What is the CAM Indicator on MT4?
The CAM Indicator is a study for detecting trends using the Moving Average Divergence/Convergence (MACD) oscillators and the Average Directional Index (ADX) on the same chart.
Coordinated or combination of ADX and MACD scores are assessed in the CAM indicator. The ADX study is used to determine the intensity of the present trend. In contrast, the MACD oscillator is used to determine the trend's direction.
To understand the CAM indicator, you must also understand the underlying concepts. So, let's get into more detail:
Moving Average Divergence/Convergence (MACD) Oscillators
The moving average convergence divergence (MACD) is a momentum indicator that follows trends and displays the connection between two moving averages of a security's price.
The MACD is computed by taking the difference between the exponential moving average (EMA) of the previous 26 periods and the previous 12 periods.
The MACD line is the outcome of the computation that was just done. A nine-day exponential moving average of the MACD, sometimes known as the "signal line," is then drawn on top of the MACD line.
This line has the potential to act as a trigger for buy and sell signals. When the MACD crosses above its signal line, investors may choose to purchase the asset. However, when the MACD crosses below its signal line, investors may choose to sell (or "short") the security.
Moving average convergence divergence (MACD) indicators may be interpreted in several different ways; however, the most prevalent techniques are to look for crosses, divergences, and rapid increases and falls in the indicator.
These can be combined with the Average Directional Index (ADX) to achieve better results.
The formula for MACD is the 12-period EMA - the 26-period EMA. EMA here stands for the exponential moving average. The most recent data points are given more consideration and weight in calculating an exponential moving average (EMA), a subtype of a moving average (MA).
You can read about the Zero Lag MACD here.
Average Directional Index (ADX)
The average directional index (ADX) is a kind of indicator found in technical analysis that some traders use to gauge how strong a trend is.
Two complementing indicators, the negative directional indicator (-DI) and the positive directional indicator (+DI), reveal whether the trend is going up or down. The direction of the trend may be shown to be either up or down.
As a consequence of this, the ADX will often consist of three distinct lines. These are used to assist in determining whether a trade should be taken long or short or if a trade should even be conducted at all.
Due to numerous lines inside the indicator, the ADX calls for a series of computations to be performed.
Calculating the ADX Movement Index
- Perform the calculations necessary to determine the +DM, -DM, and TR for each period. In most cases, fourteen periods will be used.
- +DM is equal to the current high minus the prior high.
- -DM is an acronym for "prior low minus present low."
- When the current high is higher than the previous high and lower than the recent low, use +DM. Use the -DM operator when the prior low minus the present low is higher than the current high minus the last high.
- The true range (TR) is determined by taking the value that is the bigger of the current high minus the current low, the current high minus the previous close, or the current low minus the previous close.
- The 14-period averages of +DM, -DM, and TR should be smoothed. To compute the smoothed averages of those, enter the values for -DM and +DM in the appropriate boxes.
- First 14TR = the total readings from the first 14 TRs.
- The value of the next 14TR is determined by taking the first 14TR and adding the current TR to it.
- After that, to calculate +DI, divide the smoothed value of +DM by the smoothed value of TR. Increase by a factor of 100.
- To find the value of -DI, divide the smoothed value of -DM by the smoothed value of TR. Increase by a factor of 100.
- The directional movement index (DMI) is calculated by taking the value of +DI minus -DI and dividing that number by the total of +DI and -DI (all absolute values). Increase by a factor of 100.
- In order to get the ADX, you will need to keep calculating the DX values a minimum of 14 times. The ADX may then be obtained by smoothing the findings.
- First ADX = total of 14 DX periods divided by 14.
- After that, ADX equals ((previous ADX multiplied by 13) plus the current DX divided by 14.
What Does The CAM Indicator Tell You?
When first using the CAM indicator, all four boolean research plots are concealed by default; in their place, the price plot is colored according to the circumstances represented by each of the plots.
The following criteria are outlined below, along with their related plot titles, the default coloring for the price plot, and potential interpretations:
- When both the ADX and the MACD are moving in the upward direction, the research identifies an upward momentum and colors the price plot green to reflect this.
- CAM PB: The study indicates a likely retreat by coloring the price plot yellow if the ADX and MACD simultaneously move downward.
- CAM DN: The study detects probable circumstances for a downtrend and colors the price plot red when ADX increases while MACD decreases. This combination is known as an "uptrend divergence."
- CAM CT: The study identifies a likely countertrend rally and colors the price plot blue when the MACD rises while the ADX drops. This occurs when the MACD is rising, and the ADX is declining.
Conclusion
The CAM indicator is great at identifying trends and seeing the relevance of these trends concerning the present time.
How you interpret the signals given by these indicators makes you a good trader who can make profits.
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