Candles is a simple technical indicator of Forex volatility for the MetaTrader terminal.
The height of each bar of the indicator’s histogram is expressed in points. Different customizable colors highlight the relationship between the body of the candles and their shadows.
The height of the column of the histogram of the indicator corresponds to the distance from the minimum to the maximum point of the candle of the current time frame in points. The color of the column is adjustable and depends on the type of candle, bullish or bearish. If the candle is bullish, then the top of the column is green, and the bottom of white, if the candle is bearish, then the top is red, and the bottom is also white.
On the histogram of the indicator, an indicator of the moving average is computed and reflected on the basis of data on the size of the candle bodies. For example, in the upper example, the Candles indicator is plotted on the daily chart of the EURUSD currency pair. In this case, the moving average for 100 days is reflected in a dark blue color. Light-blue color is allocated a level corresponding to the average value of the body of the candle on the EURUSD pair, whose value is 420 pips. This gives us information on the average volatility in the body of a candle on a pair over a long period and we see that this value is very constant over a long time period.
In the upper right corner of the indicator window, the time (min: sec) is displayed that remains until the candle closes, which depends on the current time frame. Under the time information, information is displayed on the number and type of the last 20 candles. The first number is the number of bear candles, and the second number is bullish. The color of this inscription depends on the ratio of these candles. If bearish candles predominate, then the numbers are red, if bullish, then the color is green. Number of candles for which information is displayed, customizable.
- MA is the period of the moving average over the bodies of the candles;
- t – number of candles to reflect information about the ratio of bull / bear candles.
0 – the color of the upper part of the column, if the candle is bearish;
1 – the color of the top of the column, if the candle is bullish;
2 – the color of the bottom of all columns;
3 – the color of the moving average.
In my opinion, the most informative indicator Candles gives when applying on the daily charts. In the upper chart, we have already determined the average value of the change in the EURUSD currency pair price for a long period (420 pips) using the indicator and reflected it using the indicator level. Let’s change the parameter of the average to 5 days (trading week).
We see that the average body range of the candle on the EURUSD pair fluctuates in a fairly stable range. The lower value is 170 pips, the maximum is 720 pips. These values are also marked on the indicator by price levels.
As a result, we obtained the parameters of the averaged values of the daily changes in the EURUSD currency pair. This information can be used for intra-day trading to determine the closing levels of positions. Or when making decisions about opening positions.
For example, if during the day the pair has already passed over 720 pips, then it is very dangerous to open the position in anticipation of the continuation of the movement due to the high probability of price retracement to long-term average values. And in the event that you have a profitable position and the indicator has significantly exceeded the average range of the pair, it is advisable to fix the profit (in whole or in part).
Note that if the five-day average falls to the lower value of the volatility range, then the period of increasing volatility is more likely to follow, which may provide good trading opportunities.
For additional information of the indicator it is possible to impose on the indicator Candles a standard indicator ATR (Average True Range), which is a very popular indicator of volatility.
To correctly reflect both indicators in one window, you must select the same maximum and minimum values in the settings of each one (the “Parameters” tab). As we see the dynamics of the two indicators is very similar. The black horizontal line is averaging the value of the ATR indicator for 100 days. The ATR indicator with this approach is useful to use to close positions on volatility. As a result, we received a very powerful system for analyzing the volatility of any currency pair in the forex market.
We should not forget that Candles is an indicator of volatility and it is not intended to determine the direction of possible currency movements in the forex market.
I think that you will find other ways of applying the Candles indicator depending on the parameters of your trading system.
Download the Candles indicator for free and without registration you can click on the link – Candles Indicator.