Looking for the best trading indicator is a tough job to do. You have to make sure that the indicator can provide the perfect timing to enter the market or gives you the screaming sign that it’s time to buy or sell.
The search may be a daunting task but the result is truly fascinating. To tell you the truth, there is no easy road to Forex trading. Traders must be able to learn different ways to get through with their everyday trades through the help of technical indicators and other features available in the MetaTrader 4 (MT4) trading platform.
Different Types of Indicators Used in Forex Trading
1. Trend-Following Tool
The usage of a countertrend approach helps traders make profits in trading. But to most traders, the best and the easiest way is recognizing the direction with regards to the major trend. This is when a trend-following tool becomes handy.
This type of indicator can be used separately from the trading system but the main purpose of this tool is to suggest if it’s the perfect momentum to enter a short position or a long position. Let’s check one of the Moving Average Crossover, the simplest trend-following method used in MT4. A simple moving average acts as the closing price given over a period of time.
2. The Trend Confirmation Tool
Since you now have the capabilities of the trend-following tool as mentioned above. However, you cannot let it work all alone without knowing if it is truly reliable or not. You need to use the trend-confirmation tool. Trend-following tools tend to get easily whipsawed. Therefore, it is best if you have something that can protect you in identifying if the trend-following indicator is right or not.
In cases like this, the usage of the trend-confirmation tool is highly recommended. Just like the trend-following tool in MetaTrader 4, this trend-confirmation tool could provide help (or not) in generating particular buy and sell signals. Instead, the main use of it is to identify whether the trend-following tools agree with the trend-confirmation tool. The most-used trend confirmation tool in trading is the Moving Average Convergence Divergence (MACD).
3. The Overbought and Oversold Tool
Now that you’ve chosen to go in the major trend’s direction, you now have to decide whether to jump into a clear trend as soon as it is established or just after the pullback happens. If the trend is bullish, you have to choose if you want to choose to buy the weakness or the strength.
4. The Profit-Taking Tool
This type of indicator now deals with taking profits. There are a lot of indicators that you can use as a Profit-Taking tool, including the three-day RSI. When a trader uses this tool, he might consider making a profit when the three-day RSI goes up to the high level of 80. Meanwhile, a trader that’s holding a short position that goes as low as 20.
Another profit-taking tool widely used nowadays is the Bollinger Bands. This tool works by taking the standard deviation in price-data changes from a certain period of time. Then, it may add or subtract the overall average close price to create the so-called ‘trading bands’.
To be very clear with you, there is no simple street to Forex trading. Dealers should have the option to learn various approaches to get past their ordinary exchanges through the assistance of specialized pointers and different highlights accessible in the MetaTrader 4 (MT4) trading stage.
Actually like the pattern following instrument in MetaTrader 4, this pattern affirmation apparatus could give assistance (or not) in producing specific purchase and sell signals. All things considered, the fundamental utilization of it is to distinguish whether the pattern following tools concur with the pattern affirmation apparatus.