Stanley Kroll and Tushar Chande together described a momentum oscillator, Stochastic RSI, in the ‘The New Technical Trader.’ This book talks about how every tick affects the market. You can use it to check if your chosen technical indicators are well-suited for your trading strategy. Stochastic RSI is a momentum oscillator, meaning it measures the change in the price of a security over a period of time. Stochastic RSI also generates overbought and oversold market signals, but it does it more efficiently than its contemporary, Relative Strength Oscillator. 

How does Stochastic RSI work?

Stochastic RSI represents the oscillator indicator that uses the Stochastic formula to a set of Relative strength index (RSI) values instead of standard close price data. The stochastic indicator works as an oscillator that increases the regular RSI indicator’s sensitivity and reliability when trading off overbought and oversold RSI price levels.

When we look chart, we can ask this question:
What are the two lines in stochastic RSI?
Two lines in stochastic RSI are the fast line called “%K.” and the slower line, called “%D,” representing a moving average of %K. Both lines are calculated using the stochastic formula applied to the closing price of RSI.

Stochastic RSI MT4 Download

Please download the stochastic RSI indicator for free.

Stochastic RSI vs. RSI

Difference between Stochastic RSI and RSI

The difference between stochastic RSI and RSI is that the RSI oscillator measures the speed and change of price movements using the closing price of a security to a range of its prices over a certain period of time. On another side, the stochastic RSI measures the RSI momentum and is based on RSI’s closing price.

Difference between Stochastic and Stochastic RSI

The difference between stochastic and stochastic RSI is that the stochastic oscillator measures momentum using the closing price of a security to a range of its prices over a certain period of time, and on another side, the stochastic RSI measures the momentum of the RSI and is based on the closing price of RSI.

Trading with RSI and stochastic indicators

According to Kroll and Chande, the ideal setting for overbought/oversold signals is at 80/20. This is different than the usual 70/30 setting of a normal RSI.

Understanding trading signals:

• As the Stochastic RSI falls and comes down below the oversold level before recovering, it’s time to go long.
• As the Stochastic RSI rises and crosses over the oversold level before falling, it’s time to go short.

It is better to use this momentum oscillator with a trend filter to confirm the trend’s direction. You can follow it and plan your exit when the signal is opposite rather than in reverse.

Following the Trend using Stochastic RSI

This momentum oscillator still has the same problem as its counterparts; it can push the traders out of the trade too early, especially when the trend is week. Therefore this oscillator should not be used alone. You must use it with trend filters to ensure that the signal’s strength doesn’t push you out prematurely. You can use Stochastic RSI in conjunction with the Moving Averages or other non-momentum oscillators like the accumulation distribution line.

Setting Up Stochastic RSI

Like most of the technical indicators, this oscillator also comes with a default setting of 14 days. The overbought/oversold levels are set at 80/20. If you wish to change the settings, you need to adjust the indicator panel settings. 

• Go to Indicators and select Stochastic RSI. You will find it in the panel’s left column.
• You will come across ‘Edit Indicator Settings.’ Click on it, and you will get the option of changing the default settings.
• You can even change the indicator colors. You will see an ‘L’ on the toolbar. If you can’t spot it, type ‘L’ on your keyboard. You can adjust individual colors by using the color patches.

Stochastic RSI Calculation – stochastic RSI formula

Stochastic RSI formula is:

where

X is a period usually 14

RSI = Current RSI reading;

Lowest RSI = Lowest RSI in last X periods

Highest RSI = Highest RSI reading in the last X period

This is how you can the Stochastic RSI value:

1. First, you need to calculate the RSI or the Relative Strength Index for a chosen period of time of a data series. 
2. Once you have your RSI value, subtract the minimum value for the chosen period from the latest RSI value.
3. Again, subtract the minimum value for the chosen period but from the highest RSI value. Keep in mind that the time period should be the same. 
4. No divide the result you got from point number 2 by the result you got from point number 3. This will give you the Stochastic RSI value.

Stochastic RSI trading strategy

Usually, the stochastic RSI indicator strategy is based on the idea to BUY when the main trend is in bullish and stochastic lines cross in the oversold area and to SELL when the main trend is bearish and stochastic lines cross in the overbought area.

This indicator can be used to buy or sell a security when it is in pullback mode, after correction.

Stochastic RSI trading strategy example:

BUY if the price is above SMA 100 on the H1 chart AND stochastic RSI lines K and D are just crossed in the oversold area.

Sell if the price is below SMA 100 on the H1 chart, AND stochastic RSI lines K and D are just crossed in the overbought area.

You, as a trader, can calculate stop loss in several ways. One of them is to set stop loss based on volatility (ATR) rather than a fixed number of pips.

What does ATR mean?

ATR means Average True Range, and it is an indicator widely used in technical analysis in financial market analysis. ATR measures volatility in the market, how much an asset moves, on average, during a given time frame. Welles Wilder Jr. has introduced ATR in his book New Concepts in Technical Trading Systems.

In Metatrader, you can add ATR as Add indicator>Oscialltors>Average True Range. The default period is 14.

How to use the ATR indicator?
To use the ATR indicator, first, you need to add the ATR indicator on the daily chart. Then it would help if you read the average true range for a price for the current date. Using ATR, traders can define the target and stop-loss. If ATR is wider and the stop-loss and the target will be wider. If ATR is narrow, stop-loss and target will be narrow.  See the image below:

The ATR is widely used as an exit and entry determiner in markets when making such decisions.

This article will discuss how ATR can improve your trading and use ATR as a stop loss. Stop-loss or sl in forex represents the allowed risk for each trade.

Size/range of the ATR

As the range varies, it is important to take a designated value to measure market volatility. The generally accepted practice is to adapt the best of these: current high less the current flow, the current high absolute value less the previous close, and the current absolute value. It would help if you took the average actual range. It’s more than a moving average. It is determined by using the true range for 14 days.

In this image, we can see on the Daily chart the Average true range. As you can see, GBPUSD is in rising volatility. Price is going down, but volatility is high. It is because of Coronavirus news.

Today, 229 pips are the daily range, and just a week ago, it was around 80 pips.

How Can Average True Range (ATR) Improve Your Trading?

As a trader, you can use a short period of fewer than 14 days to accrue trading signals. This is because longer periods are likely to generate fewer trading signals. For example, a short-term trader wants to evaluate the volatility of a stock during a five-day period.

The trader could have to estimate the ATR for the five-day period. As prices are arranged in the chronological order, the trader gets the absolute value at the maximum level at the current high minus current low, the absolute value of the current high less the preceding close, and the absolute value of the current low less preceding close.

How to calculate ATR?
To calculate ATR, you need to find the difference between the highest high price and the lowest price for each bar for the observed period. For example, Daily ATR(14) will be the average distance from the highest high price and the lowest low price every day in the last 14 days.

Average True range = ATR = Average Sum (MAX (BarHigh, PreviousBarClose) – MIN (BarLow, PreviousBarClose))

Average true range stop loss you can calculate as Daily ATR percentage or Weekly ATR percentage. By default, ATR indicator settings are 14 days. In trading, some traders use 24 or 30 too.

What is ATR Trailing Stop or ATR stop loss?

ATR trailing stop or ATR stop loss represents stop-loss price level determination using the ATR indicator. Instead of a fixed number of pips, ATR stop loss is calculated based on current volatility. For example, if the average true range for the last 14 days is 98 pips, a trader can set an automatically calculated stop loss to be 98 pips instead of using a fixed number of pips all the time. Usually, ATR stop loss can be calculated based on percents, which give the trader ability to create various strategies (20% from Daily ATR stop loss, 50% from daily ATR stop loss, etc.).

Download ATR indicators

Here you can download the ATR indicator and download the ATR stop indicator MT4:

ATR indicator download
ATR stop loss indicator mt4 download

ATR forex strategy

ATR forex strategy usually implies using ATR indicator either to calculate ATR stop loss or ATR target price or both. If ATR is wider and the stop-loss and the target will be wider. If ATR is narrow, stop-loss and target will be narrow. 

So how can we use ATR stop loss for the forex stop loss indicator?
We can set out a stop loss in the function of ATR.
For example :
You can set 20 pips for stop loss if today is 100 pips average true range. But even better you can do:
Instead of 20 pips, you can set stop loss to be 0.2 Daily ATR. If today is 100 pips range, it will 20 pips, but if it is 150 pips range, it will be 30 pips stop loss. Your stop loss is following the current market average true range.

So in your forex stop loss indicator, you need to set stop loss as an ATR function.

The ATR can also help decide how much you should devote to derivative markets. This is important. You can use it to measure the trader’s amount of inclination to embrace risk and the volatility in the market.

ATR stop can help in day trading

If you use the ATR as a tool in the day intraday trade chart, the ATR is likely to increase steep following the market’s opening. The ATR spurts even at the beginning of the day, thanks to the high volatility at the moment. The ATR can show that the volatility was more than the preceding trade day.

Once the ART reaches the maximum level, it progressively declines all day. Of course, the indicator’s fluctuation may not provide any information barring the price and its average value at any minute. Likewise, the ATR can show how much each of your assets moves and its moving trend.

You can use the ATR to determine the price reached by your asset at any minute. Such analysis helps predict the tendency in the market movement – the probable trend.

How can you use the ATR forex indicator besides entry and target?

The ATR shows the actual movement in price tendencies. To determine the time that price takes to reach profit live, divide the profit you expect by the ATR. So you can connect ATR and profit as well.

As a guide to exit the market

You can use the ATR to leave the market if you find the assets’ price moves against your expectations. It can guide you when you should decide to exit the market.

By this, you can protect yourself against potential loss by knowing the market movement tendency beforehand.

How it works

It would help if you took note of the ATR value at the moment. You can find out the suitable limit by double the ATR. Thus, when you buy a stock that is losing, you can arrest the loss at ATRx2. The loss increases and reaches the peak level and stays there until the close of trade because of the drop in price that could impact the stop loss level. For short trades as well, this mechanism works.

What does the ATR Stop tell us about?

The author of the ATR had the intent to measure the volatility in the commodity market widely known for its volatility. However, note that ATR can also be used to measure the volatility and in stocks and indices.

The way it’s used in the stock market is this: when a stock experiences high volatility, it will cause a higher ATR. Contrary to this, a low volatility stock assumes a lower ATR.

Market experts may use the ATR as an instrument to influence investors – they can advise the latter to exit trades. They can use it as a useful instrument to add to a trading system.

ATR stop is a helpful tool for market analysis to scale the volatility experienced daily for any asset more correctly. This involves using plain calculations.

Be aware that the indicator does not imply the direction price moves. It can show you the volatility resulting from gaps and the limit that the market goes up or down.

It’s also important to note that the ATR is simple to calculate, and for this, you need data on price on a historical basis. The starting step to calculate the ATR is finding a series of true range values for an asset.

Conclusion

The ATR indicator is a great tool that helps traders determine the right amount of money they should devote at the right time. Of course, you should have enough exposure to the market – how to use the tool and the potential impact on the ultimate findings. By using the tool judiciously, you can protect your money without having to spend a lot of time that would otherwise you squander. You can, thus, start trader on the day, and you can also sense when you should devote more money to the market, and you can sense the threatening perception and exit the market.

MACD Indicator MT4 With Two Lines- Understanding And How To Trade

As you know, the MACD indicator in MetaTrader has only a histogram and one line instead of two lines, as we can see in theory. This article will offer you to download the MACD indicator with two lines, and we will talk about this indicator.

MACD traditional indicator MT4 download

Please download MACD indicator MetaTrader 4 with two lines: 2 line macd indicator for mt4 free download)

The best MACD indicator for MT4 is an indicator with two lines and one histogram. This indicator visually better represents the change of the trend and enables traders to understand better the cycles of changing bullish and bearish trends. Indicator MACD two lines show that momentum is increasing if the two moving averages are diverging, and if they are converging, momentum is weakening.

The world of trading has grown exponentially with the advent of the internet and online trading platforms. Nowadays, there are many indicators, yet MACD is still one of the popular among experienced traders. This article will learn what the MACD indicator is all about and how you can trade it or incorporate it into your current trading strategy.

MACD Forex – What Is The MACD Indicator?

MACD or Moving Average Convergence Divergence represents an oscillator that measures price momentum, and traders usually use it as a signal for entry or exit positions. MACD can be used whether it is range, bearish or bullish market. Gerald Appel developed this indicator during the 1970s.

When you first look at the MACD indicator, it cannot be obvious. This is understandable as it is usually presented in another window with bars and two lines. Before you can trade the MACD, you will need to learn what those lines and bars represent.

The bars and lines that you see in the MACD indicator are derived from its numerical settings. The “standard” setting is 12,26,9. These numbers are derived from the old days in which trading sessions were six days a week. The standard MACD settings represented price movements of one and a half, two, and four weeks. These days, typical trading sessions are now five days a week. Hence, it’s possible to adjust the “standard” setting to adapt to today’s trading environment. And yet, it’s also possible to use the “standard” settings as it’s most commonly used by traders, which is usually a good thing in trading. From these settings, the MACD indicator mt4 with two lines and bars are then produced.

First, put your focus on the two lines that typically oscillate within the confines of the indicator window. MACD is basically an EMA with a twist. Plenty of traders use two EMA’s as part of their trading. Usually, there’s the fast one and the slow one. Using two EMAs aims to identify the overall trend better or even signal entry or exit.

The MACD builds upon this concept as it still incorporates a slow and fast line. However, it has a unique twist. Do you remember the setting mentioned above (12,26,9)? Well, the fast line is produced by subtracting the 26 EMA with the 12 EMA. For the slow line, it merely uses the value of the 9 EMA.

To produce the bars, take note of the 9 EMA, which is considered the slow line. Next, observe how the fast line goes up and down the slow line. Imagine that you stretch the 9 EMA into a straight line, and while doing so, the fast line will also ‘contort’ along with it. Then represent that contorted line in the forms of bars, and that’s how you get the iconic MACD bars, also known as histograms. Now that you understand how the MACD is produced, you can better understand how to trade with it.

You can read more about the best MACD settings for intraday trading in our article.

Trading With MACD Indicator MT4 With Two Lines

Please download Macd indicator mt4 two lines: macd mt4 2 lines download indicator.

Metaquotes create this indicator, and it is a basic trading indicator.

This version has nice colors. You can edit in input :

Keep in mind that at the end of the day, the MACD is not a magic bullet. It is just a tool that will help you with your trading. This means that using this tool is up to you, and there is no right or wrong way of using this indicator. However, this article will show you the basic ways of trading the two MACD lines and other strategies.

You use the fast and slow line crossovers as a signal for entries and exits. For example, if you want to go long, you wait for the fast line to come from below, crossover to the top of the slow line, and enter a “buy” position. To exit, wait for the fast line to crossover towards the bottom side. This is perhaps the most basic way of trading the MACD, but here’s the thing.

Another useful attribute of the MACD indicator is its ability to gauge the price’s momentum, which is why this indicator is common among momentum traders. To have a better idea of the price momentum, you’d want to refer to the MACD bars.

The longer the bar, the more momentum the price has. What’s neat about this is that you can compare the current bar’s momentum and refer it to the previous bar or bars for easily eyeballing momentum strength or weakness. For example, if the current bar is longer than the previous bar and the previous bar is longer than the one that precedes it, you can say that the price is gaining momentum. This indicates that this momentum trend is likely to continue until it shows signs of weakness. If the opposite happens and the bar gets shorter and shorter, you can say the price momentum is weaker. But the MACD indicator has another attribute that sets it apart from other indicators, and that’s the divergence and convergence.

The longer the bar, the more momentum the price has. What’s neat about this is that you can compare the current bar’s momentum and refer it to the previous bar or bars for easily eyeballing momentum strength or weakness. For example, if the current bar is longer than the previous bar and the previous bar is longer than the one that precedes it, you can say that the price is gaining momentum. This indicates that this momentum trend is likely to continue until it shows signs of weakness. If the opposite happens and the bar gets shorter and shorter, you can say the price momentum is weaker. But the MACD indicator has another attribute that sets it apart from other indicators, and that’s the divergence and convergence.

The easy way of understanding convergence and divergence is by referring to the price trend and the histogram. For example, the price swing high of the short-term trend is going higher and higher. However, if you look at the peaks of the histogram, it’s going lower and lower. This is what is called a divergence.

On the other hand, if the price swing lows of the short-term trend are going lower and lower, but the troughs of the histogram are going higher and higher, then this is described as convergence.

The appearance of divergence and convergence may be a signal that a possible trend change is coming. Thus, you may want to take positions that are counter to the current short-term trend. Entering a position before a price move is usually considered a “leading” strategy instead of a “lagging” strategy.

Wrapping It All Up

The MACD is an indicator that can trace its roots back before computers and online trading became popular. You can say that it’s a useful tool as it stood the test of time. The MACD indicator’s beauty can be used as a “lagging” indicator and a “leading” indicator. Such an attribute is what sets it apart from most of the technical indicators out there.