What Are The Best Financial Trading Indicators And How To Code Your Custom One?

Both beginner and experienced traders may agree that financial trading is a highly technical process that relies on a wide range of indicators, charting tools and a general understanding of how to read them.

Therefore, many prospective traders hold off on risking their capital until they have some baseline knowledge of different technical indicators and how to use them.

However, this does not mean that using technical indicators is somehow inaccessible or difficult to use. In fact, many software providers and trading platforms allow users to code their own custom indicators that match their trading strategy.

Regardless of what you are trading – Stocks, forex, crypto, or commodities, you are highly likely to use at least several technical indicators in your decision making process, which is why it is so important to know which ones are best and how to make one for yourself.

The Relative Strength Index (RSI)

The Relative Strength Index, or RSI for short, is one of the best MT5 indicators that is particularly popular among fore traders, as it allows them to measure the speed and magnitude of recent price changes to evaluate if the market is overbought or oversold at current conditions.

The RSI value ranges from 0 to 100 using a 14-period moving average of gains and losses.

It represents the average gain divided by the average loss over a chosen period of time.

• RSI above 70 suggests an overbought market, indicating a possible price correction
• RSI below 30 suggests an oversold market, signaling a potential price rebound

Traders typically use the RSI to identify trend strength, potential reversals and divergence. However, it does come with some limitations, as it can generate false signals during particularly strong trends.

The Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence, or MACD, is another popular trend-following technical indicator that shows the relationship between two moving averages of a security’s price.

It is best used when trying to identify the direction of a trend, as well as its strength and possible reversals.

The general MACD formula – MACD = 12-period EMA – 26-day EMA

Where EMA is an exponential moving average.

A signal line is typically plotted between them as a 9-period EMA and is used to generate buy and sell signals:

• If the MACD crosses above the signal line, a buy signal is generated
• If the MACD crosses below the signal line, a sell signal is generated
• If the MACD diverges from the price, a potential trend reversal is indicated

However, it is important to consider that the MACD alone is prone to generating false signals during choppy market conditions, which is why many traders use the MACD alongside the RSI for increased accuracy.

Bollinger Bands

If you wish to measure volatility on the market, Bollinger Bands may be your top choice, as they help identify overbought and oversold conditions, potential breakouts and price trends.

The indicator is composed of three simple moving averages:

• The middle band – 20-day simple moving average
• The upper band – Middle band + (2 X standard deviation)
• The lower band – Middle band – (2 X standard deviation)

Here’s how Bollinger Bands generate overbought and oversold conditions:

• If the price nears the upper band, this may indicate overbought conditions
• If the price nears the lower band, the market is oversold
• When the Bollinger Bands widen, this indicates increased volatility
• When the Bollinger Bands contract, this indicates decreased volatility and a potential price breakout

Bollinger Bands are often used alongside the MACD, or the RSI, in order to generate more reliable overbought and oversold signals.

Fibonacci Retracement

A more complex technical indicator, Fibonacci retracement levels help traders identify potential support and resistance levels based on key Fibonacci ratios, such as: 23.6%, 38.2%, 61.8% and 78.6%.

Here’s how Fibonacci retracement levels work:

• Identify a significant high and low on a price chart
• Draw Fibonacci retracement levels between them
• Price tends to pull back to these levels before continuing in the trend direction

If the price retraces to 32.8%, this indicates a possible continuation of the trend, while a break below 61.8% indicates a potential trend reversal.

How to code your own technical indicator

If none of the standard indicators manage to address what you are looking for, you can construct technical indicators in accordance with your needs on platforms like TradingView, or you could also ask ChatGPT to provide you with the code snippets that allow you to plot a new indicator on the price chart.

TradingView uses the Pinescript coding language that allows you to build your own technical indicators and publish them on TradingView for others to use as well.

Conversely, you can also use the API of an already established provider, such as Yahoo Finance, Alpaca Trade, or others.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not reflect those of Geek Vibes Nation. Please consult your own legal, tax and financial advisers about the risks of investment. This article is for educational purposes only.