Trading Indicators Explained
Every indicator is a transformation of price, volume or both. Understand what one actually calculates and you will know when it can help you and when it is just repeating something you already knew.
The mistake that costs most traders:
Adding more indicators feels like more confirmation. It usually is not. Most oscillators are the same closing prices recomputed slightly differently, so five of them agreeing is one signal counted five times, and that illusion is strongest exactly when a move is stretched and about to turn.
Beginner 04
Straightforward tools that show one thing clearly.
Envelopes
Envelopes are a moving average plus and minus a fixed percentage
↗BeginnerFractals
A fractal is simply the highest high of five bars
↗BeginnerRate of Change (ROC)
ROC is the percentage change in price over N bars, nothing more
↗BeginnerZigZag
The ZigZag redraws its last leg as price moves
Intermediate 06
More nuanced tools where the settings and the context matter as much as the signal.
Accumulation/Distribution Line
The A/D Line adds up volume weighted by where each bar closed in its range
↗IntermediateElder-Ray (Bulls Power / Bears Power)
Bulls Power is the high minus an EMA and Bears Power is the low minus the same EMA. What that measures, how to…
↗IntermediateForce Index
The Force Index multiplies each bar's price change by its volume
↗IntermediateHull Moving Average
The Hull MA reduces lag by extrapolating from two weighted averages
↗IntermediateRenko Charts
Renko charts draw a brick only when price moves a set distance, so time disappears
↗IntermediateStandard Deviation Indicator
What the Standard Deviation indicator actually calculates, how to read expansion and contraction, where it…
Advanced 04
Tools that need real understanding of what they calculate before they are useful.
Anchored VWAP
Anchored VWAP is the volume-weighted average price since a point you select
↗AdvancedChaikin Oscillator
The Chaikin Oscillator is a MACD run on the Accumulation/Distribution Line
↗AdvancedLinear Regression Channel
A regression channel is the least-squares line through your chosen bars, with bands either side
↗AdvancedUltimate Oscillator
Williams built the Ultimate Oscillator to blend three lookbacks into one line
How many indicators do you need?
Fewer than you think, and from different categories. One for location, one for direction, one for a trigger, one for conditions. Adding a second oscillator to a chart that already has one adds nothing but confidence you have not earned. See confluence trading for the redundancy test.
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Start free trialFrequently asked questions
What is the best trading indicator?
There is no single best indicator, because each one measures a different thing and none predicts the future. What matters more is using few enough that you understand each one, choosing them from different categories so they are not measuring the same thing, and knowing the conditions in which each becomes unreliable.
Does the ZigZag indicator repaint?
Yes, by design. Its most recent leg redraws as price moves, so what you see on a historical chart is not what was visible at the time. It is useful as a visual aid for identifying swings, but it cannot be used for entries and any backtest built on it is invalid.
How many indicators should I use?
Usually three or four at most, and from different categories. Several oscillators on one chart tend to be recomputations of the same closing prices, so their agreement is not independent confirmation.
Do indicators lag price?
Most do, because they are calculated from prices that have already happened. That is not a flaw to be engineered away: smoothing reduces noise at the cost of speed. The question is whether the delay is acceptable for your timeframe.
Which indicators come built into MetaTrader 5?
MT5 ships with a large standard set including moving averages, MACD, RSI, stochastic, Bollinger Bands, ATR, ADX, Ichimoku, parabolic SAR, fractals and ZigZag. Others, such as anchored VWAP or Renko charting, need a custom indicator or a third-party tool.