Technical analysis indicators

Good day, readers of the blog about trading., together with graphic figures, form the foundation of classical or Western technical analysis. Essentially, they are created based on the price and trading volume of a security and measure factors such as supply and demand, trends, volatility, and momentum. They are extremely popular among active traders as they help identify short- and medium-term changes in price direction. On this page we will look at several concepts that a novice trader who uses technical analysis indicators should know in order to use them consciously and correctly.

Dow theory says that the market or price takes everything into account. This is the main postulate on which the work of an active trader in the stock market is based. From this statement it follows that any technical indicator that you would not use cannot show and tell you more than the price itself and its dynamics.

In other words, all indicators that exist in technical analysis base their work on the price of the stock. They compare its current strength and direction of movement with certain periods in the past and give you the following conclusions:

• The stock enjoys increased supply or demand. In other words, it is trading near its support or resistance level
• The promotion is in trending or consolidating. That is, where the price is moving: up, down, or closed by buyers and sellers in some kind of trading corridor
• Strength or momentum, with which the price moves, increases or decreases. If it increases, it means that the stock is actively trading and is somewhere at the beginning of a new trend. If it fades, it means that traders are losing interest in it and the trend on the chart may change
• Which volatility stock? I know 100% (an article on one site with active commentary) that some consider technical analysis indicators that determine volatility to be useless. But only people who are not involved in trading can say this. Read " Position Sizing – Taming Volatility».

I will explain the above to you with examples. Let's take one of the simplest and most well-known indicators - a simple moving average. On a chart, this is a line that, comparing the current price of a stock (closing, opening, etc.) with the previous one for a certain period, builds its average value. With its help, we determine the direction of the trend.

The indicator, the relative strength index (RSI), compares the current strength with which the price is moving with the previous one. Shows supply and demand for a stock (based on overbought and oversold levels), as well as the beginning or end of a trend (based on convergence and divergence).

The ATR (Average True Range) indicator averages the trading range (candle high minus candle low and divided by 2) over several days. Shows volatility.

In each example, all technical analysis indicators were based on current and past prices. This means that no indicator will show you more than the stock chart itself.

Types of technical analysis indicators

You can hear and see different indicators: volatility, trend, momentum, strength and others. But all of them are either lagging behind or leading.

1. Lagging Indicators– basically follow the trend and are therefore also called trending. They have fairly low prognostic properties. The most famous and used of their representatives are moving average And Bollinger Bands. The main feature of lagging indicators is that they work well in a trending market and poorly in a sideways one.
2. Leading indicators– are mostly represented by oscillators and “predict” trend reversals. Of course they can't get ahead of price and appearance new information according to the market, as some people think. They just have a slight forward bias built into them, which gives them the ability to predict the stock's next move. But due to this, they also have more false signals than trend indicators. Their main feature: they work well in a sideways market (range) and poorly in a trend market. Representatives: stochastic indicator And RSI.

How to use indicators

For whom are indicators created? Who uses them? Since they do not carry any information about the profitability of the business, its profitability and other fundamental indicators of the stock, long-term investors are clearly not interested in them. That is, technical indicators are used mainly by active traders. With their help, they analyze price dynamics on charts.

How can active traders use technical analysis indicators in their trading? There are two ways.

First way– trade based on indicator signals. For example, if a short (let's say 50-period) moving average crosses a long (let's say 200-period) upward, then we buy, if downward, we sell. Or the oscillator shows oversold - open a long position, and overbought - open a short position.

There are a great variety of such signals from different indicators, based on which all kinds of strategies have been created. But the question arises: if the market takes everything into account, and a stock's chart tells us more about price dynamics than any single indicator, then is it worth basing your trading on their signals?

Second way– use indicators to indicate securities that meet our trading criteria. Decisions on opening a position should be made solely based on price dynamics.

For example, I know that near the support level there is increased demand that needs to be bought, and near the resistance level there is supply that needs to be sold. I know trending stocks make the biggest returns. I know that all important price movements are supported by high trading volumes.

That's why I look for relevant securities using: moving averages, ADX indicator, technical analysis figures (reversals or continuations), and I base my trading decisions on candlestick analysis. For more details: read " Swing trading strategy».

Conclusion

They are essential tools for an active trader. For example, it’s hard to imagine creating an automatic trading system or a robot without their use. But still, there is nothing more important in the market than the price itself. If you carefully analyze several thousand blank charts, you will see for yourself that you only need technical analysis indicators to quickly filter the stocks you need. Trading Blog thanks for your attention. Be successful!

Technical analysis indicators appeared quite a long time ago, and many of them were used even before general computerization. For example, the well-known Ichimoku was developed in Japan in the 30s of the twentieth century. Naturally, at that time there was no talk of automatic calculations. Therefore, work with the indicator was carried out exclusively manually.

Technical analysis indicators are algorithms that allow you to obtain data on future prices using quote data over a certain period of time.

Each technical analysis indicator is based on a certain formula. It is with its help that the calculation takes place. Depending on the type of indicator or its purpose, the formula may vary. For example, one calculates average prices for a certain period, the other calculates closing or opening prices of the market, and so on.

With the advent of computers and large-scale computerization, indicators gradually migrated to computers. Now all calculations are carried out automatically, which has greatly simplified the trader’s work.

Technical analysis indicators are very popular among traders. This is partly due to the fact that all the calculations are done by a machine. The trader receives only the result, which he puts into practice. The result of the work of most indicators (precisely most, but not all) is the receipt of a specific signal for action - buying or selling an asset.

The basis of how indicators work

Oscillators become useless during trending periods. Accordingly, it is necessary to use some kind of tool in order to understand when work in the range ends and trading within the trend begins. (Gator Oscillator)
(Market Facilitation Index, MFI)

How to work with indicators

Technical analysis indicators are necessary mainly for short-term traders who prefer to work in a short time frame. Investors who trade long-term are not interested in using technical algorithms, as they prefer fundamental analysis.

On our website you can connect different indicators and see how they work, but trading terminals Brokers, of course, have more options, including a larger set of indicators, as well as the ability to connect third-party, new indicators.

In order to start using this or that indicator, you must, at a minimum, study information about it and understand how its formula works. This is very important, as it will allow you to determine in the future in which situations it is worth considering the indicator signals, and when it is better to abstain.

Most indicators can be customized independently to suit your preferences, for example, change the indicators of intervals and periods. As a result of such manipulations, it is possible to significantly change the indicator readings, making it more or less sensitive.

There are no ideal settings, so the trader will have to adapt to a specific situation. In general, they work great on the default settings, and if you want to change settings created by professionals, you must understand exactly what you are doing.

Technical analysis indicators have long become an integral part of it. They form the basis not only of manual strategies, but also automatic advisors. Not a single deal on professional market cannot do without technical analysis and indicators.

Technical analysis indicators provide many possibilities, but it is important to remember the successful component - always combine different indicators to obtain the most reliable signal.

If one indicator tells you about a trend reversal, that’s good, but when 2 more indicators tell you about it, that’s even better.

If you find an error, please highlight a piece of text and click Ctrl+Enter.

And others), which show the trader the most likely further development of the price movement. Indicators are divided into many groups according to their meaning. The most famous of them are trend indicators of technical analysis and oscillators. From the very name of trend indicators one can already understand that their main task is to indicate the current one (ascending, descending or sideways). Oscillators have a different task - they, as a rule, show those zones where the price has already become unreasonably high and is most likely ready to turn down, or, conversely, those zones where the price has already become too low and is most likely to turn upward.

There are also indicators that combine the properties of trend indicators and the properties of oscillators (for example, Bollinger Bands). Some nowadays consider indicators to be outdated market analysis tools, since most of them were developed in the 90s of the last millennium, although indicators are still being created to this day. One of the main disadvantages attributed to indicators is the averaging model they use, which can make them somewhat lagging. However, there are indicators calculated without averaging. So such a formulation of the question comes primarily from ignorance.

Application of indicators today

Some indicators can be seen on the charts of fund managers and bank traders, that is, professionals. The fact is that professionals understand what exactly indicator signals can tell them and at what moments they should really be used. Beginners try to find an element of market prediction in indicators, which by definition cannot exist. No one can predict the market, but interpreting signals from a probabilistic point of view can have a positive effect. Moreover, when running through various strategy testers, technical analysis indicators show the reliability of signals in the following proportions - on average 60% true and 40% false. %. That is, these days their basic understanding requires certain adjustments.

Moreover, the most “unkillable” indicators from the point of view of the spirit of the times are precisely the various variations of moving averages (SMA, EMA, WMA, etc.), built on the principle of the mathematical expectation vector, which shows the most likely continuation of the price movement. However, this vector also has the degree of price dispersion relative to the expectation vector.

Many traders try to use complexes of indicators - for example, combine trend indicators of technical analysis with oscillators, determining the dominant trend using indicators (sometimes even a complex of trend indicators is used for this purpose), and the most promising price areas for making transactions - using oscillators. Stop orders are placed, for example, in accordance with the Parabolic SAR indicator.

It is worth noting separately that before using this or that indicator, you should understand exactly how it works and what is the methodology for calculating it. For example, RSI readings are based on closing prices and do not take into account the lows and highs of candles, which can make this indicator more applicable over longer periods of analysis. Stochastic, on the contrary, shows the current price in the range of price highs and lows, which allows it to be more accurately used in shorter periods of analysis. And this is just a particular example, which can be given quite a lot.

Modern logic of using technical analysis indicators

But it is much more important to understand what exactly stock technical analysis indicators can tell a trader and when they should be used. It is worth noting that in nature there is no such thing as a “trend line” or “indicator”. There are mathematical statistics that show standard deviation, regression, expected value and other indicators. But the point is that many people use indicators and elements of classical analysis. Often, in the ranges of these indicators, the concentration of transactions clearly increases, with some working for a breakout, and others for a rebound (all trends and indicators break through at some point), professionals know this well. Therefore, for them, the indicator signal is an indicator that in this range, most likely, there will be increased market activity from both beginners and professionals. Therefore, increased attention should be paid to such ranges, since after a massive entry at these levels (with further price movement), stops may be disrupted and, consequently, an impulse into which you should try to “break in.”

Moreover, the logic of indicators should not be understood taken out of context. Yes, indicators are purely mathematical functions, but no one said that you shouldn’t combine their logic with trends, with trading volumes, with macro statistics, with the news background and general market expectations. A combination of the listed factors will be more likely. So, for example, if there is divergence according to the indicators, the trend has already begun to show a slowdown, and the news background begins to give events opposite to the trend - you should fix part of the profit if you are in a position with the trend, and tighten your stop orders. If you are out of position, start looking for signals for the formation of an opposite trend, looking at what could serve as a fundamental driver for its beginning (analyze upcoming events, statistics calendar, etc., since many events are announced in advance).

Simply put, factors need to be combined according to the “swan, crayfish and pike” principle, looking for those moments when all these “characters” begin to move the price along a single vector, and when the movement of these factors becomes multidirectional, take profits, again taking a wait-and-see position. Moreover, many classic indicators work better on “frames” starting from an hour. They can be used on smaller scales, but there will be more false signals.

Separately, it is worth mentioning the issue of optimizing indicator calculation parameters. Many beginners observe how in one trend the price of an indicator with some parameters gives good signals, but in another the same parameters begin to work worse. There is a desire to find a universal parameter for each trading instrument, which is not correct. Whether the indicator works or not is determined by whether at a given level there are volumes that will be processed by market professionals (who also fight among themselves for profits). Having seen the arrival of their money, the private trader is already observing which of them begins to run out of steam and which takes the initiative. We need to try to join the receiver side of the market dominant - this will be a more competent approach.

Also, do not forget about the psychological significance of indicators that can provoke participants to make transactions. That is, indicator signals should be understood to a greater extent as a certain preponderance of probability, as a zone of concentration of transactions and as a zone of activity of professionals, upon detection of which a private trader should begin to monitor which of the groups of participants begins to take over the initiative and try to join this group. Therefore, indicators of technical market analysis should be considered as additional areas of increased interest for exchange participants, and not as “price predictions”.

Conclusion

Indicators are worth using in our time, but it is imperative to understand the principle of their operation and combine their readings with other market factors.

A trader uses various analysis tools in his work to improve the efficiency of transactions on the market and increase the likelihood of success. One of these tools are technical indicators obtained by performing a series of mathematical operations.

Technologies do not stand still. If recently the calculation and plotting of indicators on the chart was carried out by the trader manually, then with the advent of computers and specialized software everything has become simpler. The main function is taken over by the PC, and the indicators themselves have moved from the category of mathematical to the category of computer analysis.

Basic Concepts

Before considering more serious things, it is important to learn some basics - the concepts of market instruments. For example, an indicator is a trader’s assistant, obtained through mathematical calculations based on two indicators:

Cost of the selected tool;
- volume of the asset.

The mentioned parameters can also be taken into account in a comprehensive manner.

Why are indicators needed? First of all, to predict future price changes, which allows the trader to make transactions with the selected asset with greater accuracy. The main advantage is a wide range of technical indicators (more than 1000), many of which are presented in the Aurora platform.

It is also worth knowing about such a concept as divergence - one of the most powerful and accurate signals in technical analysis. Divergence is created at the moment when a difference (variation of parameters) appears between the indicators and prices on the indicator chart. As soon as the price rises to a new peak, and the chart remains in the same place, we can talk about the appearance of “bearish” divergence.

In total, two types of divergences can be distinguished:

1. Bearish divergence- the difference between the current value of the asset and the position of the indicator. It indicates market weakness and signals the risk of a market reversal.

2. Bullish divergence- a signal that characterizes a decrease in price to the minimum value. In turn, the readings on the graph are large. The appearance of a “bullish” divergence indicates a weakening of the downward trend. Essentially, this is a signal for the trader about a possible change in the market and the beginning of growth.

To better understand tools such as indicators, it is important to know their classification and the characteristics of each type. It is worth highlighting here:

1. Oscillators.
2. Trend indicators are tools by which a trader can judge future changes in price movements in the market.

Below we will look at each of the representatives in more detail.

Trend indicators

Moving averages

The moving average is a tool that is popular among analysts and allows you to monitor trend changes. The main tasks of the tool:

Determine the time of a new market reversal;
- Warn a market participant about a reversal or end of a trend.

Using moving averages (MAs), you can track a trend at the stage of its development. In this case, the parameter should be considered from the perspective of modified trend lines.

Novice traders often use MA to predict price changes. But this is a mistake. The moving average is a tool that does not lead, but lags behind the market. With its help, it is impossible to predict price changes in the future, because the SS reflects the situation in fact, changing after the price adjustment. That is why this tool is called “lagging”.

The process of constructing a moving average is a whole technique that involves smoothing price parameters. The essence of the indicator is to straighten the curve and reflect the average parameters of price values. Thanks to this adjustment, it becomes easier to analyze the market and its changes. But it is worth considering that when building the SS, it already lags behind market dynamics.

There are two types of SS:

- Short-term- a type of tool that allows you to conduct an accurate price analysis. The peculiarity is the coverage of a small time period.

- Long-term- a type of moving average that takes into account market dynamics over a longer period of time.

If we compare the two types of instruments, short-term SS are distinguished by better price transmission and have greater accuracy (time lag still exists). As for application, in a trending market it is better to use “long” SS (they are less sensitive), and in “flat markets” - short-term ones.

Moving averages can be divided into the following categories:

1) Moving Average indicator- “Moving average”. This tool is increasingly being used for technical analysis and making decisions about the subsequent movement of the curve. The Moving Average line is drawn directly on the price chart, which simplifies the analysis for the trader and allows the trader to make the right decision. The Moving Average is calculated with a predetermined period. The smaller it is, the higher the risk of receiving false signals. If the period increases, then the sensitivity of the indicator decreases.

All Moving Average indicators can be divided into several types:

- SMA- a simple moving average, which is calculated using the formula below. The full name of the tool is Simple Moving Average.


This type of moving average (MA) is most popular among market analysts. But there are those who question its advantages, explaining this by two factors:

● When analyzing, a limited time period is taken into account, which is covered by these SS;

● A simple moving average essentially equalizes the value of each day of analysis. For example, if a 10-day SS is applied, on the first and last day the price value will be identical to the remaining days in the period (10%). In the case of 5-day periods, the average price weight will already be 20% and so on.

Another category of analysts agree that the later price indicator is of greater importance in the analysis. This is logical, because when a new trend appears, the SMA will take longer to reverse and give a signal (compared to the WMA, which will be discussed below);

- WMA- weighted moving average. This is a tool that helps resolve such a problem for analysts as the “share” of average price parameters. The full name is Weighted Moving Average. The calculation is made using the formula below:

Each of the weights that was assigned to a particular price in the above calculation can be determined arbitrarily. In practice, the choice of weighted prices directly depends on changes in the market asset. Weight gain can come in several forms, such as exponential, linear, or some other form. For example, in a situation with a linearly weighted form, the parameter acquires the following relation Wi = i;

- EMA- exponential moving average. A special feature of the tool is its more complex construction, which eliminates two problems:

● EMA gives more importance to parameters that have been occurring over the past few days. Therefore, this indicator falls into the weighted category;
● There is a chance to apply all these prices for the entire duration of the asset market.

The full name is Exponential Moving Average. The calculation is made using the formula:

Of course, like other instruments, EMA has a number of disadvantages that are inherent in all moving averages. But of the three tools that were listed above, this option is the most preferable. The information below allows you to verify this.

It is important to analyze all the above market instruments correctly. The following points must be taken into account:

1. The main signal by which one can judge the trend is the general direction of the CC curve. The strategy should be as follows:
- If the MA is upward, then the market is bullish. In this case, the participant should buy, that is, work for an increase. Transactions must be carried out at the moment when the value of the asset decreases to the CC level. In this case, the Stop Loss is set below the minimum that occurred a little earlier. The stop loss is moved only if the next price close occurs at a level higher than the previous indicator;


- If the MA is downward, then the market is bearish. Here it is worth selling, that is, opening short positions, playing bearish. Trades are made at the moment when the value of the asset increases to the CC level or higher. In this case, the stop loss should be slightly above the previous level and gradually move as the downward trend continues.


2. The next signal for a market participant is the intersection of the moving average and the price chart. The following options are possible here:

The intersection of the price chart by the moving average from above. If this happens in a growing (bullish) market, and the indicator curve itself has a positive slope, then this signal is stronger;


- Intersection of the price chart by the moving average with a negative slope of the MA and a slight (negative) slope of the price chart. Here we can talk about the presence of a weak signal regarding future market growth. To confirm (or refute) your assumptions, you need to use another signal.


In the case of an emerging falling (bearish) market, the same signals will be received, but subject to the reverse slope (location) of the price chart and moving average.

3. Another signal for a market participant is a reversal of the MA at the high and low. The analysis is carried out as follows:

If the moving average is under the price chart and reflects the local minimum parameter, and the price chart, on the contrary, has a positive slope, then we can talk about future market growth (bullish trend);

If the price chart does not have a positive slope, then you cannot trust the signal - you should use 3 additional signals.
The rules listed above can be used in trending markets. In the case of a “sideways” pattern, certain graphs will have errors. If you try to filter the latter, you may lose an important signal.

Moving Average Convergence/Divergence (MACD)

The dynamic MACD indicator is most often classified as a trend indicator, but it can also play the role of an oscillator. Using this parameter, one can judge the relationship between a pair of SS prices. The indicator is constructed taking into account the difference between two EMAs having periods of 12 and 26 days (the parameter is set by default). To more accurately plot the best places for a transaction (sell or buy), an additional (signal) line of nine exponential moving averages from the MACD-Line can be plotted on the Moving Average Convergence/Divergence chart with mandatory smoothing (default parameter - 9).

The histogram is calculated according to a different principle: from the EMA with a lower order (12), the ESS of a higher order (26) is subtracted. Afterwards, the 9-day EMA must be subtracted from the resulting parameter from the difference between the EMA with the order of 12 and the same exponential moving average, but with the order of 26:

The effectiveness and simplicity of the two moving average technique has made it truly popular among analysts. At the same time, MADC reflects the best results when it is analyzed over short time periods (from one day or more). Greater caution should be exercised when analyzing Moving Average Convergence/Divergence for a period of less than one day. As for hourly and “shorter” periods, although they are informative, they contain a lot of false signals.

The effectiveness of MADC is evident in volatile markets when the price fluctuates over a larger range.

All Moving Average Convergence/Divergence signals can be divided into three categories:

1. Trading at intersections- one of the simplest methods of using the indicator. The analysis is carried out based on the intersection of the main components of MADC. A buy signal comes when the histogram passes the zero line, moving from bottom to top. If the situation is the other way around (the line goes from top to bottom), then this is a sell signal.

When working mechanically with Moving Average Convergence/Divergence, you need to take into account some jerks that lead to significant losses of funds. To avoid this, it is better not to work in narrow ranges that have a negative effect on the indicator’s movement. It is better to make a purchase when the corresponding signal appears near the “zero” (reference line). As a rule, such an event occurs against the backdrop of a clear bullish trend. If the signal appears when the indicator is below the “zero” line, then this indicates a weak trend.


By analyzing the MACD curve, one more point can be drawn. If the histogram column (bar) is located above the “zero” line, and each subsequent bar noticeably decreases in size, then it is worth taking into account the decrease in momentum. When reflecting the “moment” indicator, Moving Average Convergence/Divergence will give signals much earlier.

2. Resale/Repurchase - the next option for using a histogram. Here, the market participant assesses the real overbought or oversold state of the market, thanks to which it is possible to accurately determine the points of future reversal. If the indicator reaches its maximums located on both sides of the “zero” line, then this indicates that the market is overbought (oversold). At this option It is worth empirically establishing the extremum points for each of the instruments (here it may vary).

As soon as the MACD indicator curve reaches the maximum and minimum areas, the intersection with the signal line contributes to the appearance of the corresponding signal (buy or sell). If the intersection occurred outside the above levels, then the information can be ignored. As a result, most of the indicator twitches can be ignored.

A little research is enough to identify such levels for each of the markets, regardless of the price range. Signals appearing in the middle zone of the chart should be used only if the trend is confirmed by another indicator. For example, you can use one of the oscillators (discussed below).

It is important to note that it is advisable to use MACD as long-term instrument, which follows a rising (falling) market.

3. Divergence is an excellent method for using the MADC indicator. In technical studies and in the case of MACD, it is better not to use divergence alone - it is effective only in combination with other technical analysis tools. Divergence itself occurs when the price of an asset moves in the opposite direction from the indicator. The signal can be used in cases where it is necessary to determine the nature of the market (growing or falling) after a correction. Divergence is also used to determine trend reversals, but much less frequently.


When working with an instrument, anticipating events is very dangerous - it is better to wait to enter the market until a clear establishment of divergence occurs. IN otherwise the participant finds himself on the other side of the trend.

Bollinger Bands

Bollinger Bands- another trend indicator that has common features with SS envelopes. The main difference is in the limits:

For moving average envelopes, the limits are above and below the curve level at a certain distance (expressed as a percentage);

For Bollinger Bands, limits are constructed at a distance that is equal to a specific number of standard deviations.

Because the size of the standard deviation depends on market fluctuations, Bollinger Bands can independently adjust the width parameter:

When the market is unstable, the width increases;
- With stability, on the contrary, it narrows.

Bollinger Bands are usually reflected on the price chart, but can also be plotted on the chart of the indicator itself. Below we will look at the essence of the bands that are reflected on price charts.

As in the situation with SS envelopes, deciphering the essence of Bollinger Bands is based on the ability of prices to fluctuate between peak boundaries (upper and lower). The main feature of the stripes is the adjustment of the width, due to the obvious adjustment of prices on the market.


The situation may develop as follows:

During periods of strong volatility, the distance between the bands increases. As a result, the price changes much more actively;

During periods of low volatility (market stagnation), the bands narrow and the value of the asset is kept within a given range.

When analyzing Bollinger Bands, it is worth considering the following features:

1. Price surges, as a rule, occur after a decrease in the width of the bands, indicating a decrease in fluctuations in the market (decrease in volatility).

2. When the minimums and maximums outside the Bollinger bands are followed by minimums and maximums inside the bands, then there is a high probability of a trend reversal.

3. When the price parameter goes beyond the boundaries of the bands, we can talk about the future continuation of the trend.

4. A price change that starts from one of the band limits, as a rule, reaches the border on the other side of the instrument.

The observation described in paragraph 3 can be used to predict key landmarks.

Average Directional Movement Index (ADX)

The ADX tool is another trend indicator that appeared about 40 years ago. J. Walder acted as the developer, after which ADX was further refined by market analysts for a long time. A special feature of the tool is that it can be used to measure the activity of a market trend. Knowing the readings of the ADX index (average direction of movement), you can measure the intensity of the trend. In the process of calculating index parameters, directional movement indicators (such as - DI and +DI) are used.

The construction is carried out according to the following algorithm:

1. Directional movement is determined by comparing two price ranges, as well as the maximum and minimum for two days - yesterday and today. The most part of the range for today, which lies outside the range for yesterday, is taken as the directional movement.

2. The actual range (RD) is calculated, the value of which is always greater than zero. In this case, the maximum parameter is selected from the following values:

The range between the lowest price for today and the closing price yesterday;
- the range between the highest price for today and the closing price yesterday;
- the range between the highest and lowest value for today.

3. Daily indicators -DI and +DI are calculated. With their help, you can analyze different markets, compare them with each other and express the directional movement as a percentage of the DD of each market. The DI parameter is always a positive number, except in the following cases:

The +DI parameter is equal to “0” in a situation where there was no constant bullish trend during the day, that is, there was no constant upward movement;
- the -DI parameter is equal to “0” in a situation where there was no pronounced bearish market, that is, a constant downward movement.

4. Optimized (smoothed) directional lines are calculated. You can get smoothness +DI and -DI by using exponential moving averages of order 13. As a result, two lines are visible on the chart - negative and positive. Based on the relationship between the lines, you can determine the prospects for price movement in the future.

Having completed the manipulations described above, you can determine the ADX indicator - a tool that reflects the likely direction of the market. By this parameter you can judge when it is necessary to follow the market. Using the ADX tool, you can judge the range between the +DI and -DI curves.

ADX parameter calculation is calculated using the formula below:

What are the advantages of the considered indicator? Its advantage is the ability to determine the strength of a trend. There are two possible scenarios:

- ADX indicator is growing. Here we can talk about the growing strength of the trend. With this development of the situation, you need to open positions only in the direction of the trend;

- ADX indicator decreases. In this case, it is impossible to say for sure about a change in trend - you should focus on the signals provided by the oscillators.


The advantage of directional analysis- in the ability to track adjustments to the upward or downward trend of the market by measuring the possibility of bears and bulls, it displays the value of the asset beyond the limits set for yesterday.

If today’s price maximum has “climbed” higher than yesterday’s, then we can judge the optimism of the market and the possible continuation of the growth trend. In the opposite situation, when today's minimum is less than yesterday's minimum, we can talk about a market adjustment downward.

When considering the DI parameter, it is important to take into account the following signals :

1. The +DI and -DI lines have diverged. This indicates an intensification of the trend dynamics.
2. The +DI and -DI lines converge - the trend begins to subside or a reversal is possible.
3. The +DI line is located above -DI - a signal of future market growth.
4. The +DI line is located below -DI - a signal about the presence of a downward trend (bearish trend) in the market.

Rules for working with the ADX directional system:

1. A decrease in the ADX parameter is a signal that the market is losing its certainty. In a situation where the indicator is directed from top to bottom or is below two lines of the directional system, one can draw conclusions about the calmness (“sleepiness”) of the market. In this situation, the use of a directional system is not relevant.

2. A purchase is made in a situation when +DI is greater than -DI, ​​and a sale is made in the opposite situation, when -DI is greater than +DI. Signal strength can be analyzed using the following criteria:

The strongest buy signal is when both the indicator and +DI are located above -DI, ​​and the indicator itself is rising. This situation indicates a strengthening of the current trend;

The strongest sell signal is when both the indicator and -DI are located above +DI. At the same time, ADX itself is growing.

From the experience of using a directional system, we can conclude that the clearest signal appears after a fall in ADX along both lines followed by a rise in the curve. In this case, you need to prepare for the emergence of one of the trends - a growing or falling market.

If ADX grows by 4 points, for example, from 18 to 22, while being under the lines of the directional system, then there is a high probability of a new trend emerging. You need to do this:

Buy when +DI is higher (with the obligatory installation of protection below the level of the lower “bottom”);
- Sell if the indicator is located above -DI.

Oscillators

Oscillator- a system of oscillations whose parameters can change over time. The name of the term comes from the Latin language, from the word “oscillo” - I swing. This tool is actively used in technical analysis to determine further market behavior. Below are the most famous and popular oscillators.

Momentum and ROC Oscillators

The special feature of the Momentum oscillator is its ability to measure the price level for a specific time period. Formula for calculations:

The second oscillator from the same series is Rate of Change (abbreviated as ROC). The main difference from the “Moment” is that the calculation occurs not from the position of the difference, but in the form of a quotient from the division of two parameters - the closing price today and the closing price in the past (that is, for a period of time). In this case, the formula looks like this:

Both oscillators have similar chart structures and are used almost identically. The main difference is in the parameter scale. So, instead of the “zero” line, the Rate of Change is set to 50. Price movements will take place near this line - below or above 50.

Based on the readings of the Moments and Rock oscillators, one can determine the acceleration of the trend, that is, the activity of the trend growth (decrease) process. The peculiarity of such tools is their anticipatory nature. The maximum is issued before the trend reaches its highest value, and the minimum is issued before the value drops to the lowest limit.

Until both instruments reach new limits, it is better to remain in a long position and vice versa. As soon as the oscillator reaches its maximum value, we can talk about an increase in the acceleration of the growing trend. At the same time, there is confidence that the trend will continue in the near future. When the indicator reaches a minimum, the uptrend weakens and the likelihood of a market reversal increases. It is worth arguing similarly in the case of minimum limits for a downward trend.

The considered oscillators have the same disadvantages as the usual moving average, namely a double response to information for each day. Specifically, the indicator reacts as parameters enter and exit the window.

As soon as the instrument reaches its maximum limit, we can talk about growing optimism and a subsequent rise in price. In the case when the price increases and the oscillator parameter decreases, this indicates an approach to the peak value, as well as the need to generate income from a long position with subsequent preparation for a change in direction. In the opposite situation, the algorithm will develop according to the same scenario.

When working with leading indicators, you should follow the following rules:

1. If the trend is upward, then you need to buy when the indicator decreases below the zero line and then grows. By this criterion one can judge whether the trend has stopped. If the trend is upward, then you need to sell when the indicator breaks the zero line and the parameter subsequently decreases.

2. The appearance of the upper limit indicates an increase in bullish energy, which allows the market to reach new heights. In this case, you can continue to hold long positions. On the other hand, if descending highs follow one after another, then this indicates a future change in trend and a market reversal. In the case of a falling market, the situation will be mirrored.

3. A change in the trend line, as a rule, precedes a price adjustment in the next 1-2 days. Therefore, you need to be prepared for a change in trend direction when adjusting the movement of the leading oscillator.

When analyzing the oscillator, special attention should be paid to two market conditions:

1. Overbought. The indicator will be in the overbought zone when its current value exceeds past indicators. The very concept of overbought means that the indicator curve has gone too high and can turn in the opposite direction at any moment.


Overbought- the development of a situation in the market when bulls cannot find buyers for their goods, while the opportunity to purchase the goods is lost. At the same time, price increases become impossible. During such a period, the market is characterized by low volatility, and prices do not have a given direction.
Thus, the oscillator is passing through the overbought zone for several reasons:

The inability of the bulls to raise the price level to a new level;
- Positive slope of price dynamics in a certain time period.

With this development of events, we can talk about a decrease in the influence of bulls in the market and a subsequent change in the direction of the trend.

2. Oversold. This state is possible in a situation when the indicator reaches the lowest parameter in relation to the values ​​that were previously. In this case, the oscillator may begin to grow.

If you look for oversold or overbought on the chart, then the desired levels can be recognized by horizontal additional lines. They are set so that the indicator moves outside the specified band no more than 5% of the total time. “Collision” of these lines with other chart elements is acceptable, but only for the minimum and maximum peaks of the indicator over the last six months. In turn, adjustments must be made at least once a quarter.

It is normal for the oscillator to be in the overbought zone for several months. This is possible during the period when the start of a new bullish “wave” is expected. At the same time, the market participant receives a signal to make purchases. On the other hand, during a falling market, the oscillator behaves differently and lingers in the oversold zone, giving a false signal about the need to buy.

In the cases described above, you should not get hung up on the oscillator readings - it is better to act for sure and analyze trend indicators. With the right approach, oscillators provide a reliable signal when price levels diverge:

A bullish divergence occurs when price rises to a new peak and the oscillator curve does not react. Such an event indicates that the price curve is growing inertia, and the bulls are losing their strength;

The opposite situation is possible with bearish divergence. More complex situations are also possible when triple-type divergences occur.

Rules for using oscillators:

1. As an indicator that works similar to MADC. Here the market participant can use the following information:

A buy signal when a depression appears or a trend reversal in the direction of growth;
- Signal to sell - when the curve reaches its peak value and subsequent reversal in the opposite direction (down).

In practice, a short MA (moving average) can be used to calculate more accurate moments of trend changes.

2. As an indicator that allows you to anticipate further market movements. This method is based on the fact that the final phase of growth is combined with an increase in prices. In the opposite situation (at the end of a falling market trend), there is a massive closure of positions and a fall in price.

3. Inflated or underestimated oscillator parameters indicate the continuation and strengthening of the current market situation. For example, when the oscillator reaches peak parameters and then turns down, we can talk about rising prices in the future. At the same time, you should not rush and make a transaction (buy or sell) until prices confirm the oscillator signal.

Stochastic Oscillator

Stochastic, stochastic oscillator, Stochastics Oscillator - all these are names of the same indicator, which was invented by D. Lane in the 50s. Today, this tool is one of the most popular in technical analysis.

Visually, stochastic is a curve that lies between 0 and 100. It is believed that if the oscillator goes beyond the 70 mark or falls below the 30 level, then the quotes are out of balance.

When analyzing an oscillator, you need to focus on the following points:

1. Signal to buy - the oscillator breaks through level 30 when moving up.
2. Signal to buy - the oscillator breaks through level 70 while moving down.

A simple SS plotted on a Stochastic chart can be used as a signal level. This technique is considered one of the most popular, because with its help you can identify movements with a certain time interval. To solve the problem, two SS are calculated - long and short. Subsequently, the average SS with a shorter period is subtracted from the average SS with a longer period.

The above calculation reflects the essence of crossing the SS, so many are inclined to transfer the method to the category of oscillatory ones. But at the present stage, it was decided to classify Stochastic specifically as an oscillator.

The creators of the oscillator believe that they were able to solve two problems:

1. Eliminate unnecessary price fluctuations.
2. Address long-term trends.

Thus, when working with an hourly chart, hourly averaging is used as a short period. This, in turn, makes it impossible to keep track of short periods. As for the long period, you can use the daily interval here. If you subtract the SS parameter over a long time period, then information about the average level that distinguishes days from each other will be lost. On the other hand, this feature makes the indicator more visual:

Inflated indicators signal the need for a purchase;
- Underestimated parameters indicate the opposite - the need to sell.

The main trend oscillator signals include:

Bearish convergence;
- bullish divergence.

In a growing market, the intersection of the Stochastic curve and the zero line when the first line moves from below signals the need to buy. This should be preceded by a reversal of the oscillator in the same direction as the trend.

In a falling market, the situation develops in a mirror image. The oscillator breaking through the zero level when moving from above is a clear sell signal. The preliminary signal is a reversal of the oscillator located above the zero line when moving from above.

When using Stochastic, you can also get a signal when moving against the trend. This can include a reversal of the curve from oversold or overbought areas.


The main principles of stochastic analysis:

1. With a general increase in prices, closing price parameters will be directed towards the upper limit.
2. In a falling market, closing prices will be directed towards the lower boundaries of the level.

When conducting stochastic analysis, you can use two types of graphs - %K and %D. The %D type is of great importance, because the movement of the curve can be used to judge key changes in the market. In addition, using stochastic analysis, it is easy to find out the position of the last closing price in relation to the general price range for a specific time period.

The most popular billing period is five days.

Curve parameter %K can be calculated as follows:

This calculation is a chance to determine as a percentage the position of the closing price on the general price chart in a certain time period. If the resulting parameter turns out to be more than 70, then you can look for the closing price near the upper limit, and, conversely, if it decreases to 30, you can look for it near the lower limit.

Parameter %D- a smoother version of the three-day curve described above. The calculation is made using the formula below:

Using simple calculations, you can build two curves that will move in a given range from zero to one hundred. At the same time, there is a difference in the display of curves:

D - dotted line;
- K - continuous.

This type of construction is very fast and is distinguished by its simplicity. But there are traders who work with slower stochastic lines. In this case, the calculation formulas will change slightly:

The curve parameter K will be calculated using the formula presented for D;
- Curve parameter D will be calculated as CC from K.

The purpose of Stochastic is to show the ability of bears or bulls to close positions near the extreme points of the acceptable limit. Thus, in the event of a rise, the market attempts to close near the upper limit. Bulls can raise prices without their subsequent closing near the maximum point. With this development of events, the Stochastic line will fall. The received signal can be interpreted as a sell signal.

The signal you need to pay attention to is the spread between the asset price and curve D. This is possible when the price is in one of the areas - overbought or oversold. These levels can begin beyond the boundaries of the horizontal lines defined by levels 70 and 30.
It is necessary to buy (sell) when curve D reaches parameters 10-15 (85-90), respectively.

In total, the stochastic oscillator has three types of signals:

1. Divergence between oscillator and price. This signal is considered one of the most powerful. The following options are possible here:

- Bearish Divergence. In this case, curve D goes beyond level 70 and creates two full-fledged peaks. At the same time, the price indicator continues to grow;

- Bullish Divergence. Everything happens in a mirror image - the D curve drops below the lower level of 30 and creates two bottoms. At the same time, the price continues to fall.

An accurate buy (sell) signal can be obtained when K crosses D, provided that the latter has already changed its direction before. In this case, the intersection should occur on the right side of curve D.

The buy signal is strongest when the K line has broken through the D line at the top. Previously, line D should have started moving downwards before crossing. The priority of the intersection is greater in a situation where both K and D were heading in the same direction.

2. The oscillator moves into the oversold or overbought zone. Here the situation is as follows:

If there is a 7-day growing trend, and the stochastic oscillator is below the minimum line, then you need to buy, while simultaneously insuring the position by setting a stop loss at the level of the previous bottom;

If the situation develops in a mirror image, then a sell signal is given.

Based on the shape of the extremum, we can talk about the strength of the trend. For example, if the minimum is too shallow and narrow, then the bears are weak and there is no need to wait for a sharp increase. Mirror conclusions arise at deep and wide minimums.

3. The relationship between the Stochastic lines and the price chart. Stochastic can be used to judge short-term trends. In this case, both lines will be directed in the same direction. We can only talk about further continuation of the trend if the oscillator and prices are rising. In the presence of price sliding and Stochastic growth, price growth will also be short-lived.

Relative Strength Index (RSI) Oscillator

One of the most popular oscillators among analysts and traders is the Relative Strength Index (abbreviated RSI). In Russian, the oscillator sounds like a “relative strength index”. Its parameter ranges from 0 to 100. One of the most popular methods of analyzing an oscillator is to find divergences that will create a new high. In turn, the RSI is no longer able to cross the level of the previous maximum.

This discrepancy indicates a likely price discrepancy. If the RSI first heads down and falls below the trough level, then the unsuccessful swing is “finalized.” In this case, we can talk about a future price reversal.

The RSI Relative Strength Index Oscillator is a powerful tool that is suitable for chart analysis :

1. The relative strength index forms patterns that are well known to traders, for example, the “triangle” or “head and shoulders”. An unsuccessful swing, that is, a short-term break through resistance or support levels, occurs when the RSI decreases above or below the previous peak (maximum and minimum, respectively).

2. Base and top. When analyzing, it is worth considering that the peaks of the relative strength index are formed at a level of more than 70, but below 30. In practice, they are formed faster than the minimum and maximum peaks on the real price chart.

3. Resistance and support. Thanks to the features of the relative strength index chart, support and resistance levels are visible much better than on the price chart.

4. Discrepancy. It was stated above that a divergence is formed when the price reaches its peak, which is not confirmed by a new minimum or maximum indicator on the oscillator. In this case, prices are adjusted in the direction of RSI movement.

The RSI Relative Strength Index was invented by J. Walder in the 70s of the last century. Among all existing oscillators, this tool is one of the most accurate and in demand. Not only an oscillator set was developed, but also a classic graphical analysis with current support and resistance lines.

The RSI Relative Strength Index is calculated as follows: :


Using the oscillator, you can calculate the real strength of bullish and bearish sentiment in the market at a certain time by tracking closing prices over the next period. The RSI Relative Strength Index parameter has its own range - from zero to one hundred.

Special lines, located horizontally, and also reflecting the oversold and overbought limits, must cross the lowest and highest limits. Typically, these lines are at levels 70 and 30, respectively. At the same time, in strong trending markets, a change in location is allowed:

In a falling market, the levels can be moved to positions 20 and 60;
- In a growing market - at positions 40 and 80.

There is one more rule that a trader using oscillators must take into account. Auxiliary lines should be drawn in such a way that the Relative Strength Index chart is above the highest or lowest point no more than 5% of the time of the total reporting period (4-6 months). It is advisable to adjust the lines once a quarter. In this case, there are three types of signals generated by the indicator:
- Graphic models;
- Levels;
- Discrepancies.

The indicator should be analyzed taking into account the following principles:

- Buy signal appears when the market is growing and bullish sentiment prevails. Such signals occur when prices fall to their minimum limits. You need to buy as soon as the oscillator begins to grow. At the same time, it is worth placing a stop loss below the lowest price limit. The buy signal is strongest when the penultimate minimum point of the Relative Strength Index is below the lower additional line, and the last one is placed above it. In a falling market, the picture will have a mirror image;

- Sell signal It will be most obvious if the penultimate peak of the oscillator is located above the level of the upper additional line, and the last price, on the contrary, falls below.

Compared to other indicators, the Relative Strength Index is the most accurate. The reason is the indicator’s ability to anticipate the current price movement, giving the trader the opportunity to predict the market and make a profitable trade. For example, the oscillator line can change 1-2 days before the current price does.

Basic rules for analyzing oscillator trend lines:

1. When the oscillator curve is above the upper additional line, this indicates a clear upward trend and the predominance of bullish sentiment. On the other hand, here we can talk about the overbought market and the transition to a period of sales.

2. When the oscillator curve passes through the downward trend line of the Relative Strength Index, you need to place a buy order. In the opposite situation, when the ascending line of the oscillator is broken, you can start selling.

3. When the index curve is below the lower auxiliary line, this indicates the dominance of bears in the market. This also indicates that the market is oversold and active purchases in the future.

4. You can buy taking into account the oscillator signal only on a growing market. There is an important point here. Even a strong market trend (regardless of direction) can cause the oscillator to reach a critical value. At the same time, it is too early to draw conclusions about whether the market is overbought or oversold, because such a decision can lead to the closure of profitable transactions.

The situation can be described with an example. Let's say the market remains overbought for a long time. The fact that the oscillator has climbed above the upper auxiliary line does not mean that it is necessary to close long positions and open short positions. If the oscillator goes beyond the mentioned line for the first time, then this is only a signal, a warning for market participants. Only with a secondary breakthrough can we talk about a more or less stable trend.

There may be situations when the oscillator does not confirm the fact of a price increase or decrease. In this case, a double trough or peak is formed. In this case, you need to take a number of measures to protect already open positions. In a situation where the curve turns around and closes the previous decline or peak, there is no need to rush to exit. Here the best option- setting additional stop orders.

Additional technical analysis indicators

In addition to the tools listed above, the following indicators can be distinguished:

1. Average Directional Movement is a popular technical indicator that can be used to determine future price trends.

2. Commodity Channel Index- type of technical indicator that is used to deviate the price financial resources from the average parameter. When the index parameter is high, the value of the asset is considered to be overestimated, and when the index parameter is low, it is considered underestimated.

3.Demarker- an indicator that reflects the difference between two bars (current and previous). The readings are recorded if the maximum parameter of the previous bar is lower than the current indicator. The numerator contains the total volume of parameters. The denominator contains the same value, as well as the sum of the differences between the lows of the price of the previous and current bar. If the parameter drops below 30, this indicates an upward price reversal. If the parameter is greater than 70, then there is a high probability of a change in the movement and its downward direction.

4. Envelope- technical analysis indicator, which is processed by 2 CC lines. One is located a little lower, and the second is higher. If the market goes beyond certain limits, then a quick change in trend is possible.

5. Moving Average- a popular CC indicator, which is used to calculate complex indicators. The calculation is carried out with a certain period. The larger the size of the latter, the lower the risk of false signals.

6. Parabolic SAR- one of the indicators, which is plotted on a price chart. It is similar in principle to the indicator described above. The only difference is that Parabolic SAR moves with the greatest acceleration and can change its position in relation to the price. If the curve passes through the indicator line, then there is a risk of the indicator reversing. In this case, the following parameters will be located on the opposite side. The fact of the indicator reversal signals a reversal (completion) of the trend.

7. Rate of Change- an effective oscillator, which can be used to judge the percentage price adjustment in different periods. The calculation is made from the position of comparison of the current this moment value and value of the previous period (the latter lags behind the current one for a certain number of periods - from 1 minute to 30 days).

8. Standard Deviation- an indicator that reflects how much the price changes over a certain time period. The standard deviation is calculated as the root mean square average of the difference between two indicators - price and moving average.

9. In addition, there are such indicators as William's Percent Range, Omega Tradestation and others.

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When opening MetaTrader for the first time, every beginner experiences a slight attack of panic. Which is not surprising! How not to get confused here: a whole bunch of windows with obscure multi-colored graphs. Everything moves, blinks - your eyes run wild, and your hand reaches for the mouse to close this terrible program. Calm, just calm! These unfamiliar colored lines can help you in trading, because they are there for a reason and are called technical analysis indicators.

You may ask: what is an indicator? This is a small script that allows you to track and predict price movements, determine the trend, the number of transactions per minute, sales volumes and many other market factors. Each indicator is based on some idea. For example, the core of oscillators is the “spring” theory, which states that the price always returns to its previous value. Unfortunately, not all indicators are useful, some of them do not provide any valuable information at all, while others are completely harmful to trading. When choosing an indicator, you need to remember one rule: they are all imperfect and there is no ideal indicator.

MetaTrader has several dozen built-in technical analysis indicators; you can download an endless number of their modifications on the Internet, and in the script editor, if you wish, you can easily make your own. Don’t worry, you don’t need to know each one thoroughly in order to successfully trade on Forex, especially since indicators of the same type are practically no different from each other - it’s enough to understand the operating principle of one to master the rest. Rather than studying each indicator in detail, it is better to study. Technical market indicators are divided into several types: trend indicators, oscillators and non-standard auxiliary indicators.

Trend indicators, as the name suggests, allow you to determine the direction and warn of a trend reversal. They are usually based on averaging and smoothing of price values. These indicators are not recommended for use in market forecasting, as their values ​​are delayed. These indicators are good for determining the sustainability of an existing trend. This type includes , AMA, Instant Trend Line and others.

Oscillators are, by their nature, leading indicators. They help determine price movements in the near future. Oscillators are most effective during periods of stagnation between two trends, because at the moment of reversal they show extreme values ​​and clearly hint at the beginning of a new trend. Oscillators include others.

Technical Analysis indicators are insidious programs; they can completely confuse a beginner, as they tend to point in different directions. Don't despair, this is not part of a great and terrible plan to ruin novice traders, just another feature of the indicators. Trend indicators are completely useless in the “swamp”, and show false information; oscillators can be misleading in a stable trend. Therefore, you should take into account what the market situation is. Non-standard indicators will help you with this, for example Fibonacci Lines, ZigZag, Deviation Channels and others. In addition, the most reliable and accurate indicator is the price itself on different timeframes.

In conclusion, I want to say: there is no need for fanaticism. At first, you will not be able to do without technical market indicators; even professional traders rarely completely abandon them. To do this, you need to know the market like the back of your hand and feel the price movement like your own pulse. But it’s also not worth covering the window with dozens of charts, otherwise you will completely lose control over the situation. The optimal number of indicators is two or three different types; it is advisable to place them not at random, but according to your chosen strategy. Good luck!