLIAMS% R bearish divergence: when the price reaches a new maximum, but the WILLIAMS %R reaches a lower maximum.

If you can see a Facebook chart, the price dropped to 77.22 on May 5. WILLIAMS %R went straight to the oversold area. It moved up and up even further, but the price dropped to 76.79 on May 12. Once the WILLIAMS %R moved above -80 and we had a bullish enveloping pattern, as shown above, we marked the turn. The price recovered up to $83.


The WILLIAMS %R index is a unique impulse indicator that has stood the test of time. The WILLIAMS %R is best suited to identify possible spins in overbought/oversold levels and bullish/bearish divergences. As with most indicators, WILLIAMS %R should be used in combination with another indicator or with the price action. It is possible and positive to perform the combination of using WILLIAMS %R with price patterns with the objective of increase signal robustness. If you operate intelligently, by combining price action, and use the Williams %R to confirm the momentum in the market, your likelihood of ending a profitable trade would greatly increase.

Forex Indicators

The ATR Indicator and Volatility in Trading

Have you ever considered how to use volatility in your trading? How to apply some filters according to their behavior? The ATR indicator can help you with this. In this article you will be able to show you a lot of information about the Average True Range (ATR), an indicator unfairly forgotten in trading systems.

  • What are technical indicators and how can I use them?
  • What is the ATR?
  • How did ATR come about?
  • How to calculate the ATR – Average True Range
  • Find true range (True range)
  • Calculation of the ATR indicator
  • Graphic representation of the Average True Range
  • Uses of ATR
  • More frequent strategies using ATR
  • Momentum strategies
  • Böllinger bands
  • Supports and resistors
  • Conclusion
What are technical indicators and how can I use them?

The technical indicators, among those found in Average True Range (ATR) is based on a series of calculations on price action (some also on volume). I am sorry to say that the use of technical indicators does not always work. But they can be useful tools for detecting patterns of market entry and exit.

There are a number of technical indicators that have been developed, some show us when the market enters an overbought or oversold situation, others show us when a trend can be exhausted, if a movement is reliable and how much travel it can have.

The ATC shows us the volatility in a market, as well as its variations.

What is the ATR?

ATR stands for the name of this technical indicator: Average True Range. This indicator was developed by J. Welles Wilder. It is no more than an average of the price ranges (in fact, its name in Spanish corresponds to the average of the true range). A true range is the measure of volatility that can exist between two successive time periods (for example, two stock market sessions, two weeks, two hours, etc.).

To the point, it is a technical indicator of volatility. Volatility shows the strength they have, have had and can have (based on estimates) price movements. This can be useful both to calculate the risk and to filter market entries and exits (later we will delve into the importance of all this for our trading). The ATC simply reflects the periods in which the market has behaved more violently (is more volatile) and whether volatility increases or decreases.

How did ATR come about?

Wilder, the creator of this and other technical indicators (such as the Relative Strength Index; RSI or the Parabolic SAR, among others), was a commodity market operator. This trader used financial futures for its operations. Futures are leveraged instruments (like trading with Forex and CFDs) and are therefore very sensitive to strong price movements. For this reason, he discovered that it would be useful to have a tool that would allow him to know the range in which the market can move in a day.

However, it may be that the market opens at a different price than the previous session (what is known as a gap or gap) and does not move much further during the present day. In this case, the behavior in a day is not very volatile, but if we take into account the variation with respect to the previous closure, in fact, there may have been volatility.

For this reason, Wilder developed a calculation formula that allowed not only to see the volatility of a single day but in contrast to the previous day. Similarly, by averaging this calculation, you can observe how volatility in the market evolves over a period of time. His idea, which remains in force, was that after a period of high volatility he was continued from a period of low volatility; and vice versa.

All the technical indicators developed by J. Welles Wilder can be found in his book “News Concepts in Technical Trading Systems” (1978).

How to calculate the ATR – Average True Range

Like all other technical indicators, the Average True Range (ATR) is based on calculations of past price movements. To calculate this volatility indicator we must start from the True Range of the current period (True Range). The periods to be taken as the basis for the calculation (i.e., the number of immediately preceding sails or rods taken into account) must also be configured.

As a general rule, the period used is 14 (can be daily, weekly or monthly periods). Wilder, its creator, used this value for its development (in addition, on a daily basis). However, there are traders who use a very different trade from the father of the ATR and for this reason, the period is configurable.

Find true range (True range)

As I mentioned before, the ATR indicator is only an average of the true range calculated over the periods indicated. It is taken as a value to define the range (True Range), the highest value of these three:

  • The maximum price for the current period – minimum price for the current period.
  • The maximum price for the current period – closure of the previous period.
  • Previous period closure – the minimum price for the current period.

The difference between prices (in other words, the range of movement they have had) shows whether the market has been more or less volatile. The higher the range means the more volatility there has been.

Thus, the true range includes gaps that may arise in a market. This price difference, by taking the stock exchange session, better reflects the strength of the swings and helps us measure volatility in a more reliable way. As a last point, when creating an average on these values, we can observe the volatility changes. In other words, whether it goes up or down.

Calculation of the ATR indicator

The formula for calculating the ATR indicator is as follows:

ATR= [(previous ATR * n-1) + True range of the current period]/n

Wherein is the current period.

In any case, the default configuration of the ATR, which Wilder left us, was done over a period of 14 days. As discussed above, periods are taken on a daily basis (i.e., to calculate the ATR we take the price movements from the previous 14 sessions).

Thus, the original ATR would read as follows:

ATR= [(ATR previous period *13) + True range of current period] /14

Although this is the formula that its creator used to operate in the commodity market and know its volatility, the ATR can be configured according to the market, your trading style (scalping, swing, etc.), or strategy that you can use.

Graphic representation of the Average True Range

To make it easier to use the ATR indicator, it is graphically displayed at the bottom of our quotation chart (although there are platforms that allow you to place it at the top). The vast majority of trading platforms have this indicator and you just have to select it in the corresponding section and insert it. They also allow configuring of the number of periods on which we want to do the calculation. The ATR is represented by a linear graph, in which you can see the peaks and valleys of volatility. Increases and decreases in value are seen at a glance.

Uses of ATR

ATR has different uses in our trading. It can be useful both in designing strategies and in calibrating risk. As I mentioned at the beginning of this article is one of the most useful technical indicators, but, curiously, the least used.

Some of the uses we can give the Average True Range (ATR) are:

To calculate the size of the position in our trading account: dividing our risk according to the existing volatility (taken as a multiple of the ATR), we are in a position to limit the size of our trade.

Define the stop loss level: this is one of the most widespread uses of the ATR indicator. Sometimes you don’t know if the stop-loss order is too close to the price. Volatility can give you the answer. Knowing the violence with which the financial asset can move, we can calculate a safety margin to place our stop.

Set profit targets: just as we can limit risk based on the potential range of price movements. The ATR indicator will be useful to determine how far a movement has traveled. This way we will have an idea of what we can gain with an operation and set our take profit order.

To create strategies based on breaks: when the price goes through a trend, a channel, support or resistance, we must ask ourselves is this break reliable? If the price breaks with force, that is, with an increase in volatility, the break is more likely to be valid.

Select assets to trade: with the ATR you can create a filter to select which assets to trade on. You may want to exclude those in which volatility has been low and an explosion in price is expected. Assets that have excessive or very low volatility can also be discarded. To be able to compare the volatility of the assets, you just have to divide the ATR by its price and get a percentage (multiply it by 100).

More frequent strategies using ATR

Another of the most common uses of ATR is to use it as a criterion or filter within our trading system. For example, we can define that market entries occur “when volatility is greater than… (Usually a multiple of the ATR is taken).

Momentum Strategies

The ATC may indicate a change in the direction of prices. Bullish trends tend to occur in a less volatile way than market declines. If it is applied in an uptrend (in the long run) and there is an increase in volatility, it is possible that there will be a possible increase in panic and, therefore, a change in the direction of prices. Similarly, it is possible to exploit a bearish trend that is ending if we observe a decrease in volatility.

Böllinger Bands

A trading system could be, for example, combining the ATR with Böllinger Bands. If the price reaches the upper band and there is an increase in volatility, it is possible that we are facing a variation.

On the contrary, given that price falls occur with greater volatility, when the price reaches the bottom band and there is a decrease in the price, it could be interpreted as the end of the decline. As always this should be seen through a backtest. But I can tell you already that some of my strategies use ATR as an entry and exit criterion.

Supports and Resistors

This strategy has been outlined above when discussing the uses of ATR. However, it should be recalled that a strong price movement is more reliable as it better reflects market sentiment. The ruptures of supports and resistances must be validated and this indicator can help us to confirm it.


As you will have seen, the ATR (Average True Range) is a complete technical indicator that can be useful to exploit inefficiencies or improve your trading systems. Volatility is one of the most important aspects of the market and should be taken into account in your strategies. The ATR indicator can be incorporated into other systems and strategies. But it can also be an important element in determining risk and establishing proper risk management.

Forex Indicators

How to Trade with Sentiment Indicators

Can sentiment indicators help us make good investment decisions? When is the best time to use them? In this article, we will see three of the main sentiment indicators used by traders.

A market is efficient if the prices of the assets listed therein reflect all available information. In addition, whenever new information appears, the price should be collected quickly. In such a market, value and price would match all assets. As all participants would have the same information, it would be impossible to obtain a consistent performance over the average, except by pure chance.

In order for this market to exist, certain characteristics should be given, in addition to all participants having the same access to information. Primarily, market participants should act rationally on the basis of any new information they receive.

You don’t need to be any great expert on behavioral finance to realize that human beings are far from acting rationally. Emotions are very important in the decision-making process, in all areas. Also in investments. There are all the discoveries of behavioral finance to prove it.

The logical consequence of accepting this is that markets should not be efficient. However, the vast majority of studies show that markets are indeed efficient (or at least quite efficient). News is quickly reflected in prices (both macro and business results, etc.). And the reality is that there are not too many managers able to beat their benchmarks, consistently, is also proof of that. And the truth is that even among those who beat them, almost none can truly be considered an outlier.

Emotions are very important as they significantly affect our decision-making process, in all areas. Also in investments.

Obviously, the topic gives for much more than a brief article, but it is relevant to keep it in mind when carrying out an analysis, whatever the type. In this context, it seems wise to ensure, inspired by Andrew Lo’s ideas, that markets that tend to efficiency but are not fully efficient are most likely. In other words, no investment strategy will generate results on average consistently over time and it will therefore be necessary to adapt to the changing environment. That is why it is so necessary to diversify strategies.

We have developed three ideas so far: that the market is quite efficient, that it should not be so because human beings do not always act rationally, and that the same strategies do not always work. A consequence of all three could be that there are times when the irrationality of market actors reaches such an extreme that price and value do not coincide. This could be used to beat the market for a while until irrationality returns to normal levels. And it is in this context that indicators of market sentiment make sense.

Sentiment indicators are those that try to measure market expectations, to find out if they are rational or not.

The best indicator of feeling is, without a doubt, the price itself. As Homma, father of Japanese candles, said, “To know about the market, ask the market”. The problem is that at all, the market will tell us if the value matches the price. We have to compare the price with something: with oneself (current price versus historical, basis of technical analysis) or against balance sheet data of the companies that compose it, as for example against its profits or sales (the basis of fundamental analysis).

In this sense, any analysis can be considered an analysis of feelings. For example, if we use the PER (sometimes that the benefits are contained in the price of a stock) as an indicator, we will know that the valuations are useful in long periods, but it is a bad idea to use them to make market timing. Therefore, it can be thought that there are market moments where it is rational that valuations are above average until they reach a certain level that is unsustainable.

Pure sentiment indicators, in any case, are those that compare current prices with other assets (for example fixed income against equities through the EYG, but also the evolution of assets refuge against cyclical, etc.), with their own components (number of companies doing maxima) or with the investor positioning (Ratio Put/Call or the American Investors survey).

Sentiment Indicators: VIX Index

One of the best-known sentiment indicators is the VIX. In short, it measures the volatility that traders expect in the next 30 days. It usually picks up when markets fall and that’s why it’s called the fear index. Investing in VIX, up or down, is complex and should be reserved only for more sophisticated investors who understand well the characteristics of the products available.

As an indicator, VIX is an example of how to benefit from “opposing opinion theory”. This philosophy defends that, in very extreme moments, it is worth positioning against the majority of the market. It is interesting to observe the strong VIX rebounds (when it is about 1.5 deviations typical of its mean)

For VIX it is interesting because although its negative correlation coincides with the S&P 500 is very high (when the S&P 500 has negative returns the VIX usually rebound), its correlation with future returns is zero or even positive. So, it’s very interesting to observe the strong VIX rebounds (when it is about 1.5 deviations typical of its mean). These moments have often given interesting buying opportunities.

We must stress that the strategy we are citing has not worked on the other side: historically low VIX levels have not been followed by S&P 500 drops. VIX exhibits some asymmetry in its average returns and is usually faster when above-average than when below average.

Sentiment Indicators: Ratio Put/Call

Another well-known sentiment indicator is the Ratio Put/Call. This ratio simply measures the volume of Put options between the volume of Call options. Broadly speaking, Put options are often used to take bearish positions and Call for bullish positions. If this indicator picks up means that there is either more volume of Puts or less of Calls and therefore the risk perception of operators increases. Similarly, if the indicator falls, it usually indicates greater complacency.

This ratio simply measures the volume of Put options between the volume of Call options.

It should be noted that the back-tests I have done on this indicator show quite poor results. For example, a strategy based on being 100% in Equities in bullish extremes, 100% in bonds in bearish extremes, and 50%/50% in the rest of the scenarios, is not able to beat a simple strategy of 50% Equities, 50% Bonds.

The above strategy is done using the CBOE aggregate indicator (known as Put/Call Ratio Composite or Total). Includes stock and index options. It is sometimes criticized for including indices because many investors use indices to make hedges and relative value strategies, which distorts it somewhat as a measure of positioning. However, using the Equity Put/Call Ratio results do not vary much.

Finally, it should be added that such indices are also calculated on other organised markets, such as ECI. However, the most often followed are those of the CBOE.

Sentiment Indicators: American Association of Individual Investors Survey

The last sentiment indicator I wanted to talk about in the article is the investor sentiment analysis conducted by the American Association of Private Investors. It is true that it can be criticized that sentiment indicators based on surveys could be less reliable than those based on the market, but the truth is that it is interesting to see a combination of both and their possible divergences, both between them and vis-à-vis the market.

Since 1987, AAII members are asked the same question every week: Do you think the stock market will rise, fall or stay as it is in 6 months? And every Thursday the results are published.

There are many ways to process published data, but perhaps the most interesting results can be found in the so-called Bull/Bear Ratio. This indicator is as simple as dividing the percentage of bullies among the bearings. Some add neutrals to bullies, but the results do not change significantly. The backtests on this indicator are surprisingly good.

In general, when the indicator reaches bearish extremes (fear) it would have been a good idea to add, giving good results even in the longer periods, and reduce in the bullish extremes.

Again, it is not a strategy in itself, nor an infallible indicator. But it proves a certain tendency that gives basis to the theory of opposing opinion. In line with what is seen in the VIX, it proves the initial theory: although markets tend to be efficient, there are times when they are not and the irrationality of investors overcomes. And these are just the moments to act.

Forex Indicators

Negotiation Strategies on Arrow Indicators

Arrow indicators are a set of tools for the “lazy” traders. On Forex charts, possible market entry points are indicated with arrows, green means the ability to open a long position, and red means a short position. The trader’s task is to be close to the platform and when the signal appears make the decision to follow it or not.

Advantages of Forex arrow trend indicators:

Arrow indicators are combined indicators that are based on several tools. They are usually based on basic classical indicators such as МА, RSI, MACD, Bollinger bands, stochastic, etc. A trader does not need to put on Forex always draws different lines and adjusts each indicator independently. Arrow indicators are already well combined and have been simplified adjustments. They are visually convenient and reduce the psychological and eye strain of a trader.

Disadvantages of arrow indicators:

Slips and repaints. Indicators are hardly applicable in scalping strategies. Problems with quotation provision, price noise, indicator lag, all these factors can cause the indicator signals to be redrawn, so an open position will not be profitable. The indicators are best to be used in the medium and long term trading on the H1 timeframe. The key factors should be observed when applying the indicators.

Which is the best way to choose an optimal arrow trend indicator for Forex:

It is better to choose an indicator according to a particular strategy. There are no versatile arrows indicators. One gives you much more accurate signals when the negotiation is flat, another in trend trading, and the other in long-term trading. You should try it on the demo account with at least 100 operations (the number depends on the frequency of the signals). Efficiency should not be less than 70% of the signs of success.

The indicator must have an open-source software for a trader to understand its operating principle and make any corrections if necessary. Below I will give as an example two arrow indicator strategies that can be used even by novice traders. There are links for you to download the indicators for MT4 (you can find them on their own on the Internet). To install the template, go to the “File” menu, choose the “Data Catalog” section and move the template you downloaded to the folder called “Templates”, move the indicators to the “MQL4” – “Indicators” folder.

Trading Strategies on Forex Arrow Trend Indicators

1. Sidus

The combined indicator Sidus 2v shows the entry points by arrows: red for sale and green for purchase. The indicator is based on 2 very popular trading tools, classic RSI and EMA (exponential moving average). Sidus gives signs of purchase when the fast ЕМА is above EMA slow, RSI is above level 50. And on the contrary, the short position should be opened when RSI is less than 50 and the fast movement is below a slow one.

I recommend not trading in this strategy at the time of publishing news, choose the no lower timeframe of H1, H4 is better, apply the strategy for the currency pair EUR/USD. Optimal indicator adjustment: the rapid EMA period is 14, slow 21, the RSI period is 14.

Opening of a long position:

-When Sidus paints a green arrow we open a long position on the next sail.
We place stop-loss fixed at 20 points.

-When profit reaches 15 points, we move the stop loss to the opening point of the transaction (breakeven) and close 50% of the transaction. The remaining position must be secured by trailing stop at a distance of 15 points.

-To use a trailing stop, you need to have a VPS server, because when the connection is lost, the trailing stop does not work.

-The selling position is opened under the same conditions when a red arrow appears.

2. Point of entry

The Forex Dots arrow trend indicator points to a successful position to a trader, not with arrows, but with points, however, the essence does not change. Signals are always formed at the beginning of a price change cosine and use for calculations the current values of MA (moving averages). The advantage of the tools is extensive use: М15 timeframe (flexible enough conditions for strategies with different time periods), currency pairs are all volatile pairs (from the euro and dollar to the Swiss franc).

The Dots parameters are:

  • Length (indicator range) – 10
  • AppliedPrice (price type to use in calculations) – 0
  • Filter – 0
  • Deviation (vertical displacement of indicator) – 0
  • Shift (horizontal shift of indicator) – 0

Under different market conditions, indicator parameters can be changed as long as they have been previously tested on a demo or cents account.

Opening of a long position:

-The indicator paints a green dot that is above the minimum value of the rising sail. The distance between the minimum and the point is estimated visually (the less, the better). We open the position on the next sail.

-Stop-loss is set to the minimum value of the previous candle or to the green sign level (up to 10 points).

-We placed the trailing stop at a distance of 5 points and with it we left the market.

-The sale transaction opens the same way, but under opposite conditions: the indicator paints a red dot above the maximum of the falling candle.

If on the Forex chart the distance between the maximum sail and a red dot visually seems too large compared to previous periods, I do not recommend opening the position. For example, in the previous examples the distance was about 2 points, but in the image below the distance is about 20 points.

The advantage of this indicator is that you can build numerous strategies in markets with different volatility. But if volatility is not a feature of the market or has a fundamental reason, the position cannot be opened. The indicator is versatile and proves to be 70% effective (i.e., the number of transactions closed by stop loss is negligible).

Forex Indicators

Boost Indicators Vs. Burst Indicators in Forex

Some traders prefer to use breakpoints that signal a trend entry, while others prefer to use indicators that simply show a strong directional impulse. Who is right and what works best?

Indicators of Momentum

There are several different impulse indicators to calculate the price boost, allowing the indicator used to quickly see if a currency pair is showing a strong long or short boost, or if it’s just crisscrossed and in a lateral range with no impulse at all.

Technical analysts have developed a wide variety of such indicators and they are available for free on almost all Forex trading platforms. The most popular are the moving average crosses, the relative strength index (RSI), the MACD, the Bollinger bands, and the Stochastic. What indicators usually do is mainly look back a given period of time and calculate whether price movements have been more upward or downward. The internal formulas that are used individually by each indicator to make the calculation the result are conceptually similar. In my opinion, the RSI works best.

Impulse traders tend to largely ignore supports and resistors and simply check if impulse indicators show that the price is more bullish or bearish in shorter and wider time frames. When both types of time frames show the same momentum, they place an operation in the direction of the current momentum.

Another approach that can be taken, and that can replace the use of indicators or used in a complementary way, is to draw supports and key resistors and check whether they are maintained or broken. For example, if resistance levels are continually broken while support levels are maintained, that would be a sign that there is upward momentum.

Ruptures in Forex

There are different ways to achieve the same type of entry with a strong boost and it tries to place a long operation when the highest price recorded during a certain period of time breaks. It is a method of operating with the trend well known and long tradition. In effect, the known turtle traders were using an entry system based on maximum or minimum price breaks of 20 and 55 days (these prices are indicated by the Donchian channel indicator).

This type of trading method is very attractive because it is very simple and time-consuming as it is a mechanical way of “placing an operation and forgetting”. For example, at the end of each trading day, you can simply place an order to go long or short on the X and Y prices, which are the maximum and minimum prices during the given review period, and then you no longer have to worry about it for the next 24 hours or so.

It is widely believed that such mechanical strategies based on ruptures are reckless and do not produce the best results. In today’s financial markets, there are more “false” than “breaks”, especially in Forex prices, which tend to move in narrower ranges than stocks and commodities.

A key issue to remember and which could counter this perception is to clarify what constitutes a successful break, a subject open for discussion. For example, the price breaks up, moves in your favor a few pips, and then moves against you 100 pips. Is this a failed break? The answer to that question sincerely depends on where you place the stop loss. If you put it in 50 pips, the rupture was a failure, resulting in a loss. However, if you have placed a wider stop loss, that could be an essential component for a complete trading strategy based on volatility, and if the price had undone your drop of 100 pips to finally climb 1000 pips, it would have been a successful break for you.

Traditionally, trend trading uses a stop loss of 3 multiples of True Middle Range (ATR), which also often uses breaks for entries. Of course, the use of a broad stop loss will tend to produce more profits, but the size of the gains will be smaller than if tighter stops had been used.

Comparison Between Impulse and Rupture Indicators

We can try to determine which of the entry strategies described above can work best in forex trading by performing a backtest on the same currency pair using the two different trading placement methods with the same stop-loss system. Let’s take a look at the EUR/USD pair in the period from 2001 to 2014. The stop loss used in each operation is always half the True Middle Range of 20 days.

In the pulse indicator method, an operation is placed when we reach the closing of any hour.

1. The price is on the same side as where it was 1 month and 3 months ago.

2. EMA 3 is on the same side as SMA 10 in the time frames H1, H4, D1, and W1.

3. The 10-period RSI is on the same side of 50 on the H1, H4, D1, and W1 time frames.

All these indicators must be bullish or bearish at the same time before placing an operation, thus showing that there is a strong directional impulse.

The results were as follows:

-With a risk target – reward of 2 times the stop loss, there was an average positive expectation of 6.2% per operation.

-With a risk target – reward of 10 times the stop loss, there was an average positive expectation of 39.6% per operation.

So, now let’s look at the method of breaking the Donchian canal. A long transaction is placed at the first moment during the day when the price is quoted above the maximum of the last 80 days, or a short transaction when the price is quoted below the minimum during the same period of time, assuming that the stop loss level was not reached before the operation was placed. The 80-day period is widely considered as a good measure to capture the best impulse break in Forex.

-With a risk target – reward of 2 times the stop loss, there was an average positive expectation of 11.72% per operation.

-With a risk target – reward of 10 times the stop loss, there was an average positive expectation of 42.68% per operation.


We can see that there was not much difference at the higher end of 10:1, but that the breaks produced a better result at the lower end. Needless to say, there were far fewer rupture operations in general.

One reason for this is that it has been well established for centuries that prices tend to move more easily when they are in “blue sky”, ie in areas where the price has not been for a relatively long time.

Finally, keep in mind that it mattered little what entry strategy was used if it was decided by large moves of 10:1. This only serves to show that traders tend to worry too much about tickets, while the real challenge is to stay in the market waiting for big profits instead of closing positions that turned out premature exits. As Jesse Livermore said, I made more money by staying in business than I ever did by being right.

Forex Indicators

Indicator Testing Pitfall – Repainters

30Test, test and test – the three most important things about choosing a new indicator. But can testing lead you down the wrong path?

Before you even think about introducing a new indicator to your forex trading system, you’re going to want to test it to death to make sure it works how you need it to work. Typically, that will mean backtesting it over a certain timeframe – up to and even over a year back in time if you’re trading on the daily chart – as well as forward testing it through a demo account. Now, for several reasons backtesting is your first go-to method of figuring out whether an indicator performs as advertised and as you need it to.

The main reason why backtesting is important and why you want to run that first is that it is so much quicker than forward testing – which you, of course, should also do. When backtesting you don’t need to wait for time to unfold at its natural rate – you can make things a great deal quicker.

Testing Trap

One potential pitfall or trap that an indicator testing process can lure you into – and that can be potentially dangerous if your testing regimen is not sufficiently robust – is the repainting indicator. What is a repainting indicator and why is it dangerous? Well, the short answer is that a repainting indicator is an indicator that moves the goalposts after the fact. It keeps changing its past values based on new candles and therefore makes it seem like it was more successful historically than it really was. This will, however, clearly be much easier through the use of a concrete example.

Backtesting an Indicator

So, let’s say you’re taking apart a combination indicator (like, for example, the Traders Dynamic Index) in order to have a better look at its constituent elements. Combination indicators, like the TDI, are made up of a number of separate indicators that work in concert together to provide what is hopefully a more accurate picture. You can, of course, test combination indicators as though they are one unit simply by treating them as a whole made up of constituent parts. But with combination indicators, there is also another possible approach and that is to examine each of the elements that make them up as a separate indicator. In fact, this is a very important way to test combination indicators – because if someone has gone to all the trouble to wrap up what amounts to a whole trading system into one downloadable tool, you’re going to want to know that all the parts of that tool work, right? Whenever you encounter a combination indicator, make sure you take it apart and test all of its components separately, as you would any other indicator. You can, afterward, always go back and test the whole combination as one tool.

The way to isolate those elements you want to test is to turn off or blank out those parts that you’re not looking at. Sticking with the example of the TDI, you might want to focus on one of the moving averages and temporarily (for the purposes of the test) turn off the other moving average, the Bollinger Bands, and the RSI. If you do this with the TDI, for example, you might notice as other traders have too that there’s something kind of special about the yellow line indicator. It seems that every time the line changes direction it is indicating a price trend. Indeed, it seems to be predicting price trends with an astounding level of accuracy that goes far beyond anything most indicators are able to achieve. Sure, you can’t use that as a trade entry signal but boy is it useful to have an indicator able to predict trends with a level of accuracy that exceeds 80 or even 90 percent. That’s astounding!

Too Good to be True?

How often is it that you find an indicator that you can add to your system that can achieve such levels of accuracy? Just imagine how many bad trades that will cut down on and how many winners it could help you to find. Well, if an indicator does come around and it looks like that, that’s your first red flag. Consider it a shot across your bows that sets alarm bells ringing.

If you’re being thorough and backtesting across multiple currency pairs and over a significant time period and you still come across something that is this accurate, that’s your first warning sign that you could be dealing with a repainting indicator.

As we said before, a repainter is an indicator that will draw you into thinking you’ve found the holy grail of indicators but could be truly dangerous if you start using it without taking the proper precautions. For a start, if you don’t put it through a comprehensive forward test and just rely on your results from backtesting, you could end up losing serious money.

Recognition and Identification

So, how do you know if what you’re dealing with is a repainter? Well, the first part of the problem is to recognise that you have a problem. The first clue should be, as above, that it performs so well in backtesting that you begin to suspect it isn’t quite what it seems. That’s step one. The second step is to identify it as a repainter.

What a repainter will do is basically change shape once a few candles have passed to show an outcome that better reflects what happened with price movements. In other words, the indicator will go back in time and repaint itself to show signals where there were no signals. That is a huge problem you’re your backtesting process and will mess with your results. An indicator that doesn’t repaint will stay the same as the chart moves on and will faithfully record what it showed you as the candles close but a repainter won’t.

The way to see that is to run the indicator through a fast timeframe and essentially catch it in the act. Go to a fast chart, like the five-minute chart or the one-minute chart, and run it through to see if it changes the data. Here you might want to even grab screenshots along the way because those changes might be quite subtle as time rolls forward and you may not want to wait long enough for it to give off false signals. If not, then those false signals will be a sure-fire sign that something is off. A false signal, in this case, is where the indicator initially does not show up a signal but as the candles move on it repaints itself in hindsight and shows up a signal. 

Another quick way of testing if an indicator is a repainter is using the MT4 Strategy tester module. Just set to work on a fast timeframe and look at how it behaves on the closed candles. Just bear in mind about the scale for that indicator. Sometimes when the value of the indicator pushes the window limits, or better to say higher or lower values which are not on the scale, the scale itself resizes to fit the representation. This can lead you into thinking the lines or historic values of the indicator repaints, but it is just because extreme values resize the scale and it may seem as indicator lines are reshaping. 

Catching a repainter in the act is the best and surest way to know that this is an indicator to steer clear of. The reason to use a fast chart in order to do this is because things will happen quickly enough for you to catch it and also because you don’t want to waste your own time waiting for a slower chart to unfold. Part of the purpose of backtesting is to eliminate indicators that would otherwise be a waste of your time to forward test through your demo account so making the process unnecessarily long would kind of defeat its purpose.

If you’re running an indicator through this repainter test on a fast chart and you see any kind of movement at all a few candles back, in the region where the data is supposed to be fixed, that is already too much movement. This is why it is a good idea to shoot off a few screenshots as you’re doing this because even the tiniest amount of alteration of data that is supposed to be fixed because it’s in the past is too much.

In addition to screenshots, another thing that will help you to identify a repainter is larger price movements. If you’re running an indicator through a one-minute chart but the price is not moving much, you will have a hard time catching any unwanted changes to the indicator’s history but if the price is moving up and down more drastically, those changes are likely to be more visible. Also, make use of the drawing tools in your platform to mark signals the indicator gives off as you go along. If you look back and signals you marked turn into non-signals or if new signals appear where you didn’t mark them, then you’re dealing with a repainting indicator.

Repainter Alert

So what can you do if you run a repainter check and the indicator you had such high hopes for because it looked so good in backtesting turns out to be repainting? The short answer is there is nothing you can do. Just steer clear of it like it’s the plague. Bin it and never think another thing about it.

The long answer is also there is nothing you can do. To change the indicator you would have to break into the code and start messing around in there to reprogram it. Now, some of you may feel that this is something you’d be good at and that’s fine as far as it goes. Just be aware that the reprogrammed indicator is going to essentially be a whole brand new indicator that you have to run through the full gamut of testing from scratch. None of the backtesting you’ve done on it so far will apply. However, even if you reprogram an indicator so that it no longer repaints, you now have to start wondering what else might be wrong with it.

Therefore, the best option remains scrapping it and continuing your search for indicators elsewhere.

Protecting Yourself

So, what can you do about repainters if you can’t fix them? Well, you can identify them and avoid them. Expand your testing regime to include a repainter check as described above – especially for indicators that seem to be too good to be true. Although you should really do this with every indicator before you introduce it into your system.

The second thing to do is to make sure you run proper forward testing and cross-reference this with results you expected to get on the back of backtesting you did. These will never precisely match up, of course, but there is a chance that this will help you catch out a repainter.

The last thing you want to do is introduce a repainting indicator into your system and use it to trade in the real world. It will throw your results off and it will require time and effort to identify the problem – hopefully before you lose too much money.

Finally, never get so hopeful or sentimental about any aspect of your trading system – whether it’s an indicator, a process or an approach – that you can’t ditch it the moment you discover it isn’t working for you.

Forex Indicators

Everything About ‘Treasury Bill Auction’ Macro Economic Indicator


One of the primary ways any government funds its budget is through debt – borrowing. When borrowing, a government can do this from the international markets or locally, from its citizens and businesses. When taking debt locally, a government uses treasury bills and bonds. As is with any form of debt, borrowing using treasury bills, the government is obligated to pay interest upon the maturity date.

The interest rate that the government offers for its treasury bills gives an invaluable insight into the confidence investors have in the economy. Therefore, to understand the borrowing patterns of the government, the interest rates it is obligated to pay, we need to understand treasury bill auctions.

Understanding Treasury Bill Auction

To better understand how the treasury bid auction works, we first need to understand a few terms.

Treasury bill is a short-term debt instrument used by governments to borrow money over a short period – usually less than one year. Because the central banks back the treasury bill, they are considered to be of lower risk and secure form of investment.

Treasury bill auction is a weekly public offering of treasury bills by the central government with maturities ranging from one month to one year. The auction is the official avenue through which central banks issue their treasury bills.

Maturity is the maximum time that a treasury bill holder can hold it before they are eligible for redemption. Treasury bills have maturities ranging from days up to one year. Note that the longer the maturity period of a treasury bill, the higher the interest rate will be.

Discount is the difference between the price at which the treasury bills are issued and the face value of the treasury bills. It is customary for the treasury bills to be issued at a discount and be redeemed at face value upon maturity.

During the auctions, participants are generally divided into two categories – competitive and non-competitive bidders. Before the auctioning process begins, the central banks make public the following information about the treasury bills: the date of the auction; the day of the treasury bill issue; eligibility of auction participants; the amount of the bills being auctioned; and the time when the bidding ends.

When the auction begins, the competitive bids are accepted first to determine the discount rate for the treasury bills. These competitive bills are submitted on a pro-rata share of every Treasury bill auction. It is worth noting that the winning bid determines the interest rate that will be paid out on each issue of a treasury bill. Furthermore, the demand for treasury bills is determined by the prevailing market and economic conditions and sentiment. It is this demand and the interest rate that will be of importance in our subsequent analyses.

Since the pricing of the treasury bills is done through a bidding process, the winning bid is usually one that has the lowest discount rate. Such bids are preferred to ensure that the interest rate the government pays investors is kept as low as possible.

After investors have purchased the treasury bills, they are then free to sell, trade them, or hold until maturity.

How can treasury bills auction be used for analysis?

Using the auction of the treasury bills in the analysis is relatively straightforward. The biggest draw of the treasury bills is because of the presumed zero risks of default since the government backs them. As we mentioned earlier, the primary determinant of the discount rate at the treasury bill auction is the demand. This demand is driven by factors such as macroeconomics, market risks, and monetary policies.

When other markets such as equity markets appear to be less risky or offer better returns, investors in the treasury bills will demand higher discounts. The higher discount translates to a higher interest rate attached to the treasury bills. Furthermore, when the rate of inflation is rising, investors will demand a higher discount rate for the treasury bills to offset the effects of inflation.

Source: St. Louis FRED

When there is rapid economic growth, investors have several options that could earn them higher returns. Therefore, they will demand a higher discount from the government, which results in a higher rate. Similarly, when the economy is heading towards a recession, investors deem treasury bills as safe-haven investments. The resulting excess demand for the treasury bills leads to lower discounts received by the investors.

Thus, the change in the yield attached to the treasury bills gives us significant insight into the state of the economy.

Impact on currency

We have seen that the rate of the treasury bills being auctioned is a reflection of the prevailing market conditions or anticipated economic performance.

When the rate received at auction is higher, it signals that the economy is performing well. Furthermore, higher rates for the treasury bills imply that there will be increased interest in investment opportunities in the country, which results in increased demand for the local currency. Higher rates could also translate to the increasing rate of inflation, which forestalls contractionary monetary and fiscal policies. For the forex market, this translates to a well-performing economy hence the appreciation of the currency relative to other currencies.

Conversely, when the rate of treasury bills at auction are falling, it implies that the economic fundamentals are performing poorly. There will be a net outflow of capital and investment. Furthermore, the forex market would anticipate expansionary monetary policies, which result in the depreciation of the currency relative to others.

Sources of Data

In the U.S., the treasury bills are auctioned by the U.S. Department of Treasury. You can access the latest data on the auction of treasury bills here. The data on the upcoming auction of the U.S. treasury bills can be accessed from TreasuryDirect, which allows you to buy and redeem securities directly from the U.S. Department of the Treasury in paperless electronic form. You can access the in-depth review of the current and historical data on the U.S. treasury bills from St. Louis FRED. You can access the global data on Treasury bills from Trading Economics.

That’s about Treasury Bill Auction and the respective details related to this fundamental indicator. We did not see any reaction at all on the Forex price charts related to this indicator, but as explained above, we know the relative impact. We hope you have found this article informative. Cheers!

Forex Indicators

Overview of Forex Indicator Types and Uses

Indicators are a tool that Forex’s technical analysis, traders, and statisticians use in financial markets to take a statistical approach rather than a subjective approach to trading. They will use things like money flow, volatility, timing, and trends to get a better picture of the potential price movement. Thousands of indicators currently available, which means there is a lot of debate about which are the best.

Advanced Indicators 

Advanced indicators are one of the two main types that are available to traders. They tend to anticipate any price movement and predict the future. They tend to be used for trading in ranges, as they may give signs of a potential break, which of course is very powerful information to have.

Some of the most popular forward indicators are the stochastic oscillator, and the relative force index RSI. The worst part of these indicators is that can pre-empt events and perhaps give false signals occasionally. This is because most people will use something more than an advanced indicator, using it as a secondary indicator in addition to simple price action. Just as with most indicators, there is a complex mathematical formula that shows the moment and where the market will go.

Back Indicators

In contrast, retrospective indicators tend to follow the movement of prices. They are much more useful in the course of a well-defined trend, as they tend to give signals after the most popular indicators. This, unfortunately, comes with the disadvantage of being less profitable, even though they are more reliable. Retrospective indicators have been popular for years and are still one of the most basic indicators that traders will use.

Two retrospective indicators would be Bollinger bands and moving averages. As an example, the moving average is the estimate of the average price of the last “N” candles, which by virtue of its definition excludes the current price. However, in a trend, this information can be very useful, as it shows that the average price is going up or down. Again, as we mentioned earlier, these indicators are typically part of a larger trading system.

There are several types of indicators:


Oscillators are by far the most used technical indicator, usually subject to some sort of range. Generally, there is a complete range between two values that represent respectively the overplayed and over-bought conditions. Typically, there is some kind of line or indicator that lets you know when the market is going too far in one area or the other. A couple of examples could include the stochastic oscillator, the moving average convergence divergence, and the feedstock channel index. Even though these could measure the condition of over-bought and overbought with different formulas, in the end, they work in the same way.

Indicators with No Range

The non-rank indicator is much less common, but will usually be used to form signals in a trading system to show strength or weakness in a trend. Unlike oscillators, they generally do not have a set range. For example, the accumulation/distribution line indicator that measures the flow of money to a value is an example of an indicator without a range. However, in the world of Forex, you will realize that this is almost impossible to measure, however, some volume variations are going to be offered by forex brokers, using information from their own servers, which is only a part of the market.

The Use of Indicators

While there are some trading systems that use indicators only, these do not tend to be commonly used today. One of the most common systems that only use indicators is the system of crossed moving averages. This consists simply of graphing two moving averages on a graph, which (if you remember), are simply a mathematical average of a specific amount of prices over a certain amount of time, being one of the moving averages the slowest, and the other the fastest. The quickest is the one with the fewest candles, which will make you change direction faster. The less rapid one represents a more stable environment because it takes much more information to move around.

But if the fastest line crosses over the slowest line, this can mean that the moment is moving up, which is a sign of a buying opportunity. Otherwise, if the moving average falls below the fastest line, this is typically a signal to sell. With the system of crossed moving stockings, you are constantly on the market, buying and selling when these lines intersect. The biggest problem is that you need a strong trend to make profits. In a market that is not very active, you could be crushed.

As a general rule, the most beneficial thing is to combine support and strength with those indicators as it gives you different types of confirmation for your trade. A typical example would be to look for support, a particularly encouraging candle, and then buy a signal formed on the stochastic oscillator. The typical system will have a certain number of steps to go through to put money to work. Beyond that, you begin to pay attention to money management, and then before you realize you will have an entire system set up. You should think of the indicators as a tool, not the “holy grail” that so many traders are always looking for. As these increase your chances of success, nothing is perfect, and you should learn how they work and when they work if you are going to use them in your trades.

Since there are literally hundreds of indicators that can be used, preferences play an important role in selecting those who have more security for you. For what it’s worth, the more I trade, the less I use indicators to make decisions. When I use them, they are usually secondary and tertiary reasons.

Forex Education Forex Indicators Forex System Design

Designing a Trading Strategy – Part 3


In our previous article, we presented the first component of a trading strategy, which corresponds to the market entry and exit rules. Likewise, we exposed the case of a basic trading system based on the crossing of two moving averages.

In this educational article, we will present the filters and how they can help the trader refine a trading strategy.

Setting Additional Filters in Trading Strategy

Signals originated in a trading strategy can use filters to improve the entry or exit signals that the system generates. The purpose of incorporating filters is to improve both the accuracy and reliability of the strategy. 

A filter can be an indicator’s level or additional instructions to the initial entry, or exit rules. Some examples of filters can be:

  1. Avoid buy entries if the reading of the 60-period RSI oscillator is less than 49. 
  2. Allow Buy entries if the price closes above the high of the previous day or allow sell-short signals if the price closes below the last day’s low.

Also, rules can be established to control the strategy’s risk, and preserve the trading account’s capital. In this context, two elements that can help to manage the risk are:

  1. Initial stop-loss, which can be a fixed amount of pips or depending on some previous periods’ volatility. In turn, this rule can be fixed or dynamic, its level moving as the trade progresses through time.
  2. limiting the number of simultaneously opened trades. This rule can be useful, mainly when the market moves in a sideways path.

Measuring the Risk of Strategy

The risk of trading strategy corresponds to the amount of capital that the investor risks with the expectation of a possible return on the financial market by applying a set of rules with positive expectations.

One way to measure the risk of trading strategy is through the maximum drawdown, which corresponds to the maximum drop in equity from the peak of the equity value to the subsequent equity low.

The developer can obtain this measure as well as other strategy performance indicators by running a historical simulation.

Incorporating Additional Rules into Trading Strategy

The following example corresponds to the addition of rules to the trading strategy formulated and developed in the previous article, based on  moving averages crossovers with 5 and 55 periods. 

Before incorporating additional rules and evaluating their subsequent impact on the trading strategy, we will display the results of a historical simulation, developed using the EURUSD pair in its hourly timeframe. Likewise, the size of each trade position corresponded to 0.1 lot in a $10,000 account.

The following figure illustrates the strategy’s performance in its initial condition, which executed 652 trades providing a drawdown level of 22.66% and a net profit of -$716.93.

The additional proposed filter rules are as follows:

  • The strategy must have an initial stop loss of 30 pips. This stop will limit the possible maximum amount of loss per trade.
extern double SL_Pips = 30;
  • We propose using a Break-Even rule to ensure the opened trades’ profits, which will be used when the price advances 40 pips. Likewise, the strategy will apply a Trailing Stop of 40 pips of advance and a 3-pips step
extern double BreakEven_Pips = 40;
extern double Trail_Pips = 40;
extern double Trail_Step = 3;

The function that computes the Trailing Stop is as follows:

void TrailingStopTrail(int type, double TS, double step, bool aboveBE, double 
aboveBEval) //set Stop Loss to "TS" if price is going your way with "step"
   int total = OrdersTotal();
   TS = NormalizeDouble(TS, Digits());
   step = NormalizeDouble(step, Digits());
   for(int i = total-1; i >= 0; i--)
      while(IsTradeContextBusy()) Sleep(100);
      if(!OrderSelect(i, SELECT_BY_POS, MODE_TRADES)) continue;
      if(OrderMagicNumber() != MagicNumber || OrderSymbol() != 
Symbol() || OrderType() != type) continue;
      if(type == OP_BUY && (!aboveBE || Bid > OrderOpenPrice() + TS + aboveBEval)
 && (NormalizeDouble(OrderStopLoss(), Digits()) <= 0 ||
 Bid > OrderStopLoss() + TS + step))
         myOrderModify(OrderTicket(), Bid - TS, 0);
      else if(type == OP_SELL && (!aboveBE || Ask < OrderOpenPrice()
 - TS - aboveBEval) && (NormalizeDouble(OrderStopLoss(), Digits()) <= 0 ||
 Ask < OrderStopLoss() - TS - step))
         myOrderModify(OrderTicket(), Ask + TS, 0);
  • Also, the strategy must allow a maximum limit of one trade at a time.
extern int MaxOpenTrades = 1;

In this context, the code that will determined the limit reached will be as follows:

   //test maximum trades
   if((type % 2 == 0 && long_trades >= MaxLongTrades)
   || (type % 2 == 1 && short_trades >= MaxShortTrades)
   || (long_trades + short_trades >= MaxOpenTrades)
   || (type > 1 && type % 2 == 0 && long_pending >= MaxLongPendingOrders)
   || (type > 1 && type % 2 == 1 && short_pending >= MaxShortPendingOrders)
   || (type > 1 && long_pending + short_pending >= MaxPendingOrders)
      myAlert("print", "Order"+ordername_+" not sent, maximum reached");
  • The trading strategy must preserve the account equity using a position size that should be proportional to 1 lot per $100,000 of equity.
extern double MM_PositionSizing = 100000;
double MM_Size() //position sizing
   double MaxLot = MarketInfo(Symbol(), MODE_MAXLOT);
   double MinLot = MarketInfo(Symbol(), MODE_MINLOT);
   double lots = AccountBalance() / MM_PositionSizing;
   if(lots > MaxLot) lots = MaxLot;
   if(lots < MinLot) lots = MinLot;

Now, the entry rules with the Stop-Loss rule will be as follows:

   //Open Buy Order, instant signal is tested first
   if(Cross(0, iMA(NULL, PERIOD_CURRENT, Period1, 0, MODE_LWMA, PRICE_CLOSE, 0) >
//Moving Average crosses above Moving Average
      price = Ask;
      SL = SL_Pips * myPoint; //Stop Loss = value in points (relative to price)   
         ticket = myOrderSend(OP_BUY, price, MM_Size(), "");
         if(ticket <= 0) return;
      else //not autotrading => only send alert
         myAlert("order", "");
      myOrderModifyRel(ticket, SL, 0);
   //Open Sell Order, instant signal is tested first
   if(Cross(1, iMA(NULL, PERIOD_CURRENT, Period1, 0, MODE_LWMA, PRICE_CLOSE, 0) <
 //Moving Average crosses below Moving Average
      price = Bid;
      SL = SL_Pips * myPoint; //Stop Loss = value in points (relative to price)   
         ticket = myOrderSend(OP_SELL, price, MM_Size(), "");
         if(ticket <= 0) return;
      else //not autotrading => only send alert
         myAlert("order", "");
      myOrderModifyRel(ticket, SL, 0);

Finally, the position’s closing code including the trailing stop will be as follows:

   int ticket = -1;
   double price;   
   double SL;
   TrailingStopTrail(OP_BUY, Trail_Pips * myPoint, Trail_Step * myPoint, false,
 0); //Trailing Stop = trail
   TrailingStopTrail(OP_SELL, Trail_Pips * myPoint, Trail_Step * myPoint, false,
 0); //Trailing Stop = trail
   //Close Long Positions
 //Moving Average < Moving Average
         myOrderClose(OP_BUY, 100, "");
      else //not autotrading => only send alert
         myAlert("order", "");
   //Close Short Positions
 //Moving Average > Moving Average
         myOrderClose(OP_SELL, 100, "");
      else //not autotrading => only send alert
         myAlert("order", "");

The historical simulation with the inclusion of the additional rules to the trading strategy  is illustrated in the next figure and reveals a reduction in the Drawdown from 22.66% to 10.49%. Likewise, we distinguish a variation in the Total Net Profit from -$716.93 to -$413.76.

Although the trading strategy continues having a negative expectation, This exercise shows the importance of including additional rules to improve the trading strategy’s performance.


This educational article presented how the inclussion of filters into a trading strategy can improve the performance of two key indicators such as the Drawdown and the Total Net Profit.

On the other hand, we did not consider the parameters optimization during this step. Optimization will be discussed in a future article.

In the next educational article, we will extend the concepts of Profits Management and Position Sizing.

Suggested Readings

  • Jaekle, U., Tomasini, E.; Trading Systems: A New Approach to System Development and Portfolio Optimisation; Harriman House Ltd.; 1st Edition (2009).
  • Pardo, R.; The Evaluation and Optimization of Trading Strategies; John Wiley & Sons; 2nd Edition (2008).
Forex Indicators

Currency Strength Meter Indicators: What You Need to Know

When you go ahead and type into the Google Currency Strength Meter, believe it or not, you will see that this tool gets over 14000 searches per month average. This is almost the same as one of the most popular indicators RSI. Can you imagine?

So, what is the currency strength meter?

This is the kind of visual map – guidance that demonstrates which currencies are strong and which ones are weak in a certain moment. It uses the exchange rates of different currency pairs to show comparable strength of each of those currencies. There are different Currency Strength Meters to be found out there. The simpler ones may not use any weighting, while more complex and advanced ones may apply their own weightings. Some may even combine other indicators with the currency strength measurement in order to provide trading signals. For example, to calculate the strength of the EUR – this tool would calculate the strength of all pairs that consist of EUR currency, and then use those calculations to determine the strength of the EUR.  

What this tool actually does is to give you information about 8 major currency pairs, mostly, based on the fact how strongly these currency pairs performed over a certain time frame. It tries to give you an overall picture of which currencies have been strong and which ones have been weak for those periods. For Currency meters, the most common time frame is 24 hours. The one that knows will notice that most similar to this tool are Forex Heat Maps – which essentially do the same thing.

As it may happen with any tool, Currency Strength Meters may have their own issues, particularly when they are poorly coded. If CSM cannot give accurate currency strength indicator values, it is of little use – regardless of their other features. With outdated Currency Strength Meters, traders may experience the following issues: MT4 can freeze, PC or laptop can freeze, stutters, whipsaw signals, memory leakage, your CPU keeps on 100%, and so on. Some of these tools that you can find out there might even produce data that were not part of the original concept of Currency Strength Meter. Some traders apply smoothing filters to this tool, like moving averages, for example, while some traders apply other filters like the RSI or MACD. By adding these filters on top of the CS meter, traders may even experience getting some false trading signals, and they can enter some bad trades which may lead to the money loss.

In years of existence, Forex strength meters developed to currency correlation matrices that could quite possibly deliver more accurate and better information, so this can be one of the ways to measure currency strength that a CS meter gives you. Since currencies are traded in pairs, for example, EUR/USD, you can use correlations to measure the strength of individual currencies like EUR and compare it to Currency Strength Meter.

Some advantages to using Currency Strength Meter including its obvious simplicity, are the usefulness as a short-term indicator, the ability to avoid double exposure and unnecessary hedging, the possibility to signal high-risk trades, and last but not least, it is available for free.

There is an opinion of certain traders that the most usual thing that new traders do when they discover these tools, they get an idea that the hardest thing in trading is to put some money on the account for start, and after that money just comes – drops from the sky in loads, you just need to apply this easy and cool tools. Indeed.  

They conclude that these are the tools that only tell you what just happened, not what is going to happen – suppose that this should help you profit in your trades? Their standpoint is that charts already give you this information. Actually, what they mean is that you have charts for 27-28 different currency pairs and this has been confirmed as better and more reliable than any Currency Strength Meter. Carefully built experience in trading, so far, has shown that brokers that make money by taking the other side of your trade very much love this tool – to put you on to use it frequently in order to make money on your trades.

From their point of view, how these tools work is that the meter is taking readings from every forex pair over the last 24 hours and applies calculations to each. Then it by algorithm finds the current strength in the pair and gives you a visual guide. It displays which currencies are strong and which are weak at any given moment, reflecting that movement in a gradually colored matrix. Only by using an effective currency strength meter, you will have another tool at your disposal that will empower you to become a profitable trader. You must admire the sound of it!

The claim is that another thing that can attract the novice is the simplicity that this tool has. It is quite easy to use it, even though it doesn’t give much of a result in practice, to be honest. Listening to this, the conclusion to be drawn is that Heat Maps and Currency Strength Meters are not very useful. If you wish to stick to it, after all, you can do it on your own and they wish you a load of luck because you will need it by far.

Now, what they say about the Currency Strength Indicator, is that it is a little bit different in the outer look. They explain it as a graph with an overview of the strength of a currency, presented with lines in different colors. It is just a line version of Currency Strength Meter. It measures the strength of a currency based on all of the currencies that are available with your Forex broker in the last 24 hours or the period setting of your choosing. It then applies calculation and assigns individual strength to each currency and presents information in an easily understandable way.

What this indicator actually does is to allow you to overlay several currency pair graphs (lines) on top of each other so you can see and try to predict where the price of a certain pair may go next. This also can be used as a two-lines cross indicator – a position where you would make a move after two chosen lines finish crossing each other, or as a reversal trade, when two different lines both appear at their extremes.

We gave this indicator enough of our time and attention and tested it thoroughly. Unfortunately, it doesn’t give results strong enough to rely on it and to base your future trades on its results. However, you may discover something we don’t know yet, and we are all different people. The systems each trader builds, even if based on the same ideas are also different. If you like the idea of it, our suggestion is to try, to test it and see where it will get you. It could be worth trying. 

Some prop trading firms use individual currency baskets, also called currency index. Traders may be familiar with the dollar index, DXY, but other major currency indexes are not common. By analyzing how each major currency is holding against the others in the form of a simple chart, prop traders have an insight on what currency they should be trading. Custom currency baskets can be easily made using the now-famous Tradingview platform.

What you can do, also, is to go out to search for other places where different versions of Currency Strength Indicators can be found. Choose a couple, or more, that you like, download them, and start to test them. Try to test the indicator, up against a chart and see how it performs on its own first, before testing it out against other indicators or with other indicators.

You will certainly get better results by adding any momentum indicator that has enough volume behind it. We suggest doing the back-testing standalone and after that, test it together with the volume indicator already attached and measure test results when you are showing enough volume to do so. This thing should give you a million of false signals when there is no real volatility in the market. By our experience so far, it should make a big difference in overall results and this could be the most efficient way. Even though we don’t truly endorse it, there is a possibility that it might work for you.

This indicator is very unique to most of the indicators out there and should be handled accordingly. The conclusion from this would be that Currency Strength Meter is a sort of useless standalone, redundant and it is made only to get the novice in trading excited and in a better position to lose their money very fast.

Currency Strength Indicator could be, possibly, a little better – it may be worth testing if you choose to do it wisely and properly. The currency strength indicator is not an indicator that should be used on its own. Rather, this indicator can complement your existing trading strategies and could help you to pick the right combination of the currency pair to strength.

Forex Indicators

Guide to Finding Trend Indicators

As an invested trader or a keen observer, you probably recognize the importance of understanding and using indicators in forex trading. Thankfully, owing to a plethora of available information, you can feel relieved knowing that such an abundance of sources may actually save you from months or even years of hard work (and quite a few losses too). Quite naturally, to be able to start trading, you really need to see where you are standing with regard to your level of skills and knowledge.

However, rest assured that, in terms of indicators, there is a definite list of types you should focus on, as well as the right approach to interpreting charts and following trends. Note that some expert traders do not rely on secondary indicators. Their primary source of information is Price Action and only occasionally use an indicator or two to support Price Action patterns. The article assumes you know how to handle the most popular trading platform, the MetaTrader 4/5.

One of the key points where traders often misinterpret the advice they come across is that indicators always work. This is true to a certain degree, of course. Before you read or watch any material on the topic of forex, you must think about what types of information you should be looking for are. That further implies that you must be aware of what your needs and goals are as a trader. Understanding how the fiat market functions is also a vital prerequisite to being able to make use of indicators, i.e. profit from forex trading.

Another essential principle of this market of which traders should become conscious as early as possible is that trading revolves around trends, not reversals. Many studies have confirmed that trend following is the most profitable course of trading. It is each trader’s task to learn how to read into these trends because these skills will essentially bring out the lucrative side of this business. Even more importantly, indicators are useful and much-needed tools, yet the way they are combined will eventually equal the amount of financial reward. Therefore, if you learn how to combine trend indicators effectively, you can achieve some amazing results.

Although each trader will need to put a great number of hours into grasping the complexity of this market at the beginning of their career, the purpose of learning about trend indicators is to reap quite a few benefits afterward. As an experienced trader, you may not need more than 10 to 15 minutes during the day to see how your efforts lead to profitable outcomes. In the end, everything boils down to the question of whether you want to sacrifice your time or money doing any other job. If the answer is neither, then you know that learning how to trade currencies properly is a crucial step.

Every trader will work towards understanding the degree of the risk involved in their everyday trading. This step is particularly important because you will need to set the limit, which will essentially help you know what the right time to stop is. Indicators alone are thus insufficient unless you become aware of your boundaries and your goals first.

Once you decide on your priorities and preferences, you can allow yourself to start searching for the right indicators that you will use eventually to build up your own algorithm. To achieve this, you will need to check various blogs and websites, as these sources of information often complement each other. Unfortunately, the search for the right indicator rarely ends here as you still have to think of a few other key points on your path to becoming an expert trader.

Firstly, you should pay attention to indicators that offer too many signals and thus push traders into starting off too early. Some others do the opposite by not alarming you to make a trade on time, which equally defective and dissatisfactory. In addition, if your indicator provides a narrow selection of information, it does not necessarily imply that these trades will be beneficial.

An example of great indicators is the one which can give you great signals and, at the same time, prevent you from trading during unstable periods. This is extremely important for the times when a price may be going in one direction, but the big banks unexpectedly get involved and completely change the prices’ direction without any prior warning or news event. An indicator able to avoid false trends and save you from these sudden price changes is the type of indicator you should strive to find and use in your trading.

Unfortunately, a surprisingly vast number of available indicators have proved to be impractical and of no use in reality. Created by programmers who often do not do any trading themselves, such indicators fail to provide the type of information traders necessitate. Nonetheless, most of the remaining ones can actually be quite useful with some additional adjustments, which all traders learn how to make after a while.

Despite the fact that the vast majority of indicators demonstrated poor performance, all good indicators typically fall into three main groups: 1) zero-line cross, 2) mutually crossing lines, and 3) chart indicators, which will be discussed in detail. In case the indicator you are thinking of using does not belong to any of the three, you may want to avoid it to evade any money-related losses. You may, nonetheless, use the following descriptions to see how good indicators function with real charts and currencies and decide to test them yourself later.

Forex Indicators

Backtesting Indicators of a Swing Trading System Guide

Most traders already know that designing an algorithm to trade in the forex market is an essential step. We also know that any such algorithm is generally based on several indicators, with ATR, the confirmation indicator, and the exit indicator altogether partly making the algorithm’s skeleton we will disclose fully as we progress. What some traders are curious about, however, is the way to backtest these indicators in order for them to assess their performance. If you come across an interesting indicator that you want to give a chance and see whether it works, it is only natural that you would want to apply it in your charts and see if it rendered any success in the past. If you have already had the opportunity to do some research on the indicators that forex traders use, you probably know which ones are the most popular. However, do not give in to the popularity of some outdated tools, such as Stochastics, Japanese Candlesticks, or RSI, because you may certainly have more luck with some of the more modern indicators designed specifically to trade in the forex market.

While some sources insist that there is no such thing as a bad indicator, you may need to ask yourself what your ultimate goal is because one indicator cannot possibly serve all trading needs. On top of that, the market of trading currencies, which have no intrinsic value themselves, cannot possibly be the same as the trading stocks, commodities, or other equities that, unlike fiat currencies, actually have real values. Therefore, even the way we perceive trading can affect our choice of indicators. Nonetheless, even if you are certain that an indicator would perform well, there is no one single reason why you should not test it and compare it, if possible, to some other tools you have used for the same purpose.

What is more, as it turns out, you may find out that some indicators, such as Heiken Ashi, are generally used for entering trades, while some professional traders warn people about its shortcomings and suggest that they use it as an exit indicator and as a tool to test other exit indicators instead. Furthermore, the previously mentioned indicator is a perfect example of tools that do not let traders adjust any settings, which may be a much-needed option for many trades. Another almost equally important topic besides indicators is planning due to the fact that the right strategy and an overall plan on how to enter and exit a trade, including your risk and win limits, will inevitably have an impact on the quality of your trading. In addition, knowing how to scale out is another precondition for trading successfully, which will determine the level of safety and possibly stabilize the situation should your finances ever be at risk because of some unforeseen events.

Professional traders around the globe know that indicators alone cannot be fully functional and bring us all the profit we desire unless we put effort into learning. Therefore, in the process of looking for a good indicator, you must first be aware of the nature of the market you trade, understand its needs, and see what your own needs are. Testing at this point can be not only better because you have a vast array of information at your disposal, but it can also lead to some truly amazing discoveries such as where you can use and how you should never use a specific indicator. Consequently, testing, along with demo trading, should be a precondition to using any tool in real trading, which is why we intend to discuss the tools which can help you backtest and enter any trade with peace of mind. In today’s example, we will go through the steps of how you can backtest a confirmation indicator, which should serve as an overall useful guide and the path to discovering backtesting indicators in general.

How should we then commence this process? Firstly, after finding a confirmation indicator which you are willing to test for yourself, you should choose a specific currency pair for testing the indicator of choice, open your daily chart, and turn this indicator on in the chart. You will be using the default settings at first and, interestingly enough, these default settings often prove to be the best choice after all. By using the default settings, you also give yourself more room to compare later on with some other values after some adjustments. This is the best way to begin this process and what you will also do here is put the ATR indicator in the MT4 platform right below the confirmation indicator in question.

At this point, you will probably need to go at least 6—12 months back in time, although you can always decide to go even further in the past to get even more signals. Some professional traders choose to go back as far as two to three years because a longer time span provides them with a bigger sample size and a clearer idea of how this tool can work out long term. Going too far back, however, is not something experts would recommend just because of the vast number of market changes that have such a profound impact on trading and also because the odds of some market conditions occurring once again are quite low.

Your next question will likely be related to the number of entry signals your confirmation indicator can give you because you really need to find out what a win and what a loss was before. ATR will come in handy here since you will compare it with the number of pips you could have made with your indicator of choice. If the ATR for the USD/JPY currency pair was 80 at the time of entry, you will want to discover if your new indicator made 80 pips before losing 120 pips, because the system we are using sets out first take profit level at 1xATR value (you may want to experiment with different values but this value proves to be the best on the daily time frame according to our tests).

Naturally, if the answer is yes, then it is a winning choice and vice versa. It is of utmost importance to record this information in a clear way so that you can always go back to it and use it for future analyses (e.g. spreadsheet as suggested in the table below). As you will go backward, you will want to document every time you get the same results like these, so for your specific time frame, you can obtain very comprehensive win-loss ratio information, which can help you get a winning percentage on which you can base your decision whether you will use that particular indicator or not. Generally speaking, there are a few other questions you will need to answer before you start: what is the number of currency pairs you will be testing with this indicator, will you be changing the settings, how many times will you tweak the settings, and how far back in time will you be going?

The only rule you should be following is to maintain separate sheets or tabs for different currency pairs. The table below should successfully exemplify how you can keep the necessary data and, to calculate the percentage of wins, you can either divide the wins by the total number of trades yourself or set up a function to do it for you. For example, if the Win % is located in the E column, you may create and duplicate the following equation for all indicators you wish to test: C1/(C1+D1)=E1. The reason why we store this information so meticulously lies in the fact that you will need to go through the same process again for other indicators at least and use the data you collected to rank all of the tested indicators based on how well they did. The two to three indicators with the highest win percentage are actually the ones on which you will be focusing from that point. Although we lack the information regarding what happened with the trade afterward and we do not have any news events involved as well as other relevant data we would otherwise be using in a real-life situation, it will suffice for the time being.

Even though backtesting in this simple manner may seem devoid of some important circumstantial data, it can still help you distinguish between winning indicators and the losing ones as well as pinpoint some vitally important information you will definitely need for your day-to-day trading in this market. Simply put, if you are already witnessing the scenario where any indicator is showing poor performance at this point, imagine how poorly it will perform once you have all facts at your disposal and decide to actually invest real money.

On the other hand, if you come across an indicator which offers a greater number of wins as opposed to losses, you can assume that it may be possible to include this tool in your algorithm in the future. What you will do here is wait on it, but you will also need to and want to know which ones are worthy of hanging on to. Once you have figured this part out, you can freely use it in trading, of course initially in your demo account. Testing out whether an indicator is legitimately good will not require an unreasonable amount of time, especially if you take recording data seriously. In the greatest number of cases, the few winning indicators that you select will outperform the losing wins by far. Now, depending on the type of indicator you are looking for, you may need to consider some other pieces of information.

For example, if you are looking for a confirmation indicator, you know that it should be able to signal favorable market conditions as well as tell you when the market is not ready for any action. Unfortunately, we could not have the same process for testing exit indicators since we would need to include trailing stops that are used to compare with your exit indicator of choice. Nonetheless, no matter how crude backtesting may seem to be, the data you gather should be relevant enough for you to know what your next step should be. To sum up, you will start from today firstly go back to a specific time in the past until the moment you see your indicator telling you to buy or sell.

Secondly, you will check for the ATR at that exact point in time when you discovered the buy/sell signal. And, thirdly, attempt to discover what happened first – the price hitting the ATR value (take profit) or the value of 1.5xATR in the opposite direction (stop loss level we use in our algorithm example). Keep repeating the same process for every indicator and every setting each time the indicator gives you any signal until the time you decide to stop recording data. If you have found a really good indicator, you can use it until a better tool comes along. Whatever you do, keep searching because this market, as well as the tools used for the purpose of trading currencies, is unbelievably prone to change and you may want to be equipped with the best and most modern tools you can get.

Maintain the level of curiosity which is necessary for this line of business and keep your records neat and tidy because you will inevitably direct your finances according to what you discover while backtesting. Finally, although this backtesting method is imperfect at this moment, its power lies in its ability to tell you which the winning and the losing indicators are, saving your time and quite possibly your finances. Together with your comprehensive knowledge of the different types of indicators, the forex market, and your personal goals, this approach to backtesting will surely lead to success and these are the skills you will always be able to use to your advantage regardless of the outside factors.

Forex Indicators

Dangers of The RSI Indicator

Relative Weakness or Relative Strength? The RSI is a popular indicator but it is not without its detractors. If you go online to learn more about technical forex trading – and who these days doesn’t? – then you will surely encounter a lot of people recommending the RSI. Indeed, most people you see on social media or YouTube who talk about the RSI will talk about it in glowing terms. This is why we think it’s important to bring you to the other side of the story. There is a growing number of technical forex traders out there who dismiss or outright criticize the RSI and this article is here to bring you their side of the story and the arguments they deploy to highlight the major problems with the RSI.

Popularity Contest

If you go online and do a search for all of the most popular indicators out there, you will likely find that you’ll get more hits for the RSI and just about any other indicator. You’ll hear about it all over social media whenever you’re trying to learn from others about forex and you’ll see video tutorials mentioning it or even promoting it. More than that, you’ll see it on your TV screens when you turn over to see the financial news and you will have heard about it from the very people you relied upon to teach you forex trading in the first place. Already here there are several serious problems to point out but we’ll come back to those further on in the article. First thing’s first, what is RSI?

Brass Tacks

The Relative Strength Index is an oscillating indicator that measures the velocity and magnitude of price movements. What you need to know though, is that it ultimately tells you if something is over-bought or over-sold. “Wait a minute, what do you mean over-bought or over-sold?”, you cry at your screen. Indeed, that’s one of the things about the RSI you should know. It was invented by a guy who is the father of a number of technical indicators, J. Welles Wilder. But the thing is, he invented it primarily for equities trading, where knowing if a stock is overbought or over-sold is pretty useful information because stocks – and commodities, where it is also heavily used – have an intrinsic value, while forex does not.

That isn’t to say that a currency pair can go as high or low as it wants, there are limits because governments or national financial institutions will eventually step in and rein things in. But that can happen thousands of pips down the line and there’s no guaranteed or even foreseeable limit where that kind of institutional intervention is going to kick in. Moreover, there is another issue with the RSI’s history, beyond it being invented for trading stocks, and that’s that it was invented back in the 1970s – literal decades before the kind of retail forex trading we are all doing was even a thing.

How Does It Work?

In its basic configuration, the RSI measures values from 0 to 100, where you will typically have lines at 30 and 70. When the reading goes below the 30 line, this indicates that a security or currency is oversold or undervalued and when the reading goes above the 70 line, this indicates that it is overbought or overvalued. As a default, the RSI will cover the previous 14-day period and is supposed to be overlaid against your chart to provide you with trade signals.

For example, if the RSI verges off into overbought territory and then drops down below 70 again, this should indicate that there is about to be a downward trend and you should go short. Conversely, if the inverse is happening with the RSI crossing into oversold territory and then rising back above the 30 line, this should indicate a reversal and the signal will be telling you to go long. That is how it’s supposed to work but – as many traders are increasingly keen to point out – there are several problems with that so let’s look at some of those.

The Problem of Popularity

As any high school prom king or queen will tell you, being popular is not always all that it’s cut out to be. In terms of the RSI, for us, it is important to understand why it’s so popular in the first place. Firstly – and this is pretty understandable actually, especially for traders who are just starting out – it is dead simple to use. Even if you’ve never encountered it before, just the short explanation above will tell you a huge chunk of what there is to know about using the RSI.

There isn’t a problem with simplicity per se – something being simple should not be a reason to avoid it. If there is a simple and easy to use indicator out there and it works, then just go ahead and use it. The problem comes from people who expect to be able to find one indicator and use it to consistently make money by trading on the back of that one indicator. But you should know by now – regardless of where you are in your trading career – that there are no silver bullets. In fact, if you think you’ve found a silver bullet that’s easy to use and is simple and everyone else is using it, you’re in big trouble.

But that isn’t the real problem with the RSI’s popularity. The real problem with the RSI’s popularity is that it is popular. If that sounds like a tautology, it is. But in forex trading there is a big problem when everybody is doing the same thing so when something’s popular, it’s time to start hearing those alarm bells. If you’re doing something in forex trading that is popular, something everyone else is doing, you’re running with the herd. And if you’re running with the herd, there are big players out there, who have way more influence in the way the market behaves, who is going to notice that the herd are all moving in a particular direction. The herd as a whole are going to be on the radar of the big players who will manipulate the mechanics of the market to take advantage of that big clump of traders who are all doing the same thing and sending their money in the same direction.

Of course, you’ll eke out a win every now and then – that is, the big players will let you have a win from time to time – because this keeps you in the game and lets them pick you off the very next time the herd gets going together. This doesn’t work the same way in the equities trade, so if you’re used to that, get ready for something different. In forex trading, you want to steer clear of the herd and stay away from what’s popular as much as possible. If that were the only problem with RSI, it would be enough to make smart traders drop it immediately. But there are other problems lurking in there and if you are still clinging on and conjuring up counterarguments in your head right now, you should be aware of the other problems some traders are keen to highlight.

The Problem of Credibility

The RSI is not only one of the most popular indices out there, but it has also been given the weight of credibility by television. You will have noticed that financial news anchors will often pull up a chart of a given currency pair and show it on your screen referenced against its RSI. Now, why do they do this and why is it a problem?

The simple answer to why they do this is that they don’t know any better. Most financial analysts on television are not traders and certainly not technical traders. They make their living by being smart and credible and being extremely good at talking about the financial markets. They do not need to spend their time trading, researching, testing, and backtesting indicators. Moreover, they know full well that their audience is also not, for the most part (like 99%), technical traders. So neither are they in a good position to properly present and explain indices more complex than the RSI nor would their audience appreciate it because they would struggle to follow along.

So why is this a problem of the RSI and not just a problem of how the financial news treat forex trading? Well because if you are just starting out trading or have been trading using the RSI (with mixed results), seeing these prestigious financial news shows flashing that very same indicator up on the screen will probably mean you will give the RSI more weight than it deserves. If it deserves any at all. You might use it and lose money or you might continue using it beyond the time when you actually become aware that it isn’t working. All because it has been lent this credibility by being on television and being discussed by smart people in suits.

The Problem of Teaching

Speaking of smart people in suits, another reason why people continue to use the RSI and why it is so popular is that it is taught to people learning how to trade in just about every forex trading course out there. When you’re just starting out and you don’t know any better – and crucially, you haven’t built up any of your own trading experience in a meaningful way – RSI looks pretty valid. It is kind of exciting because you are taught this indicator that tells you to wait for certain conditions and when you see them, it gives you a signal to trade.

It’s really easy to learn and you pick it up with no effort at all (are those alarm bells ringing yet?) – all you have to do is look at your chart and identify when the RSI is giving you a signal to trade and just take it. If you’ve learned anything about forex trading by now, you should hear how unrealistic all of that sounds. What’s more, the RSI really easy to teach, which is why it has found its way onto all those courses and video tutorials. It doesn’t take a rocket scientist to teach it and you don’t have to have a foundation course in brain surgery to learn it.

But that’s where you have to question who it is that’s teaching you to trade. Is the person you’re learning from an actual trader? Chances are they are not. If they are making their money by teaching forex trading or by making forex tutorials and courses and then selling them on, there’s a good chance they don’t have to trade for a living. They just want to teach this stuff and, if you’re starting out, you’re hungry for knowledge and just want to learn. As a result, they will show you easy-to-teach indicators, like RSI, that fit neatly into their course material and are easy to back up with simple examples that will make them look like they’re teaching you something important.

There’s a problem with those examples, however. In almost all cases, when somebody is showing you an example of how RSI works, they’re showing you a cherry-picked example. They’ll go out and find the perfect moment, on a chart of the perfect currency combination and set it to the perfect timeframe and then they’ll say, “see here where the RSI crosses back down under 70, that’s an indication that the price is about to trend downwards and here you can see that that is what’s happening”. But even in these best-case scenarios, if you look at the chart, you’ll probably be able to see a couple of cases of the RSI telling you to trade one way but the price going the other way or stagnating. You can try it now, go to YouTube or on social media and find somebody singing the RSI’s praises – there’s a 90% chance that you’ll be able to see for yourself that the example (the one that they chose) is full of holes.

Ultimately, the reason RSI gets taught so much to just about every last living soul who wants to learn about forex trading, is that the teachers themselves don’t know any better. As we said, they are almost certainly not traders themselves, and, more to the point, there are thousands of indicators out there to choose from. A great many of these are more difficult to teach than the RSI, less likely to throw up what appear to be sure-thing examples and more likely to work in conjunction with other indicators in a trading system that’s adapted to the needs and habits of the individual trader. Well, how do you teach that? Surely it’s just simpler to show people the RSI. It is and that’s why they do it.

The Problem of Success

With all of its popularity and credibility and the fact that it was taught to you when you first started trading, the RSI gets used a whole lot. Now, if everyone was learning the RSI and using it and it failed every time, people would simply drop it immediately and it would be resigned to the ash heap of history. But it doesn’t work that way. In fact, it’s much more insidious and sinister than that. The main reason people continue to persevere with the RSI is that even though it is probably losing them money in the long term, they have occasional successes with it, which reinforces all those cognitive biases generated by everything we’ve already covered in this article. It’s called gambler’s ruin or casino theory.

If you went to a casino in Las Vegas and you and everybody around you was just constantly losing money – never winning, not even 0.001% of the time – nobody would ever go to a casino again. The way the house keeps you coming back for more is that you do occasionally get that blackjack or the roulette ball does sometimes land on your number. It doesn’t happen nearly as often as the house wins but it happens often enough that it gives you that kick of adrenaline and clouds your judgment so you keep gambling.

Do not underestimate the power of that rush from winning. It will keep you in a casino for ten hands beyond the one at which you should have stopped or keep you using an indicator that you have seen doesn’t work consistently but that brought you that one win a few months ago and boy didn’t that feel good. The big players in the forex market understand the power of that thrill and will use it as mercilessly as the casinos in Vegas or Macau or anywhere else in the world. They reel out a little slack and the herd lap that up and comes back for more.

The Final Nail in the Coffin

There is a counterargument to much of this and if you use and like the RSI, you’ve probably been reading through this like a coiled spring, waiting to counter with: “But the RSI does work in range-bound markets!” Well, there are a lot of seasoned technical traders out there that would respond like this: If you’re seeing a ranging market, it’s probably already over. Forex markets don’t range forever and identifying a ranging phase in the market is not as simple as textbooks will have you believe. You won’t know when it’s coming and when you see it forming it will likely be too late to take advantage of it using the RSI.

The problem is that there is a glut of reversal traders out there relying on the RSI to call out reversals for them and they outnumber the people who are trying to follow a trend when it does break out. It’s the very reason the price trends as long as it does sometimes. When it does, it sucks the life out of those reversal traders over and over again – erasing any gains they made when the price was consolidating.

Try It and See

Of course, the best way to be really sure that the RSI is flawed is not to listen to an endless to-and-fro of well-thought-out arguments. The best way to be sure is to take the thing to the testing range and see if it falls apart. One good way of doing that is to open a demo account and trade it using the RSI exclusively. Use this account to track the wins and losses over a meaningful period (anything less than a couple of months is too short) to see where it gets you. Sadly, most traders are not sufficiently disciplined to go through all of that and will not benefit from that learning experience but demo-testing an indicator like that does reveal a whole lot about it.

The alternative is to look at a historical example and analyse those moments where the RSI was giving a trade signal. Chances are you would see very few examples where the signal would actually have paid off. The way to do this is to take a popular currency pair or a pair that you actually trade and look back over a year’s worth of data. Pull up the RSI indicator, compare it against the price chart, and go through each and every time the RSI pinged a trade signal. Check forward from that point to see whether following that signal would have paid off but be honest with yourself about where you would have set your stop/loss and take profit limits.

You will find that, in most instances, following the RSI will completely kill you. That’s not to say it never throws up a win. It will give you a win from time to time but the losses will outweigh these infrequent wins over time. And not only that but the wins will more often than not be pretty mediocre and the losses will not. To sum up, there are a lot of traders out there who are very disparaging about the RSI and now you know why. If you feel like this is sound advice, don’t take their word for it, test it out for yourself in a demo account and see if it really lives up to any of its hype.

Forex Indicators

Which Indicator is Best for Trade Management and Risk Measurement?

Out of the thousands of indicators out there that technical forex traders add to their charts, there is one that is often overlooked. Sometimes even ignored. Indeed, though it is used relatively frequently, many traders often forget that it is part of their process. Yet, in reality, it is one of the most important indicators to have in your toolkit.

That indicator? It is, of course, the ATR.

What Is ATR?

Many of you will, of course, already know what ATR is and how it works as well as you know the back of your hand. It never hurts, however, to refresh that knowledge and take another look at it. Put as simply as possible, Average True Range is a measure of volatility. What it does is take a look at the last fourteen candles (it doesn’t have to be fourteen but that’s usually the default setting) and tells you how much movement there has been. This will be expressed in the number of pips the currency combination you have selected has moved, on average, over those last fourteen candles.

It’s a moving indicator so you need to take care when you’re measuring it and whether the most recent candle is throwing off the rating in some way. So, if you’re day trading, for example, it is best to wait to measure the ATR just as the candle you’re currently on is coming to a close. That way your measurement is of fourteen complete candles – which will give you the best reading.

And that’s it. It’s that simple.

But Why Is ATR So Important?

The thing is, ATR is simply not one of those glamorous indicators. Which is probably why it often goes so unnoticed. In fact, many traders don’t even have it up on their chart the whole time. But that doesn’t mean it isn’t a key part of their system. Perhaps even the most crucial one. That isn’t to say that it is the best indicator or some kind of silver bullet. But it needs to be part of your system because it provides you with two key pieces of information.

Firstly, by telling you how much a currency pair is moving over a given period, it can help you to make sense of your other indicators and tell you when to trade – or rather, when not to. For example, say a currency pair has already moved beyond its average range but your strategy is signaling that you should go long. Combining the ATR into your other indicators can help to show you whether what you’re dealing with is a breakout or whether it would be better to go short or simply not trade at all.

But, here’s the key thing. The ATR is not a silver bullet. No indicator on its own is. It must be just one part of your strategy and not the driving force behind it. You shouldn’t use the ATR on its own to decide whether you should pull the trigger on a trade or not. If you think any single indicator can do that, perhaps it’s time to duck out of trading altogether or, at the very least, get back to the classroom.

It is also useful to give yourself a little history lesson and use the ATR to explore how a currency pair has performed in the past under different circumstances. Crosscheck that with any significant news events you know about and it can provide a useful picture of the volatility of a currency combination – ultimately helping you to have a better understanding of what to expect.

Managing Risk

The second useful thing the ATR can give you – and according to some this should actually be its primary function – is that it can help you to manage how much you risk on a given trade. You should not make a single trade without consulting it. So, how does that work? Well, let’s say you’re doing everything right. You’re avoiding being drawn into trading with the herd. You’re ducking and diving and staying clear of the big players are – avoiding those hotspots where everyone else is trading. 0You’re using your system to identify when the optimal moment is to trade – getting all of your indicators to line up to make sure it’s the right moment and whether to go long or short.

Before you pull the trigger, you need to know how much to trade. And that’s where the ATR comes in. You need to factor it into the process you go through – make it part of your checklist – because in that sense it is probably the most useful indicator you have. It allows you to gauge risk in a measurable way so that you can improve how you manage your money and the amount that you invest per trade for any given currency pair. Now, the number one question here is how much money you put on a trade. But it doesn’t make sense to speak in terms of dollar amounts in this example. The ATR can’t tell you to put, say, USD 5,000 on a yen vs. pound trade. Neither does it make sense to talk in terms of lots, because a lot on the pound/dollar pair will be a different amount to a lot on another currency pair. Instead, it’s better to think of how much you are trading per pip.

To do that, compare the ATR for two currency pairs. For the sake of the example, let’s take a commonly traded pair like GBP/USD. Depending on what’s happening in the news cycle but assuming no dramatic news has been happening, this pair is likely to turn out a pretty low ATR. Perhaps something like 14 pips. If we compare that to the ATR of a more volatile pair, for example, GBP/AUD, here we might see an ATR of 115 pips. Some pairs will blow that out of the water and will easily generate ATRs of 200 or 300 pips regularly. And a lot of traders will look at that volatility and will steer clear of trading in those waters.

Sticking with the example of the dollar/pound and pound/Aussie dollar pairs, it doesn’t take a mathematical genius to look at the ATR and see that 115 pips is about eight times as many as 14 pips. That means the pound/Aussie is moving about eight times as fast as the dollar/pound. As we would expect given the respective volatilities of these pairs. So, armed with that knowledge, how do we trade it? It couldn’t be simpler. Let’s say that in this example you’re trading the dollar/pound at 16 dollars per pip. You can trade the pound/Aussie with full confidence, simply by trading it at eight times less. In short, when trading a faster currency pair, use the ATR to modify your per pip trading amounts to correspond to the increased volatility. In so doing, not only are you managing risk but you are also managing your overall approach to trading.

A Whole New World

Many, if not most, traders out there – particularly the less successful ones – start off by trading equal amounts per pip on different currency pairs, without taking into account the different speeds at which they move. This makes no sense. To all intents and purposes, by doing that they are saying that they have equal confidence in their trades across currency combinations of different volatilities. The danger that exposes them to could really take a chunk out of their account very quickly indeed if things go south. Traders who do that are taking on unnecessary risks because they are not mitigating the risk of greater volatility.

The ATR allows you to see that risk and modify your behaviour accordingly. It can be a tool for managing how much you trade per pip on a given pair and, consequently, it allows you to profile your trades for risk. This ability can introduce you to a whole new world of more exotic currency pairs because it enables you to broaden the spectrum of the pairs you trade. Placing the right amount of money per pip on a trade mitigates the risk of volatile pairs and means that you can add new currency combinations to your trading schedule without the fear of being towed under by fast-moving pairs.

In a Nutshell

The most important thing to take away from all of this is that managing risk and managing your money are the most important functions you have when you approach forex trading. If you can get these two right, you can separate yourself from the less successful or outright unsuccessful traders. It is the thing that will ultimately determine whether your forex trading career is going to result in more money in your bank account or less. And the primary tool you have at your disposal for mitigating risk and managing the money you invest in trades is the ATR. Even if you don’t have it on your actual chart – and many traders chose not to – you should still use it for every single trade you make.

Forex Indicators

The 5 Best Forex Indicators

Forex indicators use mathematical calculations to measure things like volume, exchange rates, open interest, etc. about a currency pair to let traders know if they should enter or exit a trade. There are a lot of different indicators out there, such as Bollinger Bands, Stochastic oscillator, Relative Strength Index (RSI), and many more. Most people use indicators to help make more confident trading decisions without as much guesswork.

Those with programming skills can create their own software to run on the MetaTrader 4 or 5 platforms, which can make your life as a trader much easier. Of course, those that aren’t interested in developing their own software can rent or purchase indicators for a low price in most cases. If you’re looking at indicators, you’ll want to choose one that is suited for your personal trading strategy. In our opinion, the most useful indicators work with many different strategies while offering clear signals and helpful information. Below, we will go into detail about the five best indicators that are available.

Moving Averages

Moving averages gauge momentum and define areas of support & resistance in the market. These indicators are primarily used to give one an idea of the underlying direction or trend of the market. Traders can also use one or more moving averages for trading signals, for example, the point where a shorter moving average crosses above or below a longer moving average.

There are five main types of moving averages:

  • Simple moving average (SMA)
  • Exponential moving average (EMA)
  • Weighted moving average (WMA)
  • Smoothed moving average
  • Hull Moving Average (HMA)

Moving average is a lagging indicator, meaning that it reacts to events that have already happened, rather than predicting future events. The indicator focuses more on confirmation and analysis.

Relative Strength Index (RSI)

The RSI has been a favorite trading indicator for many traders since it was created by analyst J. Welles Wilder in 1978. It is a momentum-based indicator that compares the amount of a currency pair’s most recent exchange rate increases against its most recent exchange rate drops. This helps it to identify overbought or oversold conditions in the market.

The RSI is displayed as a line on a graph that moves between two extremes with a reading from 0 to 100. Traders usually interpret a reading above 70 as an indication that a security is being overbought, which will likely result in a trend reversal or corrective pullback in price. A reading of 30 or below would, therefore, indicate oversold or undervalued conditions in the market.

Bollinger Bands

John Bollinger developed the Bollinger Bands technique in the 1980s. The indicator uses a moving average with two trading bands above or below it to add and subtract a standard deviation calculation. Bollinger Bands measures volatility so that it can adjust to market conditions and provide all needed price data between the two bands.

On a chart, you’ll see a centerline, which is an exponential moving average, with two price channels (or bands) above and below it. The two price channels are the standard deviations of the asset that is being looked at. Volatile price action causes the bands to expand, or contract when the price is bound into a tight trading pattern. Looking at examples online can help one to recognize these patterns.

Moving Average Convergence Divergence (MACD)

The MACD indicator is a trend-following, momentum-based indicator that shows the relationship between the two moving averages for an instrument’s price.
The indicator comes up with its calculation by subtracting the 26 period EMA (Exponential Moving Average) from the 12 period EMA, resulting in the MACD line. It also includes a smoothed moving average (SMA) line of 9 periods to signal trades.

The Stochastic Oscillator

A Stochastic oscillator is a momentum-based indicator that compares the closing price of a security against the range of prices it experienced over a specific time period. The primary use of this indicator is identifying overbought or oversold conditions and providing trading signals.
The indicator provides traders with a number that ranges from 0 to 100. Readings over 80 are considered to fall in the overbought range, while readings of 20 or less are considered undersold. Of course, the exact line where one would consider conditions overbought or oversold can fall to personal interpretation. The indicator consists of two lines. One reflects the value of the oscillator for the session, the other reflects its simple three-day SMA.


Throughout this article, we have identified some of the best indicators that one can have at their disposal: moving averages, relative strength index (RSI), Bollinger Bands, moving average convergence divergence (MACD), and the stochastic oscillator. Several of these options are momentum-based and they can help to identify trends and overbought or oversold conditions, or to provide helpful trading signals. If you plan on using any of the indicators we have outlined above, be sure to check out some visual examples online first. On the contrary, if you’d prefer to trade without the use of any indicators, then you should consider naked trading.

Forex Indicators

Guide to Selecting Custom Forex Trading Indicators

How should you use custom forex trading indicators and should you buy them?

One of the greatest gifts modern technology has bestowed upon us as technical traders is the ability it has given us to shape, hone, and personalize our trading experience. The seemingly unstoppable march of technology has given us the ability to craft for ourselves bespoke strategies, charts, and indicators in order to optimize our market experience to fit our needs.

Why Custom Indicators?

If you are a technical forex trader, why should you use indicators when trading? There are really two answers to this and neither of them will come as any big surprise to any of you. The first one is simple, to give you an edge in terms of the timing of your trades and the precision with which you take advantage of that timing. The second reason is that forex trading, even technical trading, is as much an individual process – trying not to say art, here – as it is a scientifically or mathematically founded methodology. Even if you are a very technically driven trader, you will want to adapt your trading strategy to your own personal needs, goals, and ways of doing things. Inevitably, one of the outcomes of this is that you will need to build up, over time, a personalized system that relies on, among other things, a set of trading indicators that you have finely tailored to your requirements.

Who Builds Indicators?

Who designs and makes those custom indicators that you can find out there and download for your own use – whether you pay for them or not – and should we care? The short answer is, of course, we should care a bit. Here’s why: While some custom indicators are made by traders and enthusiasts with some knowledge of how trading and the markets work, there are a great many indicators out there – maybe even most of them – that are made by programmers. Now, being good at coding is important to make a good custom indicator but that does not necessarily mean it will result in one that is actually useful. More to the point, it does not mean that it will result in one that is useful for you.

Evaluating Indicators

Ok, bad news first: There is no shortcut. Of course, if you’ve been forex trading for almost any amount of time at all, you will have been able to figure that answer out for yourself because there are no shortcuts to anything. If you’re not ready to put in the grind, you won’t get very far. That is particularly true if you’re a technical trader.

So, how do you chose the right custom indicators for your strategy? There’s no mystery here, the answer is you have to test them. Testing is important for two reasons. First, you will have to probably go through a large number of custom indicators to see what fits with your approach to trading. Even good indicators, those that work as advertised or as close to the way they are advertised as possible, may not be the ones that mesh with the system you are building. The second and even more important reason is that you need to test the dice out of indicators to make sure they work.

Once you download a custom indicator, take it to the testing range. Backtest it to make sure it worked in the past. This is the first hurdle and if it clears that, its time to upload it to your demo account and forward test it to see how it performs in the market. Moreover, forward testing is the best way to ensure that a given indicator will add value to your strategy.

The testing process you put custom indicators through needs to be rigorous. It has to be robust in two senses: First, it should comprehensively test each indicator you select and, second, it should test a broad range of indicators to provide you with a clear picture of what works and what works in your system.
Your friends here are time and work. The more indicators you put through a testing regimen, the better honed your system will be. Expect to test tens, if not hundreds, or even thousands of indicators throughout your career as a trader. The key is to avoid resting on your laurels but to always be learning and adapting.

Paying for Indicators

Should you go out and buy custom indicators to integrate into your platform? There is now a very broad market for custom indicators out there – some are free and some are paid-for. When you first encounter this it might seem a little daunting. You will ask yourself, are the paid indicators better in some way? As many experienced technical traders will tell you, ultimately there is no guarantee of a difference. Those who have already put the time and effort into exploring and testing the custom indicators that are floating around out there will have discovered the following: the main thing separating paid indicators from those you can download for free is that the person who made them decided to try to charge for them. The vast majority of custom indicators that somebody else made are likely to either a) not work properly at all, or b) not suit your particular system or strategy. This applies equally to those that are free and those that cost actual money.

So, should you just ignore the indicators that will cost you a few bucks? There’s an element of personal preference in the answer here. Because technical trading is an unending cycle of learning and re-learning, there is a good chance you will not regret paying for an indicator even if it turns out that it isn’t very useful. Even just by taking it through a robust testing process, you will learn something – both about the indicator itself and about your approach to trading. There is also the caveat that an indicator you pay for could turn out to be really useful to you and end up helping you to make many times over the 10, 30, or 50 dollars you paid for it.

It is also possible that you will pay for, download, and test an indicator and then decide not to use it. But that down the line at some point, as your trading strategy evolves and as you learn new approaches, you will want to go back to an indicator you previously decided to set aside. Maybe you will realize that you can tweak it to make it a useful addition to the way you trade or maybe the way you trade will change over time to the point that you need a new mix of indicators that will now include one you bought two years ago, say, and never used.

The Bottom Line

Whatever approach and strategy to forex trading you are designing for yourself, you will certainly benefit from the myriad of custom indicators available out there. You don’t have to feel like you have to pay for indicators – there is no guarantee that paid-for indicators will work any better than free ones. The key thing to remember is that any indicator you are thinking of using will have to go through a comprehensive testing phase – whether you chose to pay for it or source it for free.

Forex Indicators

Using Volume and Volume Indicators for Swing Trading

Volume is the lifeblood of forex trading but is often misunderstood and many traders don’t know how to use it to their advantage. If you imagine the market as an organism, then volume is the life force pumping through its veins and, without it, everything would gradually grind to a halt and the market would die. And yet, in spite of its importance, it still gets viewed as a somewhat unattractive part of a trader’s toolkit and is often misunderstood, misused or misrepresented. Sometimes all three. But the fact of the matter is that every consistent and successful trader will have a volume indicator that they know and love firmly integrated into their system and will check it religiously before even thinking about entering a trade.

Volume Confusion

Put simply, volume is the measure of how much of something is being traded. So far, so good. But there’s the rub. People still manage to confuse volume with liquidity, volatility, and momentum. This confusion is perfectly understandable actually. These things are all closely interrelated but they are not ultimately the same thing. A good and easy-to-remember way to think about it is that volume creates liquidity and, to a certain extent, volatility. And it certainly influences momentum.

But while you need volume to be able to trade (more on that later), this isn’t the same thing as needing volatility to trade. Just because you need a certain amount of volume coursing through the veins of the market, does not mean to say that you should be looking for the most volatile or liquid pairs and trading those. It’s important to remember this because the close interconnections between these phenomena mean that many people confuse them in their mind.

The thing to take away from all of this is that a higher level of volume shows that there is some gas in the tank and the market is more running better. This is important because the level of volume can show how robust a particular market move is, which can (along with your other indicators) give you a green light on a trade entry. To keep things uber-simple, the more volume during a price movement, the more legs that movement has got. If there is less volume, the movement is likely to lack conviction.

Why Use a Volume Indicator?

Since volume is what makes markets trend, it is crucial for technical traders and trend traders. This is not news to most people but somehow some traders try to trade even when volume is low and then come away scratching their heads when their roster of losses starts overtaking their wins. A volume indicator is just a mathematical tool that visually represents in your platform whether volume is high or low. Be careful because different indicators use different formulas, which changes how useful they are and how they are used.

A good volume indicator can cut down on the losses you will make if you enter trades when the market is running low on gas. Sure, eliminating losses is nowhere near as exciting as finding an indicator that will help you to find wins but a smart trader will be able to see the benefit immediately. The fact is if the market conditions aren’t right and your well-constructed, thoroughly tested system tells you to not trade – you’re already kind of winning because you’re not taking the hit of an unnecessary loss. You win if you don’t lose and you can’t lose if you chose not to play. That’s why you need a good volume indicator. It is key money management and risk management tool and, if you use it right, you will see how it impacts your bottom line.

So, what should a good volume indicator do?

In short, it needs to tell you whether there is enough volume to trade. Think of it as a stoplight. If it’s green (and all your other trade signals align), go ahead and enter the trade. If it’s red, however, that’s your cue to pull out of the trade. A good volume indicator will do both of these things. Another thing to keep an eye on is indicator lag. Some lag is inevitable – all indicators lag to a greater or lesser extent – but you don’t want your volume indicator to lag too much so watch out for that when searching for and testing volume indicators.

It’s just not possible to overemphasize this: if your volume indicator says there isn’t enough volume in the market at the moment, do not trade. Just like when you’re driving, you don’t hit the gas when the light is red, you don’t trade when there isn’t sufficient volume. There are a lot of factors going against you in forex trading – you can’t predict the future, you can’t control the odds of a trade going your way, you can’t influence the big players in the market … the list is endless. But one factor you can control is when you trade. If you feel – or better yet, if you calculate in a rational and systemic fashion – that the odds of a trade are not in your favor, the only smart option is to not enter that trade. It’s not that different from seeing the cards in front of you in a game of poker, figuring out that another player is likely to have a stronger hand, and choosing to fold. We could take the analogy further and figure out what a volume indicator would be in poker but that isn’t necessary – the thing to take away from this is that a good volume indicator will tell you to avoid the trades that you should be avoiding anyway.

Loss Aversion

An indicator that eliminates losses is every bit as important – if not more important – than one that increases wins. A good volume indicator is one such indicator and it is worth as long as it takes to find a good one. Combine it with a good exit indicator and you’re not just eliminating bad trades, you’re also reducing your losses. That is a force multiplier for your wins.

Ultimately, even a bad volume indicator can, in many cases, save you from making losing trades. The trick is to balance that with making the trades you can win. That’s because a bad volume indicator – while it will certainly cut down your losses – will also prevent you from entering potentially lucrative winning trades. Nobody can tell you which indicator is going to work best with your system and you should immediately ignore anyone who tries. The only thing that will tell you which volume indicator to integrate into your process is to test, test, and then test some more. You have to put in the legwork.

You also have to remember that no indicator is perfect. You have to balance the losses it saves you from and the wins it prevents. A volume indicator that tells you to avoid ten trades that would have been losses and stops you from entering three trades that would have been winning is, on balance, going to save you a lot of money. Of course, it is on you to work out how big the losses would have been in comparison to the wins and to factor that in when choosing the right indicator. In the same way, as it is your job to figure out whether you can find a volume indicator that can save you ten losses and only stop you from entering one winning trade.

But, with volume indicators (and with your approach to trading in general), eliminating losses is the path to success. Put the work in to find a good volume indicator, test it to the max and make sure it works how you need it to. Trade with confidence when it gives you a green light and, when it doesn’t, put your cards down on the table like a boss and stay out of the trade.

Which Indicator?

As we said, nobody can tell you which indicator is going to work best with your system. You will have to put the work in and figure that out on your own. However, here are some indicators to take a look at and one to avoid.

Average Volume: This is the most basic, run-of-the-mill indicator that’s already integrated into your platform. It’s a moving day average set to a specific number of days and if you’re tracking a moving price average, it makes sense to set the average volume indicator to the same number of days. Bear in mind that anything less than 50 days is going to throw up a lot of unnecessary noise.

Force Index: This measures how bearish or bullish the market is at a given moment. You can use this in conjunction with a moving price average to measure how significant changes are in the power of bullish or bearish sentiment. It won’t do the job of telling you when to avoid a trade so much as it will tell you how robust a price trend is.

Volume Oscillator: This is a combination of two moving averages, one fast and one slow (with the fast one subtracted from the slow one). It can show you how strong a prevailing price trend is by tracking when a price movement is followed by an increase in volume. When the indicator is above the zero line, this may be a sign that the prevailing trend has some wind in its sails. Conversely, a change in price followed by a slump in volume is a good sign that the trend is lacking strength.

On-Balance Volume: Just like the Volume Oscillator, this indicator is trying to show you whether a price movement is backed by an increase in volume. It does this by combining price and volume. On an up day, the volume is added to the previous day’s score and on a down day, it is subtracted. Again, this will give you an indication of the strength of conviction behind a given price movement.

Accumulation/Distribution: The A/D line seeks to confirm price trends or highlight weak movements. Volume is accumulated when the day’s close is higher than the previous days close and distributed when the day’s close is lower than that of the previous day. The main way you use this indicator is to detect whether there is a divergence between price movement and volume movement.

Average True Range: Volatility is, as you now know, very closely related to volume and, as a result, you might be able to use some volatility indicators in place of a volume indicator. One advantage of doing this is that volatility indicators can be easier to read and some people chose to use the Average True Range (ATR) as a stand-in for a volume indicator. There are several problems with doing this, however, and here are just a couple of them. For one thing, it can be nearly impossible to figure out where to place the cut-off line – the line below which you will listen to your indicator and pull out of a trade.

Firstly, that line will have change and adapt as markets change, which means you will constantly be lowering or raising it. Secondly, you will also need to have a separate cut-off for each currency pair you trade. Thirdly, you will have to raise or lower the line for each currency pair as market conditions change over time. And, as if all of that weren’t enough, you will have a hard time backtesting it because of this inconsistency over time and across currencies. A good volume indicator should be consistent over time and reflect the market in most, if not all, conditions.

Forex Indicators

Forex Indicator Testing Tips & Shortcuts

By now you all know that Forex trading with indicators is by far the superior way of trading. Forex is not the stock market and most of the strategies, indicators, and tools are not going to be useful in Forex trading. When you step out in trading waters you will realize there are thousands of indicators out there that can be used.  Unlike the price action trading, indicators, if everything is done correctly, and have been tested and trusted already, will give you a crystal-clear signal every time.

There is no guesswork with indicators and you can customize settings. Adjust it in the way you like it and make it better than it already is. This cannot be done with Support and Resistance line, right? The best option is that you can combine indicators, and by this, make better results. Everything is going around choosing the right indicators and combining them together to make the system more accurate. One stand-alone indicator will not get anyone anywhere, what is recommendable to do, is to create algorithms – the system of rules to point out to the same signal at the time, which can be used and traded upon.

We will focus now on the ways of testing Forex indicators and choosing adequate ones.
As we already mentioned, there are thousands of indicators out there that can be used. Also, now and then new indicators are made by programmers. In order to choose the right ones, one would need an awful lot of time to test each and every and to make the right choice. This is actually not a bad way to do it, don’t get this in a wrong way. It would even improve your skills, however, to help you shorten the process we chose five criteria points.

An indicator that does nothing other than following the price.

There are a lot of indicators out there that do just this – follow the price. As if you took a pencil and just tracing the price – honestly, this cannot help at all. These kinds of indicators are just mirroring where the price is going and it is not very useful. What you really need from the indicator is to show you what you cannot really see – foreseeing what is not yet visible with a bare eye.

Indicators that do not even work in the example.

Most of the programmers that are making indicators are not traders. Many indicators that are for sale cannot be tested before you buy it and then you need to assume how they work. What would be very useful is they could give a snapshot to a user of a real successful example – where a certain indicator worked and provided the correct signal. If it happens that even in the example the indicator does not meet what is expected and in the way it is expected, it should be cast away without even trying.

Too many signals.

It is not easy to choose between an indicator that gives quality signals and ones that give more signals. If this poses a dilemma to you, a suggestion is to go for quality over quantity each time. In truth, it doesn’t really matter which one you choose as long as it brings you money at the end of the day.

Indicators that give you a buy signal and a sell signal way to quickly, one after another, it would be best to avoid it. If you happen to use this kind of indicator, even in combination with other indicators you may take too many trades and exiting them too soon.

Indicators offering Support/Resistance levels of any type.

The way some traders believe is that Support/Resistance levels are completely non-useful based indicators. Even if it is dynamic support and resistance – meaning it moves, it doesn’t stay fixed, it is still not very useful according to them. What these indicators do is trying to predict the place where the price is going to break out or reverse and it is not really something that can be predicted. It is also good to know, if you are following this kind of strategy, that all indicators which contain words like ‘pivot’, ‘gann’, ‘channel’ are most likely also part of this category.

Indicators you cannot adjust.

If you happen to use these indicators, you know that every once in a while, it works perfectly on default settings. For example, Heikin Ashi – nothing can be changed or adjusted in this indicator. Some serious professional traders think that every indicator that gives you a possibility to improve it – personalize in a way, is going to be better than the one that doesn’t.

These five points should offer you some guidelines on how to choose and test indicators in the future. You can always come up with your own selection, which can take you a lot of time to do it, but it would probably be very useful for improving your trading skills.

Benefits of following the price action.

There are also traders out there that strongly believe that indicators are just a waste of time. These kinds of traders are mainly Price Action traders, trading with clean charts – which are very successful in what they do and wouldn’t change it for any of the indicators. To them, indicators are just a clumsy way of interpreting what they can already see on the chart using Price Action methods.

A lot of new traders are coquetting with both ways in order to find their comfort zone and a method that will work for the long term. According to these guys, a clean chart with minimal indicators represents a clear mind and way of trading on fundamental price movements in opposition to the trading with indicators. Accessing a clean chart may seem simpler and non-demanding and can also be a lot less stressful than having to scan multiple lines, levels, and bars that indicators may show.

While a clean chart would present price information upfront, a chart with indicators will often show other information on top, or even worse, can show compress or stretch actual price information on candlesticks or bars, leading you to the wrong appearance of volatility levels and moment relative to the existing trends.

We must admit that a cleaner chart also gives fewer filters that you are potentially looking out for, allowing you quicker decision-making without getting distracted by information on another window or overlaid on price information. This can improve your efficiency. Just for this method to be applied correctly, your mindset needs to be sharp, equipped with enough years of experience reading the charts and mastering Misk Management.

So, to summarize, the major benefit of trading price action is the simplicity factor. Top trading professionals are often found trading with totally clean charts that allow stress-free and comfortable trading environments that ultimately contribute majorly to their trading success.

Bottom line is, as you may have realized by now, trading with or without indicators is a completely personal decision and depends entirely on the trader. On what kind of trader you are, your own circumstances, risk appetite, experience, and comfort level.
It is impossible to categorize either approach as categorically good or bad, but depending on your situation, choosing one over the other may contribute majorly in determining your success as a trader.

Forex Forex Indicators Forex Market Analysis Forex Price Action Forex Signals

EURAUD Reveals Strength Signals (UPDATE)

In our previous market analysis corresponding to EURAUD cross (read here,) we commented that the price action revealed potential raises, supported by the price action and confirmed by the RSI oscillator.

Trade Update

In the current update, we distinguish that the EURAUD cross soared until 1.64 level, from where the price found resistance in the dynamic resistance corresponding to the upper line of the ascending channel. Likewise, the RSI oscillator moves over level 70, which warns us about the intraday overbought.

With the advance over 120 pips in our previous setup, this situation carries us to consider the risk reduction or partially close the long position placed previously.

What’s Next?

For the next path, EURAUD could retrace until the blue box in the area of 1.6357, which could act as a pivot zone from where the price could find fresh buyers expecting to incorporate additional positions in the long side. If the price action does not experience the retracement forecasted, this is signal strong bullish sentiment in the EURAUD cross.

Forex Indicators

The Truth About Moving Averages

Moving Averages

Of all the technical indicators that exist, moving averages are probably the most well known. Moving averages are also one of the only technical indicators ever used by market news broadcasters. Moving averages are generally one of the first types of indicators that new analysts and traders will learn about because they simple to calculate and simple to interpret. But are moving averages useful for trading? Are they appropriate for trading?

Dangers of Moving Averages

I want to preface any further commentary on moving averages by saying I am strictly opposed to their use. Outside of any singular purpose for their use, I will never advocate for their use of an analytical tool or a trading tool. The reasons for this opinion are my own trading experience, and the experience of teaching students – who have all (myself included) fell into the old trap of moving average crossover systems and the lies that are sold about their usefulness and profitability. That is not to say they are not helpful, useful, or profitable – but the temptation to believe in their positive expectancy and profitability is often too hard to avoid.


Moving Averages: A simple visual representation of data

20-period Simple Moving Average

The orange line on the chart above is a moving average — specifically, a Simple Moving Average (SMA). A Simple Moving Average is a line that is plotted, showing the average close of a defined number of periods. On the chart above, it is a 10-period moving average. Meaning it is taking the last ten candlestick closes, adding them up, dividing that number by ten, and then displaying it as a line. But a Simple Moving Average is just one type of average. There is an enormous amount of various moving averages, each with their specific calculations. The chart below shows only some of those different moving averages, all with a 10-period average.

Various moving averages

From the image above, you can probably say that, depending on the moving average used, some averages are more responsive to price changes than others. Some move a lot; some move just a little. There is a myriad of different reasons why one moving average would be used over another, and there are specific moving averages that to be used only with particular trading systems and methods. Now, after I’ve bashed moving averages, I think it’s essential that I do show some examples of moving averages positively. The first would be using a long period moving average on a higher time frame. For example, a standard method of determining whether a stock is bullish or bearish is to use a 200-period on a daily chart. If a stock is trading above the 200-day average, it is considered bullish; if it is trading below, it is bearish.

200-day Moving Average of S&P500

Another example of a trading system using moving averages effectively would be Goichi Hosada’s Ichimoku Kinko Hyo system. This system will be discussed in much greater detail in another article, but the Ichimoku system is based almost entirely on moving averages. There is a significant difference between Western moving averages and Japanese moving averages. The Tenkan-Sen and Kijun-Sen in the Ichimoku system are calculated using the mid-point of the default periods. The utilization of the mid-point is particular not to just the Ichimoku system but is indicative of a large amount of Japanese analysis, which focuses on ‘balance’ and ‘equilibrium.’ So while I do rail against the use of Western moving averages, the use of the Ichimoku system’s moving averages is undoubtedly a significant exception due to it being a full trading system and one of the few trading systems that are a proven and profitable system.

Ichimoku Kinko Hyo
Forex Indicators

Let’s Trade Divergences!

Trading with Divergences

Almost all forms of technical analysis involve the use of lagging indicators – or lagging analysis. There are very few indicators that use any type of leading analysis. That is because we don’t know what will happen. All we can do is interpret what kind of future behavior may occur based on past events – this is the basis of all psychology and significant portions of medicine: we can only predict future behavior by analyzing past behavior. Now, just because most of the tools and theories used in technical analysis are lagging in nature – it doesn’t mean that there is no method of leading analysis.

Divergences are one method of turning lagging analysis into leading analysis – it’s not 100% accurate, but divergences can detect anomalies and differences in normal price behavior. Divergences are useful in identifying when a significant trend may be ending or when a pullback may continue in the prior trend direction. Let’s review some of those now.

Divergences are easily one of the most complex components to learn in technical analysis. First, they are challenging to identify when you are starting. Second, it can be confusing trying to remember which divergence is which and if you compare highs or lows. It is essential to know those divergences themselves are not sufficient to decide whether or not to take a trade – they help confirm trades.

When we look for divergences, we are looking for discrepancies between the directions of highs and lows in price against another indicator/oscillator. The RSI is the oscillator used for this lesson. We are going to review the four main types of divergences:

  1. Bullish Divergence
  2. Bearish Divergence
  3. Hidden Bullish Divergence
  4. Hidden Bearish Divergence

Bullish divergence

Bullish Divergence

A bullish divergence occurs, generally, at the end of a downtrend. In all forms of bullish divergences, we compare swing lows in price and the oscillator. For a bullish divergence to happen, we should observe price making new lower lows and the oscillator making new higher lows. When bullish divergence occurs, prices will usually rally or consolidate.

Bearish divergence

Bearish Divergence

A bearish divergence is the inverse of a bullish divergence. A bearish divergence occurs near the end of an uptrend and gives a warning that the trend may change. In all forms of bearish divergence, we compare swing highs in price and the oscillator. For a bearish divergence to happen, we should observe price making new higher highs and the oscillator making new lower highs.

Hidden divergences

The last two divergences are known as hidden divergences. Hidden does not mean that it is difficult to see or hard to find – rather, it shows where a short term change in direction is actually a continuation move. Think of it as a pullback or a throwback in a larger uptrend or downtrend. Hidden divergences tell you of a probable continuation of a trend, not a broad trend change. If you combine these with common pullback and throwback patterns such as flags and pennants, then the identification and strength of a hidden divergence can yield extremely positive results.

Hidden Bullish Divergence

Hidden Bullish Divergence

A hidden bullish divergence can appear in uptrends and downtrends but is only valid if there is an existing uptrend. It’s easier to think of hidden bullish divergences as pullbacks or continuation patterns. For hidden bullish divergences, we should observe price making new higher lows and the oscillator making new lower lows. The expected price behavior is a continuation of higher prices.

Hidden Bearish Divergence

Hidden Bearish Divergence

Our final divergence is hidden bearish divergence. Just like hidden bullish divergence, hidden bearish divergence can appear in both uptrends and downtrends but is only valid in an existing downtrend. Hidden bearish divergence is identified when price makes lower highs, and the oscillator makes new higher highs. We should observe a resumption in the prior downtrend when hidden bearish divergence is identified.

Key Points

Regular Bullish Divergence
  • End of a downtrend.
  • Often the second swing low.
  • Price makes new Lower Lows, but the oscillator makes Higher Lows.
  • Trend changes to the upside.
Regular Bearish Divergence
  • End of an uptrend.
  • Often the second swing high.
  • Price makes Higher Highs, but the oscillator makes Lower Highs.
  • Trend changes to the downside.
Hidden Bullish Divergence
  • Valid only during an uptrend.
  • Price makes Higher Lows, but the oscillator makes a Lower Low.
  • The trend should continue to the upside.
Hidden Bearish Divergence
  • Valid only during a downtrend.
  • Price makes Lower Highs, but the oscillator makes Higher Highs.
  • The trend should continue to the downside.

Final words

It may be confusing trying to remember which divergence is which and you’ll find yourself asking questions such as, “do I use highs on this divergence or lows?” It’s easier to think about measuring divergences like this:

All Bullish divergences are going to compare lows to lows – lows in price and lows in an oscillator.

All Bearish divergences are going to compare highs to highs – highs in price and highs in an oscillator.

Forex Indicators

Bollinger Bands

Bollinger Bands

Bollinger Bands are a type of volatility oscillator created by the great technical analyst John Bollinger. If this is your first time seeing this indicator, it probably looks both daunting, confusing, and somewhat silly. But it is a powerful tool for trading and identifying when prices are contracting and then when they finally breakout. There are some critical components of Bollinger Bands.

  1. The middle line is just a moving average, by default, a 20 SMA.
  2. The lines above and below the middle line are the volatility bands, observe how the ‘bubble’ gets expands as price moves up or down in a significant fashion.
  3. Most important is what is called the ‘Squeeze’ or a ‘Bollinger Squeeze.’ The Squeeze signifies decreased volatility and is evident when the bubble gets smaller, and the lines become very close. Squeezes are extremely important to watch.

Let’s look at a chart and see these concepts.

  1. Notice the bands contracting, ‘squeezing’ into each other.
  2. Notice the release, price is continuously pushing higher against the bands, and the bubble is expanding.
  3. Again, notice how price begins to consolidate and form another squeeze.
  4. The release after the squeeze.


Top touches do not mean “sell”, and bottom touches do not mean “buy”

Too often, new traders view indicators and oscillators with certain upper and lower boundaries as conditions to trade to the contrary. Bollinger Bands are no exception. People often assume, incorrectly, that when prices touch the upper band, then the price is somehow ‘oversold,’ and then a short trade should be taken. The inverse is true with bottom band touches.

In reality, prices will often ‘walk’ the bands. You should look at any instrument and see how often prices will trend higher by piercing and riding the bands higher or lower. This frequently occurs after both the upper and lower bands converge closer together, and the space between them constricts. This pattern is known as ‘The Squeeze.’


The Squeeze

Mr. Bollinger himself wrote that The Squeeze was a condition that created more questions than any other component in his Bollinger Band system. At the beginning of this article, I mentioned that Bollinger Bands are a volatility indicator – that is precisely what the upper and lower bands represent. When volatility increases, the bands expand and move farther away from one another. When volatility decreases, that is when we see the bands constrict, forming The Squeeze. Squeezes always precede increased volatility, and squeezes always occur after a period of significant volatility – a classic chicken or the egg problem. Regardless of which happens first, The Squeeze should be recognized as an opportunity to identify when a future explosive move may occur.

One should observe the direction of the breakout almost with suspicion. You will often find many false breakouts occur where price begins to trade in one direction at the beginning of a squeeze, only to reverse and start trending in the opposite direction. There are many ways to filter and interpret which breakouts are genuine and which are false – but that is for a lesson for another time.

Key Points

  1. Bollinger Bands are a measure of volatility.
  2. Price touching the upper or lower bands does not mean an automatic inverse trading move.
  3. Price will often ride the bands in a trend.
  4. Squeezes present opportunities.
Beginners Forex Education Forex Indicators

How to Properly Interpret Volume


Historically, and this is especially true in traditional equity markets, volume is often the most important indicator out there. Some people argue that volume is not overly reliable in forex markets. There is a significant debate on whether volume should be considered as important in forex markets as it is in equity markets due to the drastic differences in the amount of volume from one broker to another. Others believe that it is already (we can see volume from many of the exchanges). For the stock market and futures and almost any traded instrument, volume tells you what people are doing. And what they are not doing.

Volume helps you spot reversals and can tell you if the reversal candlestick is a ‘true’ candlestick. For example, in the image below, the hammer candlestick forms at or near the end of a downtrend. However, this candlestick (and those before it) should have increased and above-average volume. A hammer candlestick on high volume in a downtrend can be a great signal when you accompany it with another indicator, like the RSI.

Look at number one. The arrow is pointing to a very large hammer candlestick; the volume column is massive and definitely above the average volume (orange line average volume). If we look at the RSI, it is oversold. Those can be great conditions for going long!

Candlestick Principles with Volume

Volume is an extremely important component of any candlestick. A candlestick tells us what happened to move price in that period, but volume tells us how hard people fought for that movement and how much conviction was in that move. Here are some principles about candlesticks to keep in mind.

  1. The length of any wick, either the top or the bottom, is ALWAYS the first point of focus because it instantly reveals strength, weakness, indecision, and (more importantly) market sentiment.
  2. If no wick, then that signals strong market sentiment in the direction of the closing price.
  3. A narrow-body indicates weak sentiment. A wide-body represents strong sentiment.
  4. A candle of the same type will have a completely different meaning depending on where it appears in a price trend.
  5. Volume often validates price – Any candlestick that closes at or near an important high or low should be watched very closely for how much volume was involved.


High volume near highs and lows

Volume can give a clear, early warning that a current trend (long term or short term) may be coming to an end. If you observe price moving lower, but volume starts to increase and become greater than a 20 to 30-period average, then you may be looking at the bottom of a move. In other words, the market may reverse and become bullish. Observe the chart below:

  1. Price is declining as the price is dropping. That is a clear sign that no one is interested in buying or supporting higher prices.
  2. As prices have continued to make new lows, notice how the volume begins to spike higher – well above the most recent candlesticks volume.
  3. This increase in volume indicates more participation and is generally a combination of new entrants going long (buying), and those current traders who are short, have to cover and convert to long. That volume becomes a powerful variable that reverses the price action.

Key Points

  1. Look to see if the current chart is showing new and important highs or lows.
  2. If new highs or lows are present, observe the volume indicator. If it is rising, then that can mean the current price action may reverse.
Forex Indicators

MACD – Moving Average Convergence Divergence


Fig 1- Chart with MACD. Click on it to enlarge

The Moving Average Convergence Divergence (MACD) is probably one of the most popular and well-known oscillator indicators in any market. It is one of our ‘modern’ indicators; created by Gerald Appel in the late 70s. It is essentially a two-part tool that traders can utilize.

  1. Provides a quick look to see the direction and trend of your market using two lines/moving averages: the MACD line and a signal line.
  2. It provides a divergence detection tool using a zero line and histogram.

The MACD line and the Signal Line

The first of these parts of the MACD is probably the one used most often, the MACD line and the signal line. General strategies related to the MACD is that you should consider taking a buy when the MACD line crosses above the signal line and sell when the MACD crosses below the signal line. Additionally, some strategies suggest more conservative entries based on when the MACD crosses the middle line (0-line).

The Histogram

The second part of the MACD, and perhaps the one that confuses many new traders, is the histogram with the 0-line. The histogram shows the difference between the MACD line and the signal line, basically, is showing the ‘gap’ between the two lines, as they grow and diverge away from one another, the histogram expands. However, the real strength of this is the ability to see divergences.

Pros and Cons

The downsides to the MACD indicator is that it is very notorious for causing whipsaws in traders. Whipsaws can be avoided by not using the MACD as your sole indicator of trade signals. The MACD is an excellent tool to help confirm your trades in a trending market, but it is not suitable for a ranging market. If you are a new trader, the MACD is a fantastic tool to help you train and learn about how indicators work. Spend some time watching markets live on smaller time frames and look at how the MACD works and moves with that market. You will notice things you like (i.e., identifying the trend and strength of that trend) and the things you don’t like (i.e., too many signals/crosses on short time frames).

A word of caution

I would caution against using the MACD in your trading. The MACD is an old indicator, and it is most useful as a tool for analysis on daily timeframes or weekly time frames. Because it is so well known and used so much by new traders, it is used against new traders. It is one of those indicators use to entice new traders into using – like bait. Just like moving averages, the MACD has several strategies that involve a crossover. A crossover strategy is simple to understand and easy to learn the strategy and so many new traders try to use this as one of their first strategies – but it doesn’t work. It may seem like it works, but it doesn’t. Again, the MACD is an indicator that is entirely lagging in nature. It is showing what has already happened, not what will happen. It’s most effective use will be a tool for detecting divergences – but even then, there are better indicators and oscillators out there for detecting divergences.

Forex Indicators

Five Great Things you’ve Never Heard about Bollinger Bands


Everybody knows Bollinger Bands, that kind of rivery thing surrounding prices. But almost nobody knows what to do with them. Maybe we can help a bit with that.

1 – Bollinger Bands and Trends

Bollinger Bands are based on Moving Averages. Therefore the central line is the 20-period moving average. As a corollary, if the price of an asset is above the mid-BB-Line, it usually is trending UP. Conversely, if it is below the mid-BB-Line, it tends to be trending down.

Fig 1 – Uptrends see prices moving near the +1 Bollinger line

2 – Bollinger Bands Are more Useful Customized

There is no need to use only the standard 2-StDev Bollinger bands. We, as traders, can create different band types. In my case, I use to draw 1-StDev and 3-StDev bands. The reason will come clear in the next bullet point.

Fig 2 – 1,2 and 3 sigma Bollinger Bands as a Map of the Price Action

3 – Bands and Price Action

Bollinger Bands maps the price action. By that, I mean we can assess how much the price is away from the mean. If we think of the mean price as the consensus of value at a particular moment, Bollinger bands help evaluate if the asset is overpriced or underpriced and profit from that information. That is so because the lines are pictured at a standard distance from the mean.

There is one theorem about a broad class of probability distributions called Chebyshev’s inequality (also called Bienaymé–Chebyshev inequality). The Chevyshev’s inequality guarantees that there is a minimum of data values within a certain distance from the mean value of a distribution. And it does not need to be a normal or bell-shaped distribution for this theorem to hold. It only needs to have a finite average.

From these figures, we can see that if we spot prices moving beyond the +2 Bollinger line, there is a 75% chance the price moves back. If that price extension goes to the +3 BB-Line the chance of it retracing is 89% and so on. That applies to the negative side as well so, prices below -2BB-line and -3BBline have 75% and 89% chance of reversing.

That means Bollinger bands are terrific overbought and oversold indicators. Consequently, it pays to have visible at least a couple of bands in our charts. There bands: +1, +2 and +3 Sigma bands will map your price action beautifully.


4 – Prices Tends to Visit the Mean

From the extremes, the price tends to find support on its Mean price. That means the price tends to visit the mean Bollinger line before resuming the trend (of course, this also happens when the trend changes). One recurring pattern is for the price to move beyond +2 BB-line, creating one or two candlesticks with a large upper wick and closing lower. Then, the following candles move steadily back (or sideways) to visit the mid-BB line, and then start a new leg up. That also applies to downward trends. The price moves below the -2BB-line and even the -3BBline and then creates a large lower wicked candlestick to, then, move back to the mean.

Since the mean is a moving average, the mean continues moving up or down in the subsequent bars, so, it is not uncommon that the price moves quite horizontally as can be seen on the chart.


5- From Impulses to Corrections

Bollinger Bands warns about pauses and the end of a trend. It also warns about the continuation of the trend.

Bollinger Bands expand with volatility and shrink with le lack of it. When we spot that the Bollinger bands are starting to shrink, it is almost sure the trend has stopped moving. It might be a consolidation period or a reversal. Therefore, band shrinkage is a flag for traders to take some profits out of the table.

Sideways range-bound movements make the bands shrink. When a breakout of the range occurs, the bands expand, signaling a new period of increased volatility and price movements.