There are exotic currency pairs and exotic indicators. Like many things, they are generally termed or coined “exotic” when they are traded or used by the fewest number of traders. However, this takes nothing away from their efficacy. Just as traders can profit from trading exotic currencies, so they can earn from using so called exotic indicators.
“Exotic” Forex Indicators
Indeed, more traders are coming to appreciate the differences and insights these technical indicators provide, with increasing numbers of traders citing them as the edge they need in competitive markets.
Most traders think of Elliott Waves or Gann Angles and trendlines as “exotic.” However, their application is more widely applied than many traders would acknowledge. They have become more mainstream and less “exotic,” even if the rules and guidelines for their usage are opaque and often contradictory.
While Japanese candlesticks, MACD, moving averages, Bollinger Bands and RSI remain at the top on the popularity scale, traders are increasingly finding that they lack the ability to give a full read of the markets. Without exception, most technical indicators are lagging and most cannot pierce the veil of forward price projectivity. Traders using conventional indicators will usually employ the most conservative of trading strategies to match the information they are receiving. Often, they have little choice as the depth provided by most indicators, is marginal at best. The “exotic” indicators give traders another often deeper perspective and allow the most astute to “open the kimono” on more precise market entries as well as exits.
There are many indicators traders might classify as exotic. Most of them are variations on common technical indicators further developed by traders and programmers for popular trading platforms such as MetaTrader 4. Here are three of the more popular among the unpopular:
Ichimoku. The Japanese pictogram method of viewing moving averages and their relationship to prices. Although this indicator is gaining in usage due to ease of interpretation (all you need are a working set of eyeballs) and the applicability for short term AND longer term traders. This indicator is now finding a larger audience amongst traders as it has proven it’s worth by keeping swing and longer term position traders out of trades predicated on false breakouts and ranging rather than trending price action. The width of the Ichimoku cloud gives traders a margin of error so they can confirm momentum and future price targets while reducing overall trading risk. It is one of the better trading signals since it tends to eliminate much market noise and provide clearer visual cues for the patient trader. The only drawback, is that it can clutter up charts and obscure other indicators, but the advantage of having an “all in one” indicator which includes support and resistance levels derived from previous pricing data...as well as probably support/resistance levels, is catching on.
Heiken Ashi. If you peered over the shoulders of institutional traders, you are not likely to find many using this indicator. Some, consider it a distraction and not very useful for discerning trends. However, it is gaining a following due to it’s inherent simplicity and is a very efficient and easy to read means of filtering out some of the noise generated in volatile markets. Some traders shrink the Heiken Ashi chart window to a small size so they can see trend changes, while keeping their main charts in larger viewing mode. A few platforms (MT4 and MT5) allow traders to overlay the Heiken Ashi over Japanese candlesticks. Most traders will superimpose the candlesticks using black and white for the Hekien Ashi, while employing blue (or green) and red colors for their regular candlesticks. This is one of the best ways to view them as traders can get price as well as trend changes all with one look, and it’s excellent for timing market entries and exits.
Relative Vigor Index. Even fewer traders use this oscillator. Most traders will stick with Stochastics or RSI/Stochastics since it’s what they are most familiar with. However, the more curious traders will give this one a whirl. Indeed, it’s very similar to Stochastics except that the closing price is measured against the opening price instead of the low price. This can confuse traders used to Stochastics, but the Relative Vigor Index (RVI) can provide useful buy and sell signals relative to overbought and oversold conditions. It’s also useful in spotting and evaluating divergences without contorting the trader’s ability to define them.
Custom indicators. These are the true exotics. Traders whom take technical indicators put their own spin or mathematical variations, alter their properties (accelerated, slowed), and program them into software that can be used on trading platforms, while sharing them with the public. There are hundreds of these modified technical indicators for the MetaTrader platforms. Every day, new ones appear making it truly challenging for traders to test and evaluate them. Most traders will not bother until they hear of traders having success with them. Why re-invent the wheel? Generally, traders will stick with the more conventional “exotics” such as Donchian Channels, perhaps substituting them for Bollinger Bands on their charts. Many of the custom indicators are designed to work with proprietary trading systems or algorithms. Many are merely combinations of several indicators rolled into one. Others are simply popular technical indicators, but displayed with alternative variations on charts, while still others are plug-ins that can give statistics about an indicator, such as a counter which shows the number of Heiken Ashi candlesticks. The list will probably grow in the next couple of years as trading becomes more automated. Traders will want an edge-however small-that they can get as trading ranges likely become more constrained by the machines.