Technical indicators play a sufficiently important role in a modern trader's work. Their purpose is to simplify the analysis of an enormous amount of information presented on price charts. That's why it's hardly possible to find a trader who hasn't heard about such a concept as technical indicators.
Thanks to the use of computers, the implementation of indicators has been simplified for modern traders. In order to attach this or that indicator to the chart of any asset, it is enough to click a pair of buttons on the control panel of the trading terminal. The terminal will automatically calculate all parameters (according to the specified settings) and display a convenient and easy-to-read indicator window.
All a trader needs to know is how to correctly interpret the readings of the chart issued in this way to select reliable trading signals to buy or sell the financial instrument in question.
So, today we will talk about the best MT4 indicators, as well as how to install custom indicators in MetaTrader 4.
What is a Technical Indicator?
A technical indicator is a tool for analyzing the forex market, based on mathematical calculations, using volume and price indicators, as well as their statistical data. Each technical indicator is based on a particular idea. For example, the core of oscillators is based on the "spring" theory. It states that the price always returns to its previous value. According to the author's' idea, indicators should really predict the price movement. In fact, it represents in a graphical form the changed value of the same price that is already displayed in the chart.
That is, the best MT4 indicators do not give any additional information, and they cannot. The assumption that further price movement can be predicted directly follows from the principal postulate of technical analysis. All possible factors affecting the price have already been taken into account in the chart.
Depending on the type of indicator or its purpose, the formula may vary. For example, one - calculates the average prices for a certain period, another - calculates the closing or opening prices of the market, and so on.
When using any of the best MT4 indicators and combination of them, it is necessary to determine the most appropriate value through testing, taking into account trading style and risk tolerance. One of the advantages of clearly defining trading rules in a strategy is that it allows traders to apply the strategy to historical data to evaluate how it would have worked in the past. This process is known as backtesting. Of course, this does not guarantee future results, but it can help in developing a profitable strategy.
No matter what indicators are used, the strategy must determine how the indicators are interpreted and what action will be taken.
Technical analysis indicators are needed mainly for short-term traders who prefer low time frames. Investors who trade long term are not interested in using the automated algorithms, as they prefer fundamental analysis.
Choosing the Best MT4 Indicator
The type of indicator used depends on which strategy you intend to build when trading Forex. It applies to your trading style and risk appetite. A trader who is looking for long-term movements with high profits could focus on a trend-following strategy, and use a trend indicator such as MA. If a trader is interested in small fluctuations with numerous small profits, then strategies based on variability may be more suitable for him. In this case, different types of Forex indicators can be used for confirmation.
Indicators by themselves do not give trading signals. Every trader should determine the exact method, which indicators will be used to get a signal about trading opportunities and develop a clear strategy. Of course, indicators can be used without being included in the strategy. However, technical trading strategies usually include at least one type of indicator.
Why MetaTrader 4?
Although many trading platforms have numerous useful features, they are not easy to use. MetaTrader 4, on the contrary, has an intuitive interface, and you can see it immediately after loading its main screen, where everything is located very conveniently and clearly. Experienced traders will find all the features they need here, while beginners can easily navigate through the main options without getting confused as it would be on other platforms.
Besides, MT4 is an extremely flexible platform: many options allow you to fine-tune it as you need to improve your trading efficiency.
MT4 fully supports Expert Advisors, and the user can add and remove them at any time. Apart from all the abovementioned, MetaTrader 4 has a wide range of built0in technical indicators that are meant to help traders with market analysis. In case something is missing, one can always install custom indicators.
Competition in the market of trading platforms is very tough, but MT4 clearly wins it. Combining full functionality and data availability with a high degree of versatility and security, MT4 is undoubtedly an excellent choice for any trader and investor.
How to Install Custom Indicators in MetaTrader 4
Sooner or later, every trader comes to the idea of how to set an indicator in MT4 because he lacks a standard set of indicators. Internet resources provide for downloading just a lot of additional indicators, designed to help a trader make a profit in the foreign exchange market. However, in comments to these indicators, you can almost always find people's comments complaining that it's not working.
Let's see how to make everything work.
Usually, the custom indicators downloaded from the Internet are located in the archives, which should be unpacked. The resulting file or several files will have the extension *.ex4 or *.mq4.
To install an indicator in MT4 copy or transfer the unpacked files to the appropriate folder with the MetaTrader 4 trading platform.
Open "File" tab - "Open Data Folder" in the terminal
Double-click on the MQL4 and copy the files to the indicators folder.
Once the necessary files have been placed in the appropriate folders, the MetaTrader 4 terminal should be restarted.
How to Install Custom Indicators to Charts in MetaTrader 4
Once the custom indicator is installed to the trading tr=erminal, now we need to add it to the chart. Here is an easy-to-follow instruction on how to do it:
In the Forex trading terminal, the custom indicator can be installed in two ways:
using the "Navigator" button to open the side panel. Open the "Custom Indicators" tab, find the installed indicator, and drag and drop on the chart of the currency pair you need.
Click on the "Insert" tab and go to "Indicators" --> "Custom", find the desired indicator, and click on it.
You can use it the first or second way - there is absolutely no difference.
After the operations described in the previous paragraph, a setup window will appear, where you should tick the "Allow DLL import" box, and you can also change the parameters of the Forex indicator by adjusting it to your liking.
As a result, we get an indicator working on the chart of a currency pair.
To remove the installed indicator, you need to right-click on the chart or go to the "Charts" tab, find the installed indicator in the "Indicators List" and remove it.
The List of the Best Indicators Available in MetaTrader 4 for 2020
Since we have already learned what a technical indicator is and know by now how to add custom ones to the trading platform, we can move to the best MT4 indicators. With their help one can improve the existing strategy and amend the trading experience. Just make sure you backtest the best MT4 indicators first or try them on the demo account.
Best MT4 Indicators: MACD
The MACD indicator is called a trend indicator because it is formed on the basis of two Moving Averages. They are not shown on the symbol chart itself - only their parameters are taken into account in calculations. Readings of the indicator itself are displayed in a separate window below the chart. Practically, we get a trend oscillator.
It is based on the convergence and divergence of two moving averages with different periods. There are two variants of representation of this indicator: linear and histogram. The linear view is in the form of two lines - "fast" and "slow", and the histogram in the form of columns showing the distance between these two lines at each moment.
The signal to buy is the fast line crossing slow from bottom to top, and the signal to sell is the same crossing from top to bottom (i.e., when the fast line crosses slow one from top to bottom).
The MACD divergence (divergence of the indicator chart with the price chart) is considered to be a strong enough signal. Good results are obtained by using MACD on the sideways movement of the market (in the flat) and on high time frames (W1, MN). On low time frames, this indicator gives too many false signals.
The undoubted advantage of this oscillator is that while retaining all the pros of such an indicator as to the moving average, it can filter a fair amount of false signals given by it. This possibility is because it consists of an MA of different orders.
Being a trend indicator by its nature, it will always follow the current trend, excluding, thus, long periods of giving false signals.
Best MT4 Indicators: Money Flow Index or MFI
The Money Flow Index measures the intensity with which investors invest (or withdraw) funds in certain financial assets. Two parameters are used for its calculation: price and volume. MFI indicator is in the list of standard instruments in the MetaTrader trading platform.
The MFI works on any time frame. According to the calculation principle, it is close to RSI. The indicator looks the same on the chart, and the basics of using its values in trading do not differ.
The strategy for working with this tool is simple. The trading strategy should correspond to the current price behavior. Thus, for example, if there is a consolidation of price between the levels, then for investors, this signal means the soon coming of the uncertainty period. The method of trading here should be less aggressive. The MFI indicator can easily cope with the analysis of small cash flows. This indicator can be used for the following purposes:
To detect divergence and convergence - signals of a possible change in the market trend. On the price chart, sometimes there is an increase in the volume of positions, while the MFI indicator shows a decrease in its curve or vice versa.
Signals that the MFI indicator gives are difficult for beginners to recognize. It is better to practice and test them using the previous data.
To identify overbought/oversold areas, market entry points.
Overbought is understood as an excessively fast rise in the price, which indicates that it is going down soon.
Oversold is understood as a rapid fall in the price, followed by the same rapid growth.
Like all oscillators, the MFI indicator has its levels. In its properties, they are limited by the range from "0" to "100". When setting the indicator, they are equal to "20" and "80". The movement of the indicator curve above "80" indicates that the market is overbought, below "20" - it's oversold.
Here the trading strategy is very simple:
If the curve of the indicator broke-out the level 80 - enter the market with a Sell order;
If the curve breaks down 20 - enter the market with a Buy order;
if the curve does not cross these levels - trade from the levels.
The MFI indicator, which measures the cash flow intensity, is a universal oscillator. It is suitable for the classical scheme, but not strong enough to work alone. Its signals are not 100% accurate and require additional filters. The strategy of working with MFI requires additional confirmation of the signal to enter. You can get such confirmation using other tools - Price Action candlestick patterns, other indicators/oscillators.
Best MT4 Indicators: On-Balance Volume
On-balance volume is a fundamental technical indicator that describes the dynamics of the trading volume; changes in the trading volume can be predicted by changing the instrument price.
The on-balance volume (OBV) is simple and, at the same time, an essential indicator of technical analysis. The peculiarity of the indicator is that it does not operate with the price as usual indicators do; it works only with the trading volume, using closing prices only for indirect purposes.
The applied meaning of the indicator is that the value of the balance volume indicator changes faster than the price. In other words, when the on-balance volume indicator changes, the direction of the asset price change can be predicted with high probability.
If the on-balance volume grows together with the price, it significantly confirms the strength of the trend, as it shows that the market is receiving an active capital inflow into this very instrument.
If you observe a divergence in the directions of price and balance volume, be skeptical about the trend and prepare yourself to wait for the reversal in the direction of the indicator. That is, if the price rises and the indicator falls, then get ready for the fall of the price, and vice versa.
The point is that the absolute value of the indicator is not significant. The direction of the balance volume movement plays a much more crucial role.
It is better to use the OBV together with other indicators to reduce the number of false entries into the market and increase the profitability of trading.
Best MT4 Indicators: Accumulation/Distribution Line
It is a complex technical indicator based on the trading volume; it helps to confirm or disprove the strength of the current trend.
The accumulation/distribution line is one of the best MT4 indicators in technical analysis that is based on the trading volume. By its nature, the accumulation/distribution line is very similar to the on-balance volume, but it also has some significant differences. The principal hypothesis, on which the accumulation/distribution line and on-balance volume are based, is that the volume is ahead of the price and that changes in trading volume can predict the direction of price movement.
Accumulation/distribution line as an instrument of analysis and forecasting of the asset movement direction has two functions:
confirm the current trend;
disclaim and question the current trend.
If the direction of the indicator corresponds to the direction of the price movement, the current trend is confirmed, and the accumulation/distribution line tells us that the current trend is strong enough.
And if you observe a difference between the direction of the accumulation/distribution line and the direction of price movement, then be alert and prepare for the price reversal in the direction of the indicator movement.
There is a couple of drawbacks that should be taken into account while using this indicator. First off, when calculating, the A/D indicator does not take into account gaps. It means that when the gap appears, the Accumulation/Distribution indicator will give false results, so a trader has to keep an eye on the market.
Secondly, the use of "tick volume" distorts the real situation and often makes it hard to determine changes in volumes. For example, the trend speed can slow down, but we will not notice it until the indicator reverses.
Wrapping up, we should agree that indicators of technical analysis have long been an integral part of any trading strategy. They are the basis not only for manual methods but also for EAs. Indeed, no trade on the professional market can be placed without technical analysis and indicators. Indicators of technical analysis provide many opportunities, but one should remember about the successful component - always combine different indicators to get the most reliable signal.
Of course, there is no perfect strategy to guarantee the success of each trader. We all have a unique style, character, risk appetite, and individuality. Therefore, any trader needs to study the various technical analysis tools available, exploring how they work according to their personal preferences, and develop strategies based on these results. So, test the best mt4 indicators we have discussed today and enhance your trading strategy.