Signals Indicator For MT4 – How to Trade with It
A curious indicator, the Signals Indicator For MT4 seems to offer the perfect trading solution for the currency market – it picks the perfect tops and bottoms. Before getting too excited, though, you need to know there’s a catch – the indicator repaints.
However, regardless of this aspect (will explain what repainting means in technical analysis when dealing with indicators), the indicator offers valuable info before buying or selling a currency pair. Coupled with additional clues, it works impressively on all currency pairs and all timeframes (better results seen on the bigger timeframes though).
Editing the Signals Indicator For MT4
First, the default colors don’t work on a white background. That’s especially true for the bullish signal, so changing the color is a priority. To do that, simply right-click anywhere on the main chart, select the Indicators tab, the Signals Indicator For MT4 and under the Colors tab, replace the default Aqua with Blue. Everything looks much better now.
Second, the Signals Indicator For MT4 doesn’t offer the possibility to edit any other characteristic. The only thing we can change is the distance the arrows (i.e. the signals) appear from the entry candlestick.
Under the Inputs tab, the only variable to modify is the Signals Gap. It has a default value of 10, but it is too close to the candlesticks, so if we change it to 200 for instance, the chart looks like below.
Interpreting the Market Using the Signals Indicator For MT4
Now that we edited the indicator as we wanted, it is easier to spot the signals generated. The blue and red arrows show bullish or bearish possible entries. The chart used is the daily USDJPY, one of the most popular and volatile currency pairs part of the Forex dashboard.
As mentioned earlier, the problem with this indicator is that it repaints. Effectively, it means that some (not all) of the arrows will disappear from the screen if the price abruptly reverses after a short period of time. In other words, to be part of a trading strategy, the Signals Indicator For MT4 must be accompanied by some other indicator or technical analysis pattern. On the other hand, if the time passes and the price doesn’t reverse and closes beyond the highest or the lowest point in the signals’ candlestick, the arrows remain in place.
The Signals Indicator For MT4 is not the only indicator that repaints. A famous one is the ZigZag indicator. It also points the tops and bottoms of every market swing, but quickly adjusts the highs or the lows with the most recent price action.
Integrating the Signals Indicator For MT4 with the Japanese Candlesticks Techniques
The simplest way of trading with the Signals Indicator For MT4 is to integrate the signals generated with the Japanese candlesticks patterns. Patterns like the hammer or the shooting star, the bullish or bearish engulfing, the dark-cloud cover or the piercing, the Doji, and so on.
The thing is that the signals that appear on the left side of any chart are only the ones that survived. It means the indicator didn’t repaint the signals and therefore we don’t know exactly how many of them appeared in the first place. Therefore, we must filter somehow the signals generated as an extra safety measure.
Below is the USDJPY showing all the signals generated on the daily timeframe recently. No less than twelve signals appeared on the chart, and we’ll interpret each to see which one formed a Japanese reversal pattern as a confirmation.
The first signal generated is a bearish one. However, it doesn’t look like any of the Japanese candlesticks patterns mentioned earlier. It does resemble a shooting star, but for that candlestick to be a shooting star, its upper shadow must exceed a minimum two times the distance covered by its real body. Not the case here.
The second signal forms a small Doji candlestick (on the currency market the Doji candlesticks do not have exact open and close prices due to the high market volatility and five-digit quotations for most currency pairs). Because the previous candlestick is a bearish one having a strong bearish real body, it suggests a possible morning star formation. The following candlestick confirms the morning star and validates the signal generated by the Signals Indicator For MT4.
Moving forward, the third signal isn’t accompanied by any reversal pattern. However, the fourth signal forms during a piercing pattern, a bullish setup according to the Japanese candlesticks patterns.
The fifth signal appears at the bottom of a bearish trend. Moreover, the price action during the candlestick’s formation reveals a long lower shadow that exceeds the real body’s length more than twice. This is a hammer, a bullish reversal pattern coming to confirm the signal.
The sixth and seventh signals should be ignored. While the market forms something that looks like bearish engulfing, that’s a mistake in interpretation. For a bearish engulfing the second candlestick should NOT exceed the lowest point of the previous candlestick. Hence, no reversal pattern exists so we can ignore the signals.
Out of the remaining signals, only the one marked as number eight should be considered as valid. The market forms a piercing, a bullish pattern confirming the signal.
Money Management with the Signals Indicator For MT4
To sum up, out of twelve signals generated by the indicator, only four were confirmed by a Japanese reversal pattern. Because the Signals Indicator For MT4 appears only at the top or bottom of trends, it makes sense to associate them with reversal patterns.
The reason why choosing the Japanese patterns is that they take a very short time to form, giving the opportunity to trade at or right after the candlestick where the signal forms.
As for the money management rules, always set a stop loss order at the highest or lowest point in the pattern and target a 1:2 risk-reward ratio. However, a conservative approach is needed, so the right approach requires moving the stop loss to break-even once the price reaches 1:1.