Custom Indicator

Most trading systems offer a variety of standard, built-in indicators that allow traders to carry out technical analysis before executing trades. However, there may be situations when traders wish to modify the variables used in analysis in order to assign their own conditions for examining market trends or executing trades.

What Is A Custom Indicator?

A custom indicator is a charting tool that allows the user to modify parameters freely within charts that generate trading signals and alerts. Generally, custom indicators can be created using electronic trading platforms offered through online brokerages and dealers. They're typically created using simple algorithms with existing variables. Some systems for custom indicators require knowledge of coding, while others provide a user interface that eliminates the need for coding.

MetaTrader 4 and MetaTrader 5 are some of the commonly used platforms, also known as MT4 and MT5. The MetaTrader platforms were developed by MetaQuotes Software using the MQL4 and MQL5 programming languages.

Any number of custom indicators can be created according to the desire of the trading platform user. Possible uses for custom indicators include creating alerts when prices hit certain levels or when market movements trigger a level on a technical indicator setup. A trader, for example, may want to compare price movements with trading volume over a moving average of days to see if there is a relationship between those two factors.

Regardless of which trends they choose to examine, traders should be able to define verbally and mathematically the factors that describe the trends before creating the indicators. Custom indicators are also available from independent developers.^[1]

Standard Charting Techniques

While it is possible to create a custom indicator entirely from scratch, the following is a list of standard charting techniques that are also frequently customised according to trader's particular interests.

Candlestick Values

One common use of custom properties is to modify the values of portions of candlestick charts. With this procedure, traders can alter the properties of heads, tails and bodies of candlesticks. They can also set parameters to compare the values of candles with previous highs and lows.

Bollinger Bands

This is a charting technique developed by John Bollinger in the 1980s. Bollinger Bands are commonly used to measure price swings through standard deviation. They are formed by a simple moving average surrounded by upper and lower trendlines. When the price volatility contracts, the two bands narrow. When the market becomes more volatile, the two bands widen. With Bollinger bands, the upper and lower lines are typically set at two standard deviations, in comparison with a 20-period simple moving average. However, both the amount of standard deviation and the number of periods can be customised according to specific parameters set by traders.

Donchian Channels

Analyst Richard Donchian developed this technique, which helps measure volatility by comparing the highest price level with the lowest price level over a given number of periods. With this indicator, custom values can be set for time periods to be measured, and sell and buy signals can be set for market prices that appear outside of normal volatility ranges.^[2]

Keltner Channels

Keltner channels were introduced in 1960 by analyst Chester Keltner, and they are frequently used to identify price breakouts, trend reversals and overbought and oversold conditions. Keltner channels plot a middle line based on a moving average, which is determined by user-defined time periods and upper and lower limits that hinge on a user-defined average true range.^[3]