When it comes to trading, the forex market is the largest globally, with a worth estimate of at least 2 trillion dollars. As it is with all trading markets, the world of forex trading is constantly changing. To become a successful trader, one needs to evolve with the market. One way traders can remain ahead of the game is by using the best market indicators for technical analysis in forex.
Technical analysis uses previous market data to help in determining possible future market price behaviors for currency pairs. With the right analysis, a trader can make use of relevant strategies and indicators to make the most of changing market dynamics. When trading on the MT4 platform, traders often make use of trading indicators for market analysis.
Understanding forex indicators
Indicators are forex trading tools that make it easier for traders to understand market changes and predict possible future market trends. An indicator is a type of metric that has a value gotten from a forex price activity.
In technical analysis, traders use indicators for better prediction of future price direction and levels on different currency pairs. This way, traders can make informed decisions on whether to remain in active trading or exit trades. This is done by analyzing previous trends in the forex market to help in predicting possible future trends.
Here are the most commonly used trading indicators on MT4.
Moving Average Convergence Divergence (MACD) is one of the most commonly used indicators used in forex trading on the MT4 platform. This is a momentum indicator that follows market trends to show the relation between two price-moving averages.
To calculate MACD, you need to find the difference between the 12 session EMA and the 26-session EMA (Exponential moving average). Additionally, a signal line (9 session EMA) is drawn above the MACD to operate as a trigger for buying and selling signals.
On balance volume
OBV (On Balance Volume) is a common MT4 indicator used in forex trading to measure positive and negative volume flows in a given pair that is relative to the market price over a period. OBV is a simple measure that records the overall volume total either by deducting or adding period volumes based on the movement of pair prices.
OBV goes beyond the standard measure of volume under the assumption that volume preceded price movement. Therefore, a currency pair takes a rise in OBV as an indicator for growth volume whenever the price moves upwards. On the other hand, when a currency pair experiences an OBV decrease, this is an indication of an increase in volume whenever there is a downward price movement.
MFI (Money Flow Index) indicator
This momentum forex trading indicator used in MT4 makes use of a forex pair volume and price to predict the reliability of a trend. Because RSI (Relative Strength Index) received trading volume from MFI, this indicator is also commonly known as a volume-weighted RSI.
To arrive at an index figure, there are several steps to be taken. Generally, traders are recommended to use 14-day periods to calculate. Most traders wait for the MFI direction to go opposite to the price. This causes a divergence, which signals a change in the market trend.
On the MT4 platform, Bollinger bands constitute two bands positioned 2 to 2.5 standard deviations from a moving average line at the center of the Bollinger bands. Volatility is indicated when the Bollinger bands expand or contract. When the bands widen, it indicates high volatility, while contracting closer together shows low volatility in market movement.
Accumulation and distribution line
The accumulation and distribution line is also a common indicator used in MT4 to trade forex. This indicator works almost the same as the OBV with one distinctive feature. Accumulation and distribution line indicator not only considers the closing price after a given period but also uses a period’s trading range.
Therefore, the accumulation and distribution line is said to be more accurate when it comes to illustrating money flow. When the line is on an upwards trend, it is an indication of an increase in buyer pressure as a currency pair approaches the concrete range halfway mark. On the other hand, if the line is on a downward trend, it indicated an increase in selling pressure for a given currency pair.
With any of these trading indications or combinations of a few, traders have an easier time making profits when trading on the MT4 platform.