The Meta Trader 4 Trading Platform allows you to use many kinds of technical indicators that would assist you as a trader in making the right decision for your trade.

We have selected some of the most important indicators that should shape your trading decisions below:

1-Relative Strenght Index (RSI):

The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator which ranges from 0 to 100. RSI was created by Wilder, he recommended to use a 14-day RSI. As time goes by the 9-day and 25-day Relative Strength Index indicators have also gained popularity. One of the popular methods of the RSI analysis is to look for a divergence in which the price forms a new high and the RSI is failing to surpass its previous high. This divergence is an indication of the soon reversal. If the Relative Strength Index turns down and falls below its most recent trough, it means that the RSI has completed a "failure swing". The failure swing is a confirmation of the impending reversal.

The following Relative Strength Indexes are distinguished:

Tops and bottoms The Relative Strength Index is usually formed above 70 and below 30. They usually advance tops and bottoms formation in the price chart;

Chart Models 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 (peak) or falls below a recent low (trough);

Support and Resistance levels Levels of support and resistance are better seen at the chat of the Relative Strength Index then at the price chat.

Divergences Divergences occur when the price makes a new high (or low) but it is not confirmed by a new high (or low) in the Relative Strength Index chat. Prices usually correct and move in the direction of the RSI.

2-Moving Average Convergence/Divergence – MACD:

Technical Indicator Moving Average Convergence/Divergence (MACD) is the next trend-following dynamic indicator. It indicates the correlation between two price moving averages.

The Moving Average Convergence/Divergence Technical Indicator is constructed on the difference between moving averages with 26-period and 12-period. For indicating the most advantageous moments the signal line (9-period indicators` moving average) is inserted on the MACD.

The MACD is better to use in wide-swinging trading market. e Moving Average Convergence/Divergence usually gives signals if crossing or divergence take place and in the overbought/oversold condition.

Crossing

The basic MACD trading rule is based on the crossing of the indicator with it signal line. When MACD falls below its signal line it is time to sell, when MACD rises above its signal line it is time to buy. Buy or sell when the MACD goes above or below zero.

Overbought/oversold conditions

Average Convergence/Divergence is also useful for overbought/oversold condition indication. When the MACD rises, it means that the price is overvalued and will soon return to the more realistic levels.

Divergence

An indication that the current trend is expected to be completed occurs when the MACD diverges from the price. A bullish divergence takes place when the price reaches new maximums and at the same time the Moving Average Convergence/Divergence indicator fails to reach new highs. A bearish convergence is formed when the price makes a new low and the MACD fails to do it. Both types of divergence are very important if they occur in the overbought/oversold area.

Technical Indicator Moving Average of Oscillator (OsMA) – it is a difference between an oscillator and oscillator smoothing. In this case, the main line MACD is used as oscillator and signal line as oscillator smoothing.

3- Money Flow Index (MFI)

Technical Indicator Money Flow Index, MFI indicates the intensity of the money investments into the security. Construction and interpretation is similar to the Relative Strength Index, the only difference is that the MFI takes into account volume.

Analyzing Money Flow Index keep in mind the following:

Divergences between the indicator and price movement. If prices grow and Money Flow Index falls (or vice versa) there is a great possibility of the prices reverse;

Money Flow Index value above 80 and below 20 warns about the potential top and bottom of the market.

The calculation of Money Flow Index includes several stages. At first one defines the typical price (TP) of the period in question.

TP = (HIGH + LOW + CLOSE)/3

Then one calculates the amount of the Money Flow (MF):

MF = TP * VOLUME

If today`s typical price is larger than yesterday`s TP, then the money flow is considered positive. If today`s typical price is lower than that of yesterday, the money flow is considered negative.

A positive money flow is a sum of positive money flows for a selected period of time. A negative money flow is the sum of negative money flows for a selected period of time.

Then one calculates the money ratio (MR) by dividing the positive money flow by the negative money flow:

MR = Positive Money Flow (PMF)/Negative Money Flow (NMF)

And finally, one calculates the money flow index using the money ratio:

MFI = 100 - (100 / (1 + MR))

4- Momentum

An Indicator which measures amount of the financial instrument price change for a certain period is called the Momentum Technical Indicator. There are two main methods of the Momentum indicator usage:

As a trend-following oscillator, similarly to Moving Average Convergence/Divergence MACD. A signal to buy occurs when the Momentum indicator forms a trough and starts its growth; a signal to buy occurs when the Momentum indicator reaches its peak and turns down. For more exact calculation of the indicator`s reverse its short moving average is used.

The Continuation of the current tendency is determined if the Momentum indicator has either very high or very lower values. If the indicator reaches high values and then turns down further prices growth is expected. But, in any case, do not hurry to open (close) position until the prices prove the indicator`s signal.

As a lending indicator. This method is based on the supposition that the final phase of the uptrend are usually accompanied by the high increase of prices (because everybody believes in it continuation) and completion of the bullish market by the rapid fall of the prices (because everybody tries to leave the market).

When the market is closed to the top it is accompanied by the rapid break of the Momentum indicator. Then the indicator starts to fall while the prices continues to rise and move horizontally. In the market bottom the Momentum falls suddenly and then turns up long before the prices start to rise. In both cases divergences occur between the indicator and prices.

Momentum is calculated as a ratio of today`s price to the price several (N) periods ago.

MOMENTUM = CLOSE(i)/CLOSE(i-N)*100

Where:

CLOSE(i) - is the closing price of the current bar;

CLOSE(i-N) - is the closing bar price N periods ago.

5-Bollinger Bands:

Bllinger Bands, BB, are similar to Envelopes. There is a difference between them: bounds of the envelopes are above and under the curve of moving average at the fixed, put into percentage distance, but bounds of Bollinger bands are constructed on the basis of distances which are equal to a certain quantity of standard divergences. The value of standard divergence depends on volatility, so bands control their width: it increases, when market is not stable, and it decreases at the stable periods.

Bollinger Bands are usually drawn on the price chart, but they can be drawn on the indicator chart as well. As in case with moving average envelopes, interpretation of Bollinger bands is based upon the fact that prices usually stay in the range of upper and bottom bounds of a band.

Peculiarity of Bollinger Bands is their variable width conditioned by the price volatility. In the periods of considerable price changes (i.e. high volatility) bands widen giving the space for prices. In the periods of stagnation (i.e. low volatility) bands converge, keeping the prices within the bounds.

Peculiarities of Bollinger bands:

1. Sudden price changes usually occur after the band`s stagnation indicating the decrease of volatility.

2. If prices transcend the band bounds, then the current trend will continue.

3. If after the peaks and cavities outside the band, the peaks and cavities inside the band follow, then the trend reverse is probable.

4. Price movement started from one of the band`s bounds usually reaches the opposite bound. Last observation is useful for forecasting of the price targets.

Last observation is very useful for price targets forecasting.

Bollinger bands are formed by three lines. The middle line (ML) is a usual Moving Average.

ML = SUM [CLOSE, N]/N

The top line, TL, is the same as the middle line a certain number of standard deviations (D) higher than the ML.

TL = ML + (D*StdDev)

The bottom line (BL) is the middle line shifted down by the same number of standard deviations.

BL = ML - (D*StdDev)

Where:

N - is the number of periods used in calculation;

SMA - Simple Moving Average;

StdDev - means Standard Deviation.

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

It is recommended to use 20-period Simple Moving Average as the middle line, and plot top and bottom lines two standard deviations away from it. Besides, moving averages of less than 10 periods are of little effect.