This article will focus on a technical analysis tool that can be used both as the main component of a trading strategy and as an effective filter. Forex market indicator Absolute Strength Histogram analyzes the market situation and generates recommendations for opening trade deals. It is suitable for trading with any currency pair and on different timeframes. There are no special features for installing the indicator in MT4. We do it in the usual way. You can change the settings if you feel like it is necessary. With them, I will begin my review of this technical analysis tool.
If you open the corresponding tab, you will see that there are many parameters. I will tell you about the most important ones.
The algorithm of this indicator contains the readings of two indicators: stochastic and RSI. But the trader is given the right to choose which signals will be priority. There is a Mode parameter for this. If you want to select a stochastic, then write down on this line 1. Well, if the RSI is 0
The next rather important parameter is Length. It can be used to specify the number of candles that the Absolute Strength Histogram should use in its calculations.
The level of smoothing can be set using the variable Smooth.
Signal is a parameter used to customize the signal line displayed in the window.
Finally, the indicator needs to be told what type of price should be used in its calculations. This is done using the appropriate Price parameter.
Indicator application conditions
The forex market indicator, which is discussed in this article, shows great efficiency when used to filter signals received from other technical analysis tools. But it can also be used to determine the points of entry into the market. However, in this case, I highly recommend using filters.
Signals are easy to read. The green color of the bars displayed in the indicator window indicates the predominance of the upward movement in the market. Accordingly, the red color indicates a downward movement. Based on this, we proceed as follows. As soon as the color of the bars has changed from red to green – open a buy order, from green to red – a sell order. But these signals must be confirmed. If the Absolute Strength Histogram is used as a filter, then when receiving a signal to enter the market from another indicator, we look at the color of the bars. It must correspond to the direction of the proposed transaction. You can try both options for using the indicator on a demo account.