Forex indicators

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Ichimoku Kinko Hyo Market Facilitation Index Momentum Money Flow Index Moving Average Moving Average Convergence / Divergence Moving Average of Oscillator On Balance Volume Parabolic SAR Relative Strength Index Relative Vigor Index Standard Deviation Stochastic Oscillator Williams Percent Range

    Forex technical indicator is a mathematical manipulation of a security price and volumes aimed at forecasting of future price changes. Trader is able to make decisions about how and when to enter or exit market, which position it is more suitable to open, on the basis of signals from technical indicators.

    There are a lot of technical indicators although many of them have very slight differences.

    According to their functions, indicators can be divided into three groups:

• Trend indicators help to assess the price direction and detect the turn moments synchronously or with a delay.
• Oscillators allow one to find the turning moments a little in advance or synchronously.
• Psychological indicators provide the information about the overall mood of market participants.

    Technical indicators can be drawn up in a separate indicator window or they can be imposed directly into the price chart. For better forecasts several indicators may be used.

    Metatrader 4 has a variety of built-in indicators. Use the menu at the top of the page to find out more about them.

Williams Percent Range

Williams' Percent Range

Williams' Percent Range Technical Indicator (%R) is a dynamic technical indicator, which determines whether the market is overbought/oversold. Williams' %R is very similar to the Stochastic Oscillator. The only difference is that %R 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.

Indicator values ranging between 80 and 100% indicate that the market is oversold. Indicator values ranging between 0 and 20% indicate that the market is overbought.

As with all overbought/oversold indicators, it is better to wait for the security's price to change direction before placing your trades. For example, if an overbought/oversold indicator is showing an overbought condition, it is wise to wait for the security's price to turn down before selling the security.

An interesting phenomenon of the Williams' Percent Range indicator is its uncanny ability to anticipate a reversal in the underlying security's price. The indicator almost always forms a top and turns down a few days before the security's price tops and turns down. Likewise, Williams Percent Range usually creates a bottom and turns up a few days before the security's price turns up.

Calculation

Below is the formula of the %R indicator calculation, which is very similar to the Stochastic Oscillator formula:

 %R = (HIGH(i-n)-CLOSE)/(HIGH(i-n)-LOW(i-n))*100

Where:

CLOSE - today's closing price;
HIGH(i-n) - the highest high over a number (n) of previous periods;
LOW(i-n) - the lowest low over a number (n) of previous periods.

Stochastic Oscillator

Stochastic Oscillator

The Stochastic Oscillator Technical Indicator compares where a security's price closed relative to its price range over a given time period. 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. Three popular methods include:

• Buy when the Oscillator (either %K or %D) falls below a specific level (for example, 20) and then rises above that level. Sell when the Oscillator rises above a specific level (for example, 80) and then falls below that level;
• Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line;
• Look for divergences. For instance: where prices are making a series of new highs and the Stochastic Oscillator is failing to surpass its previous highs.

Calculation

The Stochastic Oscillator has four variables:

%K periods. This is the number of time periods used in the stochastic calculation;
%K Slowing Periods. This value controls the internal smoothing of %K. A value of 1 is considered a fast stochastic, a value of 3 is considered a slow stochastic;
%D periods. This is the number of time periods used when calculating a moving average of %K;
%D method. The method (i.e., Exponential, Simple, Smoothed, or Weighted) that is used to calculate %D.

The formula for %K is:

%K = (CLOSE-LOW(%K))/(HIGH(%K)-LOW(%K))*100

Where:

CLOSE - today's closing price;
LOW(%K) - the lowest low in %K periods;
HIGH(%K) - the highest high in %K periods.

The %D moving average is calculated according to the formula:

%D = SMA(%K, N)

Where:

N - smoothing period;
SMA - Simple Moving Average.  

Standard Deviation

Standard Deviation

Standard Deviation is designed to measure the market volatility. This indicator describes the range of price fluctuations relative to simple moving average. So, if the value of this indicator is high, 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 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. Thus, when calculating Bollinger Bands, one has to add the symbol standard deviation value to its moving average.

Calculation

StdDev = SQRT (SUM (CLOSE - SMA (CLOSE, N), N)^2)/N

Where:

SQRT - square root;
SUM (..., N) - sum within N periods;
SMA (..., N) - simple moving average having the period of N;
N - calculation period.

Relative Vigor Index

Relative Vigor Index

The main point of Relative Vigor Index Technical Indicator (RVI) is that on the bull market the closing price is, as a rule, higher, than the opening price. It is the other way round on the bear market. So the idea behind Relative Vigor Index is that the vigor, or energy, of the move is thus established by where the prices end up at the close. To normalize the index to the daily trading range, divide the change of price by the maximum range of prices for the day. To make a more smooth calculation, one uses simple moving average. 10 is the best period. To avoid probable ambiguity one needs to construct a signal line, which is a 4-period symmetrically weighted moving average of Relative Vigor Index values. The concurrence of lines serves as a signal to buy or to sell.

Calculation

RVI = (CLOSE-OPEN)/(HIGH-LOW)

Where:

OPEN - opening price;
HIGH - maximum price;
LOW - minimum price;
CLOSE - closing price.

Relative Strength Index

Relative Strength Index

The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100. When Wilder introduced the Relative Strength Index, he recommended using a 14-day RSI. Since then, the 9-day and 25-day Relative Strength Index indicators have also gained popularity.

A popular method of analyzing the RSI is to look for a divergence in which the security is making a new high, but the RSI is failing to surpass its previous high. This divergence is an indication of an impending reversal. When the Relative Strength Index then turns down and falls below its most recent trough, it is said to have completed a "failure swing". The failure swing is considered a confirmation of the impending reversal.

Ways to use Relative Strength Index for chart analysis:

• Tops and bottoms. The Relative Strength Index usually tops above 70 and bottoms below 30. It usually forms these tops and bottoms before the underlying price chart.
• Chart Formations. The RSI often forms chart patterns such as head and shoulders or triangles that may or may not be visible on the price chart.
• Failure swing. ( Support or Resistance penetrations or breakouts) This is where the Relative Strength Index surpasses a previous high (top) or falls below a recent low (bottom).
• Support and Resistance levels. The Relative Strength Index shows, sometimes more clearly than price themselves, levels of support and resistance.
• Divergences. As discussed above, divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the Relative Strength Index. Prices usually correct and move in the direction of the RSI.

Calculation

RSI = 100-(100/(1+U/D))

Where:

U - average number of positive price changes;
D - average number of negative price changes.

Parabolic SAR

Parabolic SAR

Parabolic SAR technical indicator has common characteristics with the moving average indicator, except for it moves with a greater acceleration and changes its position in terms of the price.The indicator is applied directly on the price graph and is situated below the prices on the bull market (Up Trend) and above them on the bear market (Down Trend).

If the price crosses indicator's lines Parabolic SAR changes its direction. In this case indicator values will be situated on the other side of the price while the maximum or the minimum price for the previous period would serve as the starting point. When the indicator makes a turn, it gives a signal of the trend end (correction stage or flat), or of its turn.

It is possible to define exit points with great precision using this indicator. Long positions should be closed when the price sinks below the SAR line, short positions should be closed when the price rises above the SAR line.

It is often the case that the indicator serves as a trailing stop line.

If the long position is open (i.e., the price is above the SAR line), the Parabolic SAR line will go up, regardless of what direction the prices take. The length of the SAR line movement depends on the scale of the price movement.

Calculation:

For long positions:

SAR (i) = ACCELERATION * (HIGH (i - 1) - SAR (i - 1)) + SAR (i - 1)

For short positions:

SAR (i) = ACCELERATION * (LOW (i - 1) - SAR (i - 1)) - SAR (i - 1)

Where:

SAR (i - 1) - Parabolic SAR indicator value in the preceding bar;
ACCELERATION - acceleration factor;
HIGH (i - 1) - previous period maximum price;
LOW (i - 1) - previous period minimum price.

The value of the indicator increases if the price of the current bar is higher than that of the previous one on bull market and vice versa. The acceleration factor (ACCELERATION) will double at the same time, which would cause Parabolic SAR and the price to come together. In other words, the faster the price grows or sinks, the faster the indicator approaches the price.