MetaTrader4 (MT4) indicators are mathematical tools that help traders to perform efficient technical analysis of the prices of their preferred financial assets. The basis of technical analysis is that history tends to repeat itself. This means that technical analysts believe that past price behaviour can provide reliable cues of possible future price action. Indicators are there to help traders understand the prevailing price action, and ultimately to identify the best price points to enter or exit a trade in the market. There are two broad categories of indicators: leading and lagging. Leading indicators provide signals to traders before an intended price movement has begun; whereas lagging indicators provide signals after a price movement has already started, effectively acting as confirmation tools. The MT4 platform comes with numerous out-of-the-box indicators, but they are classified according to the element of the price they help traders to decipher.
As the name suggests, trend indicators are designed to help traders to identify and take advantage of opportunities in trending markets. Traders who use trend indicators want to establish the dominant trend in the market, as well as the optimal price points to join the trend, ride it and finally, exit. The idea is to always place trades that are in tandem with strong trends. Trend indicators are very popular, and examples include Moving Averages and Parabolic SAR. The slope of moving averages helps determine the dominant trend – an upward slope implies an uptrend and vice versa. Trend reversals are confirmed when there is a moving average crossover. For instance, in an uptrend, the end of the trend and a possible reversal is signalled when the faster moving average crosses the slower one downwards.
In forex, just like in any other market, prices are determined by forces of demand and supply. Oscillators are indicators designed to track how these forces interchange in the market. That is why they are also known as momentum indicators. Oscillators measure overbought and oversold conditions in the market. When a market is oversold, traders look for opportunities to place buy orders; whereas, in overbought markets, traders look for opportunities to place sell orders. Examples of oscillators include RSI and Stochastics. The RSI usually indicates a reading of 30 and below when the market is oversold, and a reading of 70 and above when the market is overbought.
Volatility refers to the frequency and severity of price movements in an underlying market. Volatility is an important price element that can help traders to choose markets to trade as well as the investment amount. Volatile markets are as lucrative as they are risky, and traders usually trade them with smaller stake amounts. Less volatile markets feature low price activity and sometimes traders can trade them with higher investment amounts. Volatility indicators help traders to establish the underlying volatility of prices in their preferred markets. Examples of volatility indicators include Bollinger Bands and Average True Range. The Bollinger Bands is a channel-like indicator whose bands will diverge when there is high volatility and converge when there is low volatility in the underlying market.
Volume indicators help traders to establish the volume of trades behind a particular price movement in the market. In this way, traders can determine whether a price movement is backed by conviction or not. Volume indicators help traders to qualify trends or reversals in the market. Additionally, they can help traders to avoid trading false ‘alarms’ or fake price movements in the market. Examples of volume indicators include the Money Flow Index (MFI) and Volumes. Traders using MFI usually watch the centreline at 50. A reading above 50 implies buying pressure in the market, whereas a reading below 50 denotes selling pressure.
Market Cycles Indicators
Common among more advanced traders, market cycles indicators attempt to efficiently track the ebb and flow of price changes. Like other indicators, they are mathematical, but unlike other indicators, they incorporate the time aspect. They track the boom and bust cycles of the market and help traders to anticipate when and where an asset’s price is likely to rise, peak, fall or bottom out. Examples of market cycles indicators include Elliot Waves and Fibonacci Time Zones.
Bill Williams Indicators
Bill Williams was a legendary commodity trader in the 20th Century who later became a famed author and educator on trading aspects, such as technical analysis, psychology and chaos theory. He developed his own proprietary indicators that analysed price elements such as trend, momentum and volume. So popular are his indicators that MT4 has a dedicated tab to access them. Bill Williams indicators include Alligator, Accelerator Oscillator, Awesome Oscillator, Fractals, Gator Oscillator and the Market Facilitation Index (BW MFI). Bill Williams indicators are very comprehensive such that they can be utilised by themselves exclusively.
Should You Utilise MT4 Indicators?
The simple answer is yes. But this entirely depends on you. Nonetheless, technical analysis can help you enhance your trading activities, no matter your trading style.
Here is why you should use MT4 indicators for technical analysis:
- Identify Trends
Technical analysis helps you to trade with the market, not against it. This helps you to properly apply trending strategies on trending markets, and range plays in sideways markets.
- Time Trades
Enter and exit trades in the market at optimal price points. In this way, you can take full advantage of developing opportunities in the market.
- Go Long or Go Short
Technical analysis is performed in the same manner in both rising and falling markets.
- Short Term Opportunities
Technical analysis is the most ideal for identifying the best short-term opportunities in the market.
MT4 has a comprehensive list of mathematical indicators to help traders perform efficient technical analysis in the market. Want to try them out? Simply download the MT4 platform and sign up for a practice account. You can then try out the various indicators and indicator combinations as well as technical strategies on a risk-free demo account.
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