Introduction to the Colored MA Indicator
Moving Averages are one of the most basic indicators traders use to identify trend direction and trend reversals. One of the ways traders identify trend direction and trend reversals is based on the slope of the moving average line. The Colored MA Indicator uses this theory to identify trend direction and indicates trend direction by changing the color of the moving average line it plots.
What is the Colored MA Indicator?
The Colored MA Indicator is a modified version of the basic moving average line. It plots a moving average line which changes color depending on the direction of the trend it detects. It plots a green line whenever it detects a bullish trend or momentum and a red line whenever it detects a bearish trend or momentum.
How the Colored MA Indicator Works?
The Colored MA Indicator plots an Exponential Moving Average (EMA) type of moving average. It then detects the direction of the momentum or trend based on the direction of the slope of the moving average line. It plots a green line whenever the line starts to slope up and a red line whenever the line starts to slope down.
How to use the Colored MA Indicator for MT4
The Colored MA Indicator has a few options within its indicator settings which allows users to modify the sensitivity and the visuals of the indicator.
“PeriodAv” modifies the number of bars the indicator uses for its computation.
“Flat” refers to the threshold in which the indicator would consider the moving average line as flat and would therefore not paint the indicator as green or red.
It also has options that allows users to modify the color that the indicator plots to indicate the direction of the trend.
“Width” refers to the thickness of the moving average line that it plots.
As a moving average line, this indicator can be used to identify the direction of the trend or momentum based on the color of the line.
It can also be used as a trend or momentum reversal indicator based on the changing of its color. However, this is best done in confluence with a long-term trend direction. Users can add another moving average line to serve as a basis for the long-term trend. In the examples below, we will be using the 50 SMA line as our long-term trend basis.
Buy Trade Setup
When to Enter?
The Colored MA line should be above the 50 SMA line. Wait for price to retrace towards the Colored MA line. Open a buy order as the Colored MA line changes back to green. Set the stop loss below the entry candle.
When to Exit?
Close the trade as soon as the Colored MA line changes to red.
Sell Trade Setup
When to Enter?
The Colored MA line should be below the 50 SMA line. Wait for price to retrace towards the Colored MA line. Open a sell order as the Colored MA line changes back to red. Set the stop loss above the entry candle.
When to Exit?
Close the trade as soon as the Colored MA line changes to green.
Conclusion
The Colored MA Indicator can be a decent moving average line signal indicator as long as its moving average period coincides with the strength of the trend. Traders should also consider price action and market flow when using this indicator instead of trading its signals blindly.
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