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There are over 29 inbuilt Technical Indicators installed on the MT4 Trading Platform and hundredths of custom indicators developed by 3rd Party firms and individuals, which can be downloaded and installed into your trading platform.
Forex Technical Indicators are programmed trading tools with financial, statistical and mathematical functions, which produces BUY or SELL signals on the chart of a trading platform. The signals gives indications of when to BUY, SELL, EXIT, OPEN, MODIFY, CLOSE a position, and also informs you about upcoming actions in the market.Technical indicators are categorized into two major forms namely; Trend indicators (i.e. indicators that help to access the price direction and detect the turn moments synchronously or with a delay e.g Moving Average Indicator.) and Oscillating indicators (indicators that allows finding the turning moments ahead or synchronously e.g Envelopes, MACD, e.t.c.)
Indicators are sometimes combined to further verify the strength of a signal or to produce certain signals that cannot be derived from a particular indicator. Also note that the re-adjustment of the settings of an indicator can affect the clarity, efficiency, speed and accuracy of the signals it produces either positively or negatively.
Indicators be can placed into the chart from the Navigator window by means of Drag and Drop technique, or by selecting the indicator option from the insert menu on the file menu toolbar, or by clicking the indicator shortcut button on the charts toolbar.
See illustration below.
The sole aim of Forex Technical Indicators is to help our decisions in trading. Understanding their functions and how to use them would help you succeed to a great extent in Forex.
LIST OF INDICATORS BY GROUP (click to expand)
LIST OF INDICATORS BY GROUP (click to expand)
TREND INDICATORS
Average Directional Movement Index
This indicator was designed by Welles Wilder, and it is popularly called the ADX Indicator. It helps to determine if there is a price trend.
How to Interpret:
Recommends buying when +DI is higher than -DI, and selling when +DI sinks lower than -DI. It is used to eliminate false signals and decrease the number of deals.
How to Interpret:
Recommends buying when +DI is higher than -DI, and selling when +DI sinks lower than -DI. It is used to eliminate false signals and decrease the number of deals.
Bollinger Bands
Bollinger bands somewhat measures the volume of volatility, and they adjust themselves to market conditions. They widen or expand when the markets become more volatile, and they contract or reduce during less volatile periods.
How to Interpret:
When the band contract for a significant amount of time due to low volatility then expect a sudden change in the direction of price.
When price breaks above the upper band, then the probability of a continuous trend in that direction is very high. a reverse of trend may occur if the pikes and hollows outside the band are followed by pikes and hollows inside the band.
Price movements in the band usually oscillates from one line to the other i.e. upper to the lower or lower to the upper. Therefore when price gets to the upper band there is likely expectation for it to retrace to the lower band at a later time.
How to Interpret:
When the band contract for a significant amount of time due to low volatility then expect a sudden change in the direction of price.
When price breaks above the upper band, then the probability of a continuous trend in that direction is very high. a reverse of trend may occur if the pikes and hollows outside the band are followed by pikes and hollows inside the band.
Price movements in the band usually oscillates from one line to the other i.e. upper to the lower or lower to the upper. Therefore when price gets to the upper band there is likely expectation for it to retrace to the lower band at a later time.
Commodity Channel Index
Also known as the CCI for short measures the deviation of the commodity price from its average statistical price. A high value of the index point indicates that the price is abnormally high being compared with the average one, and low values show that the price is too low.
There are two basic techniques of using Commodity Channel Index:
1. Finding the divergences
The divergence appears when the price reaches a new maximum, and Commodity Channel Index cannot grow above the previous maximums. This classical divergence is normally followed by the price correction.
2. Checking Overbought or Oversold Levels
Commodity Channel Index usually varies in the range of + or - 100. When the values get above +100 then price has reached an overbought region. On the contrary when the values are below 100 then price has reached an oversold level waiting to reverse.
There are two basic techniques of using Commodity Channel Index:
1. Finding the divergences
The divergence appears when the price reaches a new maximum, and Commodity Channel Index cannot grow above the previous maximums. This classical divergence is normally followed by the price correction.
2. Checking Overbought or Oversold Levels
Commodity Channel Index usually varies in the range of + or - 100. When the values get above +100 then price has reached an overbought region. On the contrary when the values are below 100 then price has reached an oversold level waiting to reverse.
Moving Average
The Moving Average Technical Indicator shows the mean instrument price value for a certain period of time. The result of the moving average is dynamic as price changes i.e. it either decrease or increase as price change.
Moving average comes in four different types namely:
1. Simple Moving Average (SMA)
2. Exponential Moving Average (EMA)
3. Smoothed Moving Average (SMMA)
4. Linear Weighted Moving Average (LWMA)
How to Interpret:
Generally when price goes high above the moving average line, then it implies an opportunity to buy, but when it goes below the moving average line it’s a sell signal. This same system can be used to exit a trade when price goes above or below the opposite direction of the moving average line.
The combination of these Moving average types can further confirm the strength of a buy or sell signal.
Moving average comes in four different types namely:
1. Simple Moving Average (SMA)
2. Exponential Moving Average (EMA)
3. Smoothed Moving Average (SMMA)
4. Linear Weighted Moving Average (LWMA)
How to Interpret:
Generally when price goes high above the moving average line, then it implies an opportunity to buy, but when it goes below the moving average line it’s a sell signal. This same system can be used to exit a trade when price goes above or below the opposite direction of the moving average line.
The combination of these Moving average types can further confirm the strength of a buy or sell signal.
Parabolic SAR
This little dot like indicator was designed primarily to analyze trending markets. The indicator’s functions are similar to the Moving Average Indicator except that they are faster, and are dynamic in position movement in terms of the price.
How to interpret:
When the indicator is below price then it’s a buy signal indicating an Up Trend, but when it appears above the price, then it’s a sell signal.
The indicator can be used for entry and exit points. For example a sell order should be closed when price rises above the SAR Indicator, while a buy order should be closed when the price goes below the SAR line. Also note that the length of the SAR line movement depends on the scale of the price movement, and the faster the price grows or sinks, the faster the indicator approaches the price.
How to interpret:
When the indicator is below price then it’s a buy signal indicating an Up Trend, but when it appears above the price, then it’s a sell signal.
The indicator can be used for entry and exit points. For example a sell order should be closed when price rises above the SAR Indicator, while a buy order should be closed when the price goes below the SAR line. Also note that the length of the SAR line movement depends on the scale of the price movement, and the faster the price grows or sinks, the faster the indicator approaches the price.
Standard Deviation
This indicator measures the value of market volatility. It describes the range of price fluctuations relative to the simple moving average. So, if the value of this indicator is high, then the market is volatile, and prices of bars are rather spread relative to the moving average. If the indicator value is low, the market can be described as having a low volatility, and prices of bars are rather close to the moving average.
Normally, this indicator is used as a constituent of other indicators. Therefore one has to add the symbol standard deviation value to its moving average when calculating Bollinger Bands.
How to interpret:
When the values of the SD indicator are very high then expect a decline in market activity in the nearest possible time. Otherwise if the value is too low then expect a major breakout to occur very soon
Normally, this indicator is used as a constituent of other indicators. Therefore one has to add the symbol standard deviation value to its moving average when calculating Bollinger Bands.
How to interpret:
When the values of the SD indicator are very high then expect a decline in market activity in the nearest possible time. Otherwise if the value is too low then expect a major breakout to occur very soon
OSCILLATOR INDICATORS
Relative Strength Index
The RSI is a price following oscillator that ranges between 0 and 100.
How to interpret:
When the RSI tops above 70 it indicates that price has reached an overbought region and would likely reverse back. The opposite applies for price when it gets below 30 on the RSI.
How to interpret:
When the RSI tops above 70 it indicates that price has reached an overbought region and would likely reverse back. The opposite applies for price when it gets below 30 on the RSI.
Average True Range
The ATR is an indicator that shows volatility of the market. It can sometimes reach a high value at the bottom of the market after a sharp fall in prices occasioned by panic selling. Low values of the indicator are typical for the periods of sideways movement of long duration which happen at the top of the market and during consolidation.
How to interpret:
The higher the value of the indicator, the higher the probability of a trend change; the lower the indicator’s value, the weaker the trend’s movement is.
How to interpret:
The higher the value of the indicator, the higher the probability of a trend change; the lower the indicator’s value, the weaker the trend’s movement is.
Bears Power
As the name implies this indicator shows the balance of “Bears” i.e. Buyers for a trading session or duration against the “Bulls” i.e. Sellers. It also shows market movement in relation to how the “Bears” are performing. This helps to see possible weakness or strength and likely price reversals.
This indicator gives better signals when combined with other trend indicators like the Moving Average. For example if the Moving Average is in an uptrend and the Bears Power Index is below zero but growing then it is a likely signal to buy. If the opposite is the case then it’s a sell signal.
How to interpret:
The lowest price displays the maximum sellers' power within the day or session.
This indicator gives better signals when combined with other trend indicators like the Moving Average. For example if the Moving Average is in an uptrend and the Bears Power Index is below zero but growing then it is a likely signal to buy. If the opposite is the case then it’s a sell signal.
How to interpret:
The lowest price displays the maximum sellers' power within the day or session.
Bulls Power
This indicator is the direct opposite of the Bears Power Indicator. It reveals the strength of the Bulls Power during a session. The results from this indicator can be used as a forecast for price reversals.
How to interpret:
The highest price displays the maximum sellers' power within the day or session.
The Moving Average indicator is the best indicator to combine with the Bulls Power indicator to reveal better signals. For example if the Moving Average is in a down trend and the Bulls Power Index is above zero but falling then it is a likely signal to sell. If the opposite is the case then it’s a buy signal.
How to interpret:
The highest price displays the maximum sellers' power within the day or session.
The Moving Average indicator is the best indicator to combine with the Bulls Power indicator to reveal better signals. For example if the Moving Average is in a down trend and the Bulls Power Index is above zero but falling then it is a likely signal to sell. If the opposite is the case then it’s a buy signal.
DeMarker
The Demarker Technical Indicator uses a comparison algorithm of the period maximum with the previous period maximum to evaluate trend reversal.
How to interpret:
When the indicator falls below 30, the bullish price reversal should be expected. When the indicator rises above 70, the bearish price reversal should be expected.
How to interpret:
When the indicator falls below 30, the bullish price reversal should be expected. When the indicator rises above 70, the bearish price reversal should be expected.
Envelopes
Envelopes Technical Indicator is formed with two Moving Averages one of which is shifted upward and another one is shifted downward. It was designed to calculate extremes of trader’s activities i.e. buying and selling which has been pushed to the upper and lower bands. It is expected that prices would normalize after these extremes has been reached.
It has a similar trait with the Bollinger Bands interpretation.
How to interpret:
Signal to sell appears when the price reaches the upper margin of the band, while signal to buy appears when the price reaches the lower margin.
It has a similar trait with the Bollinger Bands interpretation.
How to interpret:
Signal to sell appears when the price reaches the upper margin of the band, while signal to buy appears when the price reaches the lower margin.
Force Index
This indicator which was designed by Alexander Elder measures the Bulls Power at each increase, and the Bulls Power at each decrease. It connects the basic elements of market information such as price trend, its drops, and volumes of transactions. This indicator when combined with the Moving Average Indicator produces better results in opening and closing orders.
How to Interpret:
When the indicator goes to a minus level i.e. falls below the zero line then it is an opportunity to buy.
•The force index signalizes the continuation of the increasing tendency when it increases to the new peak;
•The signal to sell comes when the index becomes positive during the decreasing tendency;
•The force index signalizes the Bears Power and continuation of the decreasing tendency when the index falls to the new trough;
•If price changes do not correlate to the corresponding changes in volume, the force indicator stays on one level, which tells you the trend is going to change soon.
NOTE:
The force of every market movement is characterized by its direction, scale and volume. If the closing price of the current bar is higher than the preceding bar, the force is positive. If the current closing price if lower than the preceding one, the force is negative. The greater the difference in prices is, the greater the force is. The greater the transaction volume is, the greater the force is.
How to Interpret:
When the indicator goes to a minus level i.e. falls below the zero line then it is an opportunity to buy.
•The force index signalizes the continuation of the increasing tendency when it increases to the new peak;
•The signal to sell comes when the index becomes positive during the decreasing tendency;
•The force index signalizes the Bears Power and continuation of the decreasing tendency when the index falls to the new trough;
•If price changes do not correlate to the corresponding changes in volume, the force indicator stays on one level, which tells you the trend is going to change soon.
NOTE:
The force of every market movement is characterized by its direction, scale and volume. If the closing price of the current bar is higher than the preceding bar, the force is positive. If the current closing price if lower than the preceding one, the force is negative. The greater the difference in prices is, the greater the force is. The greater the transaction volume is, the greater the force is.
Ichimoku Kinko Hyo
This indicator which works best at weekly and daily charts was designed to detect the market Trend, Support and Resistance Levels, and to generate signals of buying and selling.
It consists of four time intervals of different lengths, which determines the values of the individual lines:
1• Tenkan-sen: shows the average price value during the first time interval defined as the sum of maximum and minimum within this time, divided by two;
2• Kijun-sen: shows the average price value during the second time interval;
3• Senkou Span A: shows the middle of the distance between two previous lines shifted forwards by the value of the second time interval;
4• Senkou Span B: shows the average price value during the third time interval shifted forwards by the value of the second time interval.
Chinkou Span shows the closing price of the current candle shifted backwards by the value of the second time interval. The distance between the Senkou lines is hatched with another color and called "cloud". If the price is between these lines, the market should be considered as non-trend, and then the cloud margins form the support and resistance levels.
How to interpret:
When price gets above the cloud, its upper line forms the first support level, and the second line forms the second support level. Also when price gets below the cloud, the lower line forms the first resistance level, and the upper one forms the second level.
A signal to buy comes when the Chinkou Span line traverses the price chart in the bottom-up direction while a signal to sell appears when the Chinkou Span line traverses the price chart in the top-down direction. Kijun-sen is used as an indicator of the market movement. If the price is higher than this indicator, the prices will probably continue to increase. When the price traverses this line the further trend changing is possible. Signal to buy is generated when the Tenkan-sen line traverses the Kijun-sen in the bottom-up direction. Top-down direction is the signal to sell. Tenkan-sen is used as an indicator of the market trend. If this line increases or decreases, the trend exists. When it goes horizontally, it means that the market has come into the channel.
It consists of four time intervals of different lengths, which determines the values of the individual lines:
1• Tenkan-sen: shows the average price value during the first time interval defined as the sum of maximum and minimum within this time, divided by two;
2• Kijun-sen: shows the average price value during the second time interval;
3• Senkou Span A: shows the middle of the distance between two previous lines shifted forwards by the value of the second time interval;
4• Senkou Span B: shows the average price value during the third time interval shifted forwards by the value of the second time interval.
Chinkou Span shows the closing price of the current candle shifted backwards by the value of the second time interval. The distance between the Senkou lines is hatched with another color and called "cloud". If the price is between these lines, the market should be considered as non-trend, and then the cloud margins form the support and resistance levels.
How to interpret:
When price gets above the cloud, its upper line forms the first support level, and the second line forms the second support level. Also when price gets below the cloud, the lower line forms the first resistance level, and the upper one forms the second level.
A signal to buy comes when the Chinkou Span line traverses the price chart in the bottom-up direction while a signal to sell appears when the Chinkou Span line traverses the price chart in the top-down direction. Kijun-sen is used as an indicator of the market movement. If the price is higher than this indicator, the prices will probably continue to increase. When the price traverses this line the further trend changing is possible. Signal to buy is generated when the Tenkan-sen line traverses the Kijun-sen in the bottom-up direction. Top-down direction is the signal to sell. Tenkan-sen is used as an indicator of the market trend. If this line increases or decreases, the trend exists. When it goes horizontally, it means that the market has come into the channel.
MACD
This is a dynamic trend following indicator. It indicates the correlation between two price moving averages. Also the result of the difference between the 26-period and 12-period Exponential Moving Average (EMA) is the Moving Average Convergence/Divergence. The indicator is also designed with a signal line usually in a 9-period moving average to indicate buy or sell signals.
The MACD is very useful in wide-swinging trading markets. The crossover, overbought/oversold conditions, and divergences are the popular methods of using the MACD.
Crossovers
The basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the MACD rises above its signal line. It is also popular to buy/sell when the MACD goes above/below zero.
Overbought/oversold conditions
The MACD is very good at indicating overbought/oversold levels. When the MACD rises close to or above the upper level, it is likely that price has reached the overbought level and would reverse downwards.
Divergence
MACD Divergence indicates that an end to the current trend would soon occur i.e. when the indicator moves towards an opposite angle or direction against the price then the current trend is likely to come to an end. A bullish divergence occurs when the Moving Average Convergence/Divergence indicator is making new highs while prices fail to reach new highs. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.
The MACD is very useful in wide-swinging trading markets. The crossover, overbought/oversold conditions, and divergences are the popular methods of using the MACD.
Crossovers
The basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the MACD rises above its signal line. It is also popular to buy/sell when the MACD goes above/below zero.
Overbought/oversold conditions
The MACD is very good at indicating overbought/oversold levels. When the MACD rises close to or above the upper level, it is likely that price has reached the overbought level and would reverse downwards.
Divergence
MACD Divergence indicates that an end to the current trend would soon occur i.e. when the indicator moves towards an opposite angle or direction against the price then the current trend is likely to come to an end. A bullish divergence occurs when the Moving Average Convergence/Divergence indicator is making new highs while prices fail to reach new highs. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.
Momentum
The Momentum Technical Indicator measures the amount that a security’s price has changed over a given time span. The indicator can be used in two ways:
1. A trend following oscillator similar to the MACD
i.e. buy when the indicator bottoms and turns up and sell when the indicator peaks and turns down. You may want to plot a short-term moving average of the indicator to determine when it is bottoming or peaking. If the Momentum indicator reaches extremely high or low values (relative to its historical values), you should assume a continuation of the current trend. For example, if the Momentum indicator reaches extremely high values and then turns down, you should assume prices will probably go still higher. In either case, only trade after prices confirm the signal generated by the indicator (for example, if prices peak and turn down, wait for prices to begin to fall before selling).
2.The Momentum indicator can be used as a leading indicator.
The Momentum indicator will climb sharply and then fall off — diverging from the continued upward or sideways movement of the price when market peaks. Similarly, at a market bottom, Momentum will drop sharply and then begin to climb well ahead of prices. Both of these situations result in divergences between the indicator and prices.
1. A trend following oscillator similar to the MACD
i.e. buy when the indicator bottoms and turns up and sell when the indicator peaks and turns down. You may want to plot a short-term moving average of the indicator to determine when it is bottoming or peaking. If the Momentum indicator reaches extremely high or low values (relative to its historical values), you should assume a continuation of the current trend. For example, if the Momentum indicator reaches extremely high values and then turns down, you should assume prices will probably go still higher. In either case, only trade after prices confirm the signal generated by the indicator (for example, if prices peak and turn down, wait for prices to begin to fall before selling).
2.The Momentum indicator can be used as a leading indicator.
The Momentum indicator will climb sharply and then fall off — diverging from the continued upward or sideways movement of the price when market peaks. Similarly, at a market bottom, Momentum will drop sharply and then begin to climb well ahead of prices. Both of these situations result in divergences between the indicator and prices.
Moving Average of Oscillator
This indicator produces the difference between the oscillator and oscillator smoothing. In this case, Moving Average Convergence/Divergence base-line is used as the oscillator, and the signal line is used as the smoothing.
Relative Vigor Index
The Relative Vigor Index Indicator helps to verify trend and trend breakout. It is very handy in verifying the strength of some indicator signal like the Moving Average Indicator.
How to interpret:
When the RVI signal line goes above the +0.025 level then the strength of the buy signal is very strong or confirmed when combined with a moving average indicator. A sell signal is confirmed when the RVI signal line goes below -0.025 level.
How to interpret:
When the RVI signal line goes above the +0.025 level then the strength of the buy signal is very strong or confirmed when combined with a moving average indicator. A sell signal is confirmed when the RVI signal line goes below -0.025 level.
Stochastic Oscillator
The Stochastic Oscillator is displayed as two lines. The main line is called %K. The second line, called %D, is a Moving Average of %K. The %K line is usually displayed as a solid line and the %D line is usually displayed as a dotted line.
There are several ways to interpret a Stochastic Oscillator. The more popular way is: 1. Sell when the Oscillator rises above the 80 level and then falls below that level;
2. Buy when the Oscillator (either %K or %D) falls below the 20 level and then rises above that level.
3. Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line;
There are several ways to interpret a Stochastic Oscillator. The more popular way is: 1. Sell when the Oscillator rises above the 80 level and then falls below that level;
2. Buy when the Oscillator (either %K or %D) falls below the 20 level and then rises above that level.
3. Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line;
Williams Percent Range
This indicator is similar to the Stochastic Oscillator. It is a dynamic, which determines whether the market is overbought or oversold. The difference between the Williams’ Percentage Range is that it has an upside down scale and the Stochastic Oscillator has internal smoothing.
To show the indicator in this upside down fashion, one places a minus symbol before the Williams Percent Range values (for example -30%). One should ignore the minus symbol when conducting the analysis.
How to interpret:
Indicator values ranging between 80 and 100% indicate that the market is oversold, while Indicator values ranging between 0 and 20% indicate that the market is overbought.
To show the indicator in this upside down fashion, one places a minus symbol before the Williams Percent Range values (for example -30%). One should ignore the minus symbol when conducting the analysis.
How to interpret:
Indicator values ranging between 80 and 100% indicate that the market is oversold, while Indicator values ranging between 0 and 20% indicate that the market is overbought.
VOLUMES INDICATORS
Accumulation/Distribution
The AD Indicator is used to confirm price changes by means of measuring the respective volume of sales.
How to interpret:
The Accumulation/Distribution indicator grows when the volume of buys gets high, which also means an uptrend of price. When the indicator drops, it means distribution i.e. selling, which also indicates a down trend.
An expected or sudden change in price can be detected through this indicator when a divergence occurs between the Accumulation/Distribution indicator and price. In other words if the indicator is growing, and price is going down against the direction of the indicator then a reversal of price should be expected.
How to interpret:
The Accumulation/Distribution indicator grows when the volume of buys gets high, which also means an uptrend of price. When the indicator drops, it means distribution i.e. selling, which also indicates a down trend.
An expected or sudden change in price can be detected through this indicator when a divergence occurs between the Accumulation/Distribution indicator and price. In other words if the indicator is growing, and price is going down against the direction of the indicator then a reversal of price should be expected.
Money Flow Index
The MFI indicator indicates the rate at which money is invested into a security and then withdrawn from it.
How to interpret:
If there is a growth in price and the MFI Indicator is falling then the possibility of price reversal is very high. The same applies to a falling price against an increasing MFI.
Signal values from the MFI Indicator at 80 above implies that price has reached its highest level, while values below 20 implies that price has reached its lowest.
How to interpret:
If there is a growth in price and the MFI Indicator is falling then the possibility of price reversal is very high. The same applies to a falling price against an increasing MFI.
Signal values from the MFI Indicator at 80 above implies that price has reached its highest level, while values below 20 implies that price has reached its lowest.
On Balance Volume
On Balance Volume Technical Indicator (OBV) designed by Joseph Granville is a momentum technical indicator that relates volume to price change. It simply produces the state of price volume for a day’s trading session i.e. up-volume or down-volume depending on where the security closes in relation to the previous close of the day.
This smart indicator detects when there is a surge on a particular security, which is seen on the volume.
How to interpret:
An upward trend is detected when the OBV Indicator reaches successive newer higher level greater than the previous higher level, and each new channel is higher than the previous channel.
A falling trend is detected when each succeeding level in the OBV Indicator is lower than the previous peak and each successive trough is lower than the previous trough.
Sideways trend can be detected when the OBV is moving sideways and is not making successive highs and lows. When sideways trend develop and remain static for a very long time, this signals an upcoming likely break in the trend. It is advisable to place buy orders when a breakout occurs in the upside of the OBV Indicator or sell orders when a breakout occurs in the downside of the indicator.
This smart indicator detects when there is a surge on a particular security, which is seen on the volume.
How to interpret:
An upward trend is detected when the OBV Indicator reaches successive newer higher level greater than the previous higher level, and each new channel is higher than the previous channel.
A falling trend is detected when each succeeding level in the OBV Indicator is lower than the previous peak and each successive trough is lower than the previous trough.
Sideways trend can be detected when the OBV is moving sideways and is not making successive highs and lows. When sideways trend develop and remain static for a very long time, this signals an upcoming likely break in the trend. It is advisable to place buy orders when a breakout occurs in the upside of the OBV Indicator or sell orders when a breakout occurs in the downside of the indicator.
Volumes
The volumes indicator calculates the total volume of transaction or activity at close of the bar. A higher volume implies higher activity on the close of a bar, while a very low succeeding or continuous volume on several bars indicates a sideways trend.
BILL WILLIAMS INDICATORS
Awesome Oscillator
This 34-period simple moving average indicator illustrates the events responsible for the market driving force at the present moment.
How to interpret:
When the bar chart is higher than the nought line then it is a buy signal. However ensure that there are at least three columns in the bar chart, while the second column of the chart is lower than the first one and is colored red. The third column should also be higher than the second and should be colored green. Also it is recommended that the columns should be over the nought line for the saucer signal to be used.
When observing the nought line crossing, a buy signal is generated when a crossover occurs from the area of negative values to the areas of positive values.
How to interpret:
When the bar chart is higher than the nought line then it is a buy signal. However ensure that there are at least three columns in the bar chart, while the second column of the chart is lower than the first one and is colored red. The third column should also be higher than the second and should be colored green. Also it is recommended that the columns should be over the nought line for the saucer signal to be used.
When observing the nought line crossing, a buy signal is generated when a crossover occurs from the area of negative values to the areas of positive values.
Alligator
Designed by Bill Williams, this indicator combines the balance lines of the Moving Average indicator that utilizes nonlinear dynamics and fractal geometry. The Alligator Indicator consists of three main lines explained below.
1• The blue line (Alligator’s Jaw) is the Balance Line for the timeframe that was used to build the chart (13-period Smoothed Moving Average, moved into the future by 8 bars);
2• The red line (Alligator’s Teeth) is the Balance Line for the value timeframe of one level lower (8-period Smoothed Moving Average, moved by 5 bars into the future);
3• The green line (Alligator’s Lips) is the Balance Line for the value timeframe, one more level lower (5-period Smoothed Moving Average, moved by 3 bars into the future).
This indicator is very good at getting you into the best trend at the right trading time.
How to interpret:
This indicator can well be explained by personifying it with the behavior of the alligator reptile. When the Jaw, the Teeth and the Lips are closed or intertwined, it means the Alligator is already asleep or going to sleep. As it sleeps, it gets extremely hungry and the longer it sleeps, the hungrier it will get before waking up. The first thing it does after it wakes up is to open its mouth and yawn and then it begins to hunt for food (either a bear or bull) to eat.
After eating enough of its full the Alligator becomes very tired and looses appetite to eat further. This is where the Balance Lines join together and this is where we place our profit margin.
1• The blue line (Alligator’s Jaw) is the Balance Line for the timeframe that was used to build the chart (13-period Smoothed Moving Average, moved into the future by 8 bars);
2• The red line (Alligator’s Teeth) is the Balance Line for the value timeframe of one level lower (8-period Smoothed Moving Average, moved by 5 bars into the future);
3• The green line (Alligator’s Lips) is the Balance Line for the value timeframe, one more level lower (5-period Smoothed Moving Average, moved by 3 bars into the future).
This indicator is very good at getting you into the best trend at the right trading time.
How to interpret:
This indicator can well be explained by personifying it with the behavior of the alligator reptile. When the Jaw, the Teeth and the Lips are closed or intertwined, it means the Alligator is already asleep or going to sleep. As it sleeps, it gets extremely hungry and the longer it sleeps, the hungrier it will get before waking up. The first thing it does after it wakes up is to open its mouth and yawn and then it begins to hunt for food (either a bear or bull) to eat.
After eating enough of its full the Alligator becomes very tired and looses appetite to eat further. This is where the Balance Lines join together and this is where we place our profit margin.
Fractals
The Fractal Indicator which appears in an up and down arrows, helps to detect the bottom or the top of price. It consists of a series of at least five successive bars, with the highest HIGH in the middle, and two lower HIGHs on both sides. The reversing set is a series of at least five successive bars, with the lowest LOW in the middle, and two higher LOWs on both sides, which correlates to the sell fractal.
It is best functional when combined with the Alligator Indicator to confirm the strength of its signal.
It is best functional when combined with the Alligator Indicator to confirm the strength of its signal.
Gator Oscillator
This indicator is quite similar to the Alligator Indicator, and it reveals the degree of convergence/divergence of the Balance Lines of the Smoothed Moving Averages. The top bar chart is the absolute difference between the values of the blue and the red lines. The bottom bar chart is the absolute difference between the values of the red line and the green line, but with the minus sign, as the bar chart is drawn top-down.
Market Facilitation Index
The MFI Indicator is rarely used by traders. They display the change of price for one tick.
How to interpret:
When the MFI Indicator increases as well as the volume then it indicates that the percentage of entrants into the market is increasing. It also implies that the new entrants are opening orders in the direction of the current bar. The opposite is the case when there is a fall in the volume and MFI Indicator.
When the MFI increases, but the volume falls then It is most likely, that the market is no longer having support with the volume from participants, and the price is changing due to traders’ (brokers and dealers) "on the floor" speculations.
However when the MFI falls but the volume increases, this means that the direction of price is not certain due to an almost equal value in buy and sell volumes. When this happens, watch closely for an eventual direction of price either to the buy side when the buy volume supersedes the sell volume or to the sell side when the sell volume superseded the buy volume.
How to interpret:
When the MFI Indicator increases as well as the volume then it indicates that the percentage of entrants into the market is increasing. It also implies that the new entrants are opening orders in the direction of the current bar. The opposite is the case when there is a fall in the volume and MFI Indicator.
When the MFI increases, but the volume falls then It is most likely, that the market is no longer having support with the volume from participants, and the price is changing due to traders’ (brokers and dealers) "on the floor" speculations.
However when the MFI falls but the volume increases, this means that the direction of price is not certain due to an almost equal value in buy and sell volumes. When this happens, watch closely for an eventual direction of price either to the buy side when the buy volume supersedes the sell volume or to the sell side when the sell volume superseded the buy volume.
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