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§5.4 Indicators

Indicators enjoy great popularity amongst traders. However it is recommended not to focus only on indicators but combine them with other market signals.

What are indicators? How do we use them?

In general, indicators are additional charts which can be built both directly on the price chart and apart from it. They always represent the same price chart but shifted relative to its prototype. The shift can be very different example, to the left or to the right, upwards and downwards and various other actions. This allows you to predict price action on the basis of indicator performance.

You can create indicators on the chart by using computer programs developed especially for advanced traders. The most popular program is Metatrader 4.индикатор технический анализ

Indicators are as follows:

– Simple indicators such as moving average (consists of 1-2 lines) and complex such as Ichimoku indicator (consists of 5 lines).

– Indicators created directly on the chart (for example, “Alligator” indicator) and apart from the chart (for example, RAVI).

No matter what kind of indicators do you use it is necessary to remember the following principles:

  • Don’t apply many indicators at once. Use a maximum of 2-3 indicators, otherwise they can confuse you.
  • Before using any indicator
  • Before using any indicator try to find out more about it. It allows you to benefit from all of its properties.
  • The way you set up your indicator will determine the way in which it will perform so pay attention that you enter correct parameters into it. You can do it by using a previously plotted price chart and matching that indicator’s signals to coincide with the points where the price began to move. You can assume then that the indicator will be able to reflect price trends in the future.
  • Every indicator’s signal must be confirmed both by other indicators’ signals and another market signals.

Now let’s discuss which indicators are mostly used among traders and how to use them in the right way. The principle of using indicators is the same for all of them however every indicator has its own unique features.

We shall consider indicators in the order of their complexity and start with the most simple and clear ones with the novice in mind.

§5.5 Moving Average indicator or MA→