SRC Indicator Review – Powerful Momentum Tool for MT4 Traders
The SRC Indicator, short for Smoothie Relative Cloud, is a customized version of the widely popular Relative Strength Index (RSI) technical indicator. It aims to provide traders with enhanced signals and additional features for identifying overbought and oversold conditions.
Overview of the SRC Indicator
The standard RSI indicator measures the speed and rate of recent price changes to determine if an asset is overextended and due for a reversal. It oscillates between 0 to 100 – with levels above 70 signaling an overbought condition and levels below 30 indicating an oversold condition.
The SRC Indicator improves on the original RSI formula in several ways:
- Colored clouds – The indicator plots colored clouds rather than just a line. Blue clouds suggest bullish momentum while red clouds indicate bearish momentum. This provides a visual gauge of market sentiment.
- Enhanced signals – The SRC lines provide earlier detection of imminent reversals through the use of smoothing functions and a weighted moving average applied to the RSI calculation.
- Divergence detection – The indicator helps identify divergence between price and momentum. This warns traders of a potential trend reversal.
- Customization – Users can tweak parameters like the smoothing period and sensitivity to better suit their trading style.
Overall, the SRC provides visually simplified, yet mathematically advanced signals that can boost the potency of existing RSI trading strategies.
Using the SRC Indicator for Forex Trading
The SRC Indicator is well-suited for trend trading strategies across all markets, especially forex. Here are some tips for using it effectively:
- Apply the indicator on your currency chart in a separate window below the price chart.
- Look for colored clouds to gauge bullish/bearish momentum. Blue suggests upside while red indicates downside.
- Watch for SRC crossovers above 70 (overbought) or below 30 (oversold) to anticipate reversals.
- Combine SRC signals with other indicators like moving averages to improve timing and confirmation.
- Use divergence signals for advanced warning of trend changes. If price is making new highs but SRC is failing to exceed its previous peak, expect a reversal lower.
- Customize the sensitivity and smoothing period based on your trading timeframe. More sensitivity and less smoothing for shorter timeframes.
The key is using the colored clouds and crossovers for basic trade signals, while divergence and multiple indicator confluence gives you an edge with timing market turning points.
Benefits of Using the SRC Indicator
The SRC Indicator offers several advantages over the standard RSI oscillator:
Visual Representation of Momentum
The colored clouds clearly highlight whether bulls or bears are in control. This provides an at-a-glance view of market momentum.
Enhanced Overbought/Oversold Signals
The advanced SRC lines utilizing smoothing and weighting functions provide earlier detection of imminent reversals as compared to the standard RSI formula.
Divergence Detection
The SRC makes it easy to identify divergence between price and momentum. This signals underlying weakness or strength ahead of major trend changes.
Customizable Parameters
Users can fine tune the indicator’s sensitivity, smoothing period and colors to suit their trading style and assets traded.
Trend Focus
The SRC is designed to capitalize on trending moves which is ideal for breakout strategies across forex, commodities and indices.
In summary, the SRC Indicator provides visually simplified yet mathematically advanced signals that can significantly boost the profitability of existing RSI-based trading strategies. The combination of clear momentum gauges, enhanced overbought/oversold signals, divergence detection and customization makes this a valuable addition for trend-focused traders.
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Downsides and Limitations
While the SRC Indicator has several advantages, there are some downsides and limitations to consider:
Repainting
Like most momentum oscillators, the SRC is prone to repainting which means past signals may shift slightly as new price data emerges. This can result in less reliable backtesting results.
Lagging Signals
Smoothing functions improve trend detection but also introduce minor lags. This may affect timing of trade entries and exits.
No Standalone Trading System
The SRC Indicator should not be used as a mechanical trading system by itself. Combining it with price action and other indicators is vital for timing and confirmation.
Subject to Whipsaws
During range-bound or choppy markets, the indicator is prone to generating more whipsaw signals which can result in losing trades if acted upon.
Overall, the SRC is not a magic bullet indicator. To maximize its potential, traders need to apply sound analysis by combining it with chart patterns, price action context and other confirming indicators.
Bottom Line
The SRC Indicator for MT4 presents traders with a visually intuitive yet mathematically advanced version of the broadly popular RSI oscillator. The colored clouds, enhanced signals, divergence detection and customizability provide an edge for trend trading strategies.
However, as with any technical indicator, the SRC has limitations – including repainting issues, lag, and whipsaws. It performs best when combined with price action context and other confirming indicators rather than being relied on as a standalone trading system.
But for traders searching for high probability momentum signals to boost existing RSI strategies, the SRC Indicator is definitely worth testing. The additional visual and mathematical features can improve entries, exits and trend detection across forex, commodities and indices.
Overall, a powerful indicator but proper implementation based on trading style and market conditions is vital to maximize its potential while minimizing its downsides.