Indicators

What Are Indicators in Forex?

(Bonus Content down below)

Indicators are tools used in forex trading to analyze price movements and help traders make decisions. They are usually applied to charts and help identify trends, momentum, volatility, and potential entry/exit points. 

📊 Common Types of Indicators:

  • Moving Averages (MA) – Smooth out price data to identify trends.

  • Relative Strength Index (RSI) – Measures momentum to identify overbought/oversold conditions.

  • MACD (Moving Average Convergence Divergence) – Shows trend direction and strength.

  • Bollinger Bands – Measures volatility and potential reversals.

  • Stochastic Oscillator – Indicates potential trend changes.

📍 Where to Find Them:

  • MetaTrader 4/5 (MT4/MT5) – The most popular forex platforms. Go to the "Insert" → "Indicators" menu to add them to your chart.

  • TradingView – A browser-based charting platform that offers hundreds of built-in and community indicators. 

  • Custom Indicators – These can be downloaded or coded and added to platforms like MT4.

Creating Your Own Forex Trading Bot (Expert Advisor)

You can automate your strategy using a trading robot or bot, often called an Expert Advisor (EA) in MetaTrader.

Steps to Create a Forex Trading Bot:

  1. Define Your Strategy:

    • Choose your indicators.

    • Set entry and exit rules.

    • Define risk management (lot size, SL, TP).

  2. Choose a Platform to Code On:

    • MT4/MT5 uses MQL4/MQL5 programming language.

    • TradingView uses Pine Script.

    • You can also use Python with APIs (like MetaTrader API, cTrader Open API).

  3. Write the Code (or Hire a Developer):

    • Use the platform’s editor (e.g., MetaEditor for MT4).

    • Input your rules for buying/selling, risk management, etc.

  4. Backtest Your Bot:

    • Test your bot on historical data to see how it would have performed.

  5. Optimize and Forward Test:

    • Adjust parameters to improve performance.

    • Run it in demo before going live.

✅ Example: Simple RSI Bot on MT4

  • Buy Rule: RSI < 30 → Buy

  • Sell Rule: RSI > 70 → Sell

  • SL/TP: 50 pips

This could be turned into an EA in MQL4 in just a few lines of code.

🧠 Pro Tip:

You don’t need to be a programmer—you can hire a developer or use tools like:

  • EA Builders (no coding): Websites like EA Builder, Forex Robot Factory, or Algowizard.

  • ChatGPT (me!) can help you write the MQL4/MQL5 code if you describe your rules.

Conclusion

Indicators are free tools within your trading platform such as Tradingview, Meta trader, and Tradelocker, that traders use when marking up or drawing on their charts during technical analysis. There are many indicators traders use to help them decide when and when not to enter the market and make a trade. Indicators are often created by other traders or coders and can even be used by a "trading bot" to execute trades. You can also code or program a bot to use your strategy with the preferred indicators of your choice. Then, if your bot is successful, you could sell your bot to other traders. Some bots cost a few hundred to upwards of a thousand dollars. Since many indicators are made by so many different people, it's suggested that you test the same indicator across different creators to see which ones work best for you.

Bonus Content

Here are two Indicators along with a thorough explanation about them, along with their creators. I personally use these two as well as a few other indicators since you can use multiple indicators at a time. The mentor that taught me also uses these indicators.

Hopefully you will find these two indicators very useful when marking up your chart.

Fair Value Gaps (FVG): By Nephew Sam

Smart Money Concepts: By (Expo)

 

What is a Fair Value Gap?

A Fair Value Gap refers to a price range where a market has moved too quickly, leaving behind a void or "gap" in price action. In forex, this usually happens when there is an imbalance in supply and demand—meaning that there is a large move in one direction without much retracement or consolidation. The gap represents an area where price didn’t have time to trade and fill in.

These gaps are usually identified after significant price movement, such as a sharp rally or sell-off, and they tend to occur when there's a lack of liquidity, news events, or economic reports that cause a sharp move.

Why is it important?

Fair value gaps are seen by many traders as an area where price is likely to "fill" or return to, in order to balance the market. It's based on the idea that prices tend to move back to areas where they previously skipped over, to consolidate or "correct" themselves.

How does this apply to forex?
In forex trading, price moves can leave gaps because of news events, market sentiment shifts, or changes in the broader economic environment. These gaps are more noticeable during off-hours (like over weekends or during major news releases), and can indicate high volatility or potential reversal points.

How to Identify a Fair Value Gap?

  1. Look for large, sharp price moves:

    • These are typically caused by an imbalance in the market, such as a sudden surge of demand or supply.

    • A price move with little to no retracement leaves a fair value gap behind it.

  2. Identify the "gap" area:

    • The gap is typically between the price levels that should have been traded and the actual price levels that were reached.

    • This occurs when there’s an absence of price action in a given area, and you can identify the gap by looking for regions on the chart that have no candles, or a small amount of candles, in them.

  3. Look for the "fill":

    • After a gap appears, price often retraces back to fill that gap, which can provide trading opportunities.

    • Traders anticipate this and use the gap to enter trades once the price reaches the unfilled area.

How to Trade Fair Value Gaps?

There are a few common ways traders incorporate fair value gaps into their forex strategies:

  1. Gap Fill Strategy:

    • After identifying the gap, traders may anticipate that the price will retrace to fill that gap. This can be a profitable entry point for those looking to trade the reversal.

    • Example: If the market makes a sharp upward movement and leaves a fair value gap, a trader might enter a short position when the price retraces and fills the gap.

  2. Momentum Trades:

    • If the price is moving away from the gap, some traders might look for momentum to continue in the same direction, especially if the gap was caused by news or significant events.

  3. Combining with Other Indicators:

    • Many traders combine the Fair Value Gap concept with other tools such as support and resistance, moving averages, or oscillators like the RSI or Stochastic to confirm their analysis and improve trade accuracy.

Example of a Fair Value Gap in Forex

  1. EUR/USD Example:

    • Suppose the EUR/USD pair makes a significant upward movement from 1.2000 to 1.2200 within a short period. If there’s little to no price action between 1.2000 and 1.2200 (i.e., no small candles or consolidation), a fair value gap forms.

    • As the price moves up and leaves this gap, traders may expect that the price will eventually return to that gap area and “fill” it. So, traders might wait for the price to retrace to that level and use it as a potential buy signal if the market conditions align.

  2. GBP/JPY Example:

    • After a major news release, the GBP/JPY pair spikes from 150.00 to 152.00, creating a gap. As price continues to move away from this level, many traders will monitor it to see if the price will return and fill the gap. If it does, they may take advantage of the move as a high probability trade.

Considerations When Trading Fair Value Gaps

  • Time of the Day: Fair value gaps tend to occur more during off-hours (weekends or after news releases). They may also be more pronounced in major currency pairs like EUR/USD, GBP/USD, and USD/JPY.

  • Market Sentiment: A gap caused by strong economic news or political events can indicate that the market is in a state of high volatility. In such cases, it’s essential to be cautious and ensure you have a solid risk management plan.

  • Don’t Rely Solely on Gaps: While fair value gaps can offer good trading opportunities, it’s crucial to combine this with other methods of technical analysis, including trend analysis and momentum indicators.

Conclusion

Fair Value Gaps in forex represent areas where there is a significant imbalance between buying and selling. These gaps can provide powerful opportunities for traders to predict potential price movements as the market often revisits these areas to "fill" the gap. By identifying these gaps and combining them with other technical indicators, traders can improve their chances of success in the market.

As always, it's important to manage your risk effectively when trading gaps, as the market can behave unpredictably, especially when gaps are created by high-impact news events.

 

Smart Money Concepts

What Are Smart Money Concepts in Forex?

Smart Money refers to the capital that is controlled by institutional investors, hedge funds, banks, and large corporations—basically, the "big players" in the financial markets. These institutions have access to a wealth of information, advanced trading tools, and the ability to move markets in ways that individual retail traders can't.

In the context of forex, Smart Money Concepts (SMC) involves identifying and understanding the market activities of these "smart money" traders. It revolves around interpreting the market in a way that allows traders to align their trades with the large institutions’ moves, rather than trying to compete against them.

Core Principles of Smart Money Concepts

  1. Market Manipulation:

    • Smart money often "manipulates" the market to create price moves that benefit their positions. This manipulation could take the form of liquidity grabs, false breakouts, or pump-and-dump schemes that confuse retail traders.

    • Institutions have the power to create volatility in the market, making it difficult for retail traders to anticipate the direction of price action. However, by learning to identify patterns and market behavior that signal these institutional moves, a trader can “follow the smart money.”

  2. Order Flow and Liquidity:

    • One of the key ideas behind SMC is understanding order flow. Institutions often leave “footprints” or traces in the market by placing large orders. These large orders create liquidity and leave behind traces in price action that a trader can spot and use to their advantage.

    • A liquidity pool is a concentration of buy or sell orders that smart money can exploit. They can manipulate prices to trigger these orders and fill their own positions at favorable prices.

  3. Smart Money vs Retail Traders:

    • Retail traders, who typically trade based on technical indicators or news, often buy and sell based on price patterns like breakouts, support, resistance, or other technical analysis setups. This is exactly what the smart money wants because they can use these patterns to trap retail traders into making mistakes.

    • Smart money tends to focus on longer-term trends and positions, often taking trades based on macroeconomic factors, institutional positioning, and liquidity analysis.

  4. Accumulation and Distribution:

    • In Smart Money Concepts, accumulation refers to the process by which institutions build up positions quietly over time, without causing too much movement in the market.

    • Distribution is when the institutions start selling their positions after accumulating them, often leading to a sharp drop in price once retail traders have been lured into believing the price will go higher.

Key Smart Money Concepts in Forex

  1. Liquidity Pools:

    • These are areas of the market where a lot of buy or sell orders are placed. Retail traders often think of these areas as levels of support or resistance, but institutions see them as opportunities to trigger orders and execute their own trades.

    • For example, if a forex pair has a round number (like 1.2000 in EUR/USD), there are likely to be many stop-loss orders just below or above that number. Smart money might push the price toward this level, triggering those stops, before reversing the direction to capitalize on the liquidity provided by these orders.

  2. Breaker Blocks:

    • Breaker blocks are a key concept in SMC. These refer to areas where the price breaks through a previous support or resistance zone, only to retrace back to it and then continue in the same direction. The idea is that smart money has initiated a move, but it may want to retrace to "retest" that level before continuing in the desired direction.

  3. Market Structure:

    • Understanding market structure is critical to identifying where smart money is likely to be active. The market is often viewed through the lens of higher highs, higher lows (bullish market), or lower highs, lower lows (bearish market). Smart money is typically active in these structural shifts and uses them to position themselves for longer-term gains.

    • By studying these price actions and understanding whether the market is trending, consolidating, or reversing, traders can align their positions with institutional players.

  4. Order Blocks:

    • An order block is a market zone where smart money institutions are placing large buy or sell orders. These are areas where price has either broken out or consolidated and are seen as areas that institutions have "controlled."

    • Traders look for order blocks as potential entry points because they represent a level where institutional buying or selling has occurred in the past, and the market may react similarly when it revisits that price.

  5. Mitigation and Fair Value Gaps:

    • Mitigation refers to when the price retraces to an order block that has been previously "filled" but then starts moving in the opposite direction again, showing that smart money wants to take advantage of those price levels once more.

    • A Fair Value Gap (FVG), as mentioned earlier, is an area where price quickly moves without consolidation, leaving a gap. Smart money traders often aim to "fill" these gaps, knowing that price will likely return to that area for a better entry or exit.

How to Identify Smart Money Activity

  1. Volume Analysis:

    • Analyzing volume can be a great way to see if the smart money is active. High volume often signals institutional involvement, especially if it's coupled with a significant price move.

  2. Price Action:

    • A smart money trader will often look for signs of price manipulation or market imbalances—sharp spikes or sudden price movements that retail traders might mistake as breakouts.

  3. Key Levels:

    • Watching for price action at round numbers, previous highs or lows, or areas with previous congestion is important. These can often be areas where smart money has placed large orders.

  4. News and Events:

    • Understanding how institutions react to economic news can also be a clue to smart money activity. Institutional traders often have access to information before it becomes widely available, and their actions in the market reflect this advantage.

Smart Money Strategies in Forex

  1. Trend Following:

    • Since smart money tends to control long-term trends, following the trend can be a key strategy for aligning yourself with institutional traders.

  2. Contrarian Approach:

    • While most retail traders are buying at the top or selling at the bottom, smart money often does the opposite. Understanding when retail traders are overly bullish or bearish can give you insight into where the smart money might be accumulating or distributing.

  3. Risk Management:

    • Smart money doesn't take unnecessary risks. They focus on capital preservation and understand how to manage large positions effectively. Following this principle in your own trading can help you stay aligned with the professional approach.

  4. Patience:

    • Institutions are patient and often take a longer-term view. Instead of chasing the market, they wait for the right opportunity to enter at levels that offer good risk-to-reward ratios.

Conclusion

Smart Money Concepts (SMC) revolve around the idea that institutional investors, banks, and hedge funds control the market. By understanding their strategies, such as liquidity grabs, order blocks, and fair value gaps, retail traders can align their trades with these large players rather than working against them.

Learning to recognize smart money moves requires patience, knowledge of market structure, and a deep understanding of price action. By incorporating SMC into your forex strategy, you can gain an edge and trade more like the professionals.

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