Indicators and Oscillators
Thirty Seventh session of Forex Training
Welcome back to Forex professional training in financial markets.
In this session Indicators and Oscillators will be studied.
Indicators
Indicators are widely used in technical analysis by traders. Indicators are calculated by using market information in certain formulas.
This information can be derived from various sources, such as Open, Close, High and Low prices, in addition to transaction volumes.
Trader cannot predict the future movement and target price by only analysing trend on the chart, so he/she must exploit indicators as an instrument to see the future trend of a market.
Despite the widespread use of simple indicators such as Moving Average, some traders still prefer to exploit complicated Indicators like Stochastic.
Indicators may be applied in three different ways:
- Alert: They warn traders about the desired or breakout point to place an order.
- Confirmation: They warn traders that a pattern or a trend is formed and the price is proceeding towards the target price.
- Prediction: They warn traders about a future pattern or a trend towards a certain price.
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It would be beneficial to use 2 or 3 indicators simultaneously, while using more than 5 indicators is fruitless.
Indicators can be classified into two types: Leading and Lagging indicators.
Leading indicators, such as RSI and CCI, can predict the future trend and a target.
Lagging indicators can be used on the current trend and they confirm the current direction, useful on powerful trends.
These indicators, like Moving Average, are ineffective on Range or Sideway markets.
Oscillators
Oscillators are indicators with fluctuating manner which are bound between 2 boundaries which will change as time passes.
They can be categorized into two types: Centred and Banded Oscillators.
Centred Oscillators, which waver on a certain level, can be used to determine the direction of a market trend.
Banded Oscillators fluctuate between Overbought and Oversold regions, such as RSI.
There are more than 18,000 indicators and oscillators.
Despite some predefined indicators available on MT4 platform, traders can still create customized indicators to develop better indicators for their trades.
There are some widespread indicators as follows:
- MA or Moving Average
- CCI or Commodity Channel Index
- RSI or Relative Strength Index
- MACD or Moving Average Convergence/ Divergence
- Bollinger Band
- Ichimoku
- Stochastic
They are all accessible on both the MT4 and MT5 platforms.
That concludes this session, until next time and another session take care.