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What type of indicator is best to build an EA ?
Generally Indicators can be classified into 3 broad categories:
1. Indicators which follows trend.
2. Indicators which oscillates between a fixed range.
3. Indicators which follow volume.
Out of these 3 categories volume is useless for Forex as there is no fixed exchange, so true volume is never found. Rest left is to follow the trend and let the oscillator roll.
As per my testing, to get trend direction, moving average is the best tool. There is none other like it which can clearly signify trend but most people laugh out on moving average as they never understand the true potential of moving average. I have given more information on moving averages in a different thread : Deep analysis of candlesticks. This has few unique observation which will help you while building your EA.
Parabolic SAR is a beautiful indicator as it predict the reversal point which can occur. I will come to it a moment latter in next post.
Heikin ashi is also powerful in its own. But its not actually an indicator. Still we will discuss about it in future post.
Other trend indicators like bollinger band or ADX or Ichimoku may look complex and powerful but are completely useless. They make trading more complex then it should be.
Next are oscillators. People talk more about MACD. Its good but slow. By the time we catch a trade with it, its already too late as a result the risk increases compared to the reward. So its best adviced to use alternate oscillator.
ATR just gives the candle movement index so it will come in handy while we combine with any strategy but alone it cannot do anything.
Stochastic and RSI are the best oscillators to follow as they predict the move before it has happened, they are not lagging indicators like others. Combining them can create more powerful EA people could ever imagine.
IN next posts let discuss about each of these promising indicators in details. IF you have any doubt about EA designing, then please read the posts from the beginning and check my other threads, all carry valuable information.