Most investors rely on charts to help them decide whether to enter or exit a trade. Attention to chart patterns and indications is essential to identify trading opportunities and minimize risk. The built-in charting package in the MetaTrader 4 (MT4) platform aids traders in making educated selections.
Charting options in MT4
A wide variety of charting and technical analysis tools are available in MetaTrader 4, including 30 built-in indicators, over 2000 free custom indicators, and 700 paid options. These tools help analyze the market in any degree of detail.
Also, 24 analytical objects are available in MetaTrader 4, including lines, channels, the Gann and Fibonacci tools, shapes, and arrows.
Trendlines in technical analysis
Traders and investors can use a trendline to understand better the directional movement of a stock's price chart. They help identify price breakouts and breakdowns, which occur when the price of stock swings above or below a previously established trendline.
Remembering that the analyst's opinion will heavily influence how the trendline is drawn is vital. Traders' interpretations and the chosen price points for connecting may result in somewhat different trendlines.
Setting up trendlines in MetaTrader 4
Market participants can use trend lines to pinpoint entry and exit points based on the direction of price movement. You need to examine the market, select the stock or share you wish to invest in, identify three significant highs or lows, and join them with a straight line. Draw your trend lines in your MetaTrader 4 (MT4) platform by following the steps below.
- Choose "Draw Trend Line" rather than "Draw Horizontal Line" from the top bar's menu.
- After picking this option, you may begin sketching your trendline close to the target location. It doesn't have to be perfect because you can adjust the numbers afterward.
- Right-click anywhere on the trendline and select "Trendline Properties."
- Finally, edit the settings under the "parameters" menu. Your trend lines' values will require your input. Remember that they're identical values.
- After you've entered the values, unmark "ray," and you're ready to use trend lines in your trade.
Types of stock chart patterns
Continuation patterns
A continuation pattern can be viewed as a break in a strong trend. This occurs when the bears take a break during a downturn or the bulls pause during an upswing. Predicting whether an emerging price pattern will persist or revert is impossible. So, paying close attention to the price pattern's trendlines is essential. Until it is shown otherwise, technical analysts usually advise acting on the assumption that a trend will continue.
Examples of continuation patterns include:
- Pennants
They are made from two convergent trendlines.
One distinguishing feature of pennants is that they have two trendlines, one sloping down and the other rising. The volume tends to dip as the pennant takes shape, only to spike as the price finally breaks out.
- Flags
Flags are made up of two parallel trendlines. A bullish flag indicates a halt in a downward-going market, whereas a bearish flag indicates a pause during an upward-trending market. The development of a flag usually coincides with a drop in volume, which rises again once the price breaks out of the flag.
Reversal patterns
A reversal pattern is a price formation that indicates an end to the current trend. These patterns represent interruptions in either the bull or bear markets. The current trend will end before shifting in a new direction when opposing forces (bullish or bearish) arise.
Examples of common reversal patterns include:
- Head and shoulders
This phenomenon indicates the occurrence of two minor price fluctuations surrounding a significant movement. When an upward trend is interrupted by a head and shoulders top pattern, it suggests a potential reversal, leading to a downward trajectory. On the other hand, when a downward trend forms a head and shoulders bottom (or an inverse head and shoulders) pattern, it is likely to undergo a trend reversal, propelling it towards an upward trajectory.
- Double tops
Double Tops occur when there is a temporary peak in a stock's price, followed by an unsuccessful attempt to surpass the same resistance level. Visually, a double top pattern resembles the letter "M," signifying an initial upward movement towards a resistance level, followed by a subsequent failed attempt, ultimately leading to a reversal in the prevailing trend.
- Double bottoms
A double bottom pattern represents a brief dip in the stock's price, followed by an unsuccessful effort to break below the same level of support. Visualized as the letter "W," a double bottom occurs when the price tests a support level, faces rejection and makes a second futile attempt to breach that support level. Typically, this pattern signals a potential trend reversal.
Understanding candlesticks and bar charts
The price of an instrument is charted using bar and candlestick charts. They display the day's high, low, open, and close prices In a format called OHLC (Open High Low Close). Traders can use this information better to comprehend the price action throughout that time frame. The price information is the same whether you're looking at a bar chart or a candlestick chart because both display an open, high, low, and close.
Candlestick charts in MetaTrader 4
You may rapidly toggle between bar charts, line charts, and candlestick charts in MetaTrader 4 by clicking on the appropriate icon on the Toolbar.
To view a candlestick chart, press Alt+2 or select it from the "Charts" submenu.
Candlestick shadows
The extensions above and below the body of a candlestick reveal the price range encompassing the highest and lowest points reached during the given period. These extensions are commonly referred to as "shadows." The upper shadows signify the session's high, while the lower shadows indicate the session's low. Candlesticks with long shadows suggest sustained trading activity beyond the opening and closing prices.
Candlestick body
A candlestick's primary rectangular portion, whether filled or hollow, is known as the "body." It represents the opening and closing prices of the asset for the corresponding period. For instance, if the chart displays a one-hour period, a single candlestick represents the range between the opening and closing prices over one hour.
A hollow (white) candlestick signifies a closing price above the opening price. This suggests buying pressure and denotes a bullish candlestick. In this case, prices increased from the opening to the closing, indicating the victory of buyers during that specific period.
On the other hand, a filled (black) candlestick indicates a closing price below the opening price. This implies selling pressure, with a more assertive presence of sellers, resulting in a bearish candlestick.
The length of the candlestick's body reflects the intensity of buying or selling pressure. Longer bodies indicate more significant pressure, while shorter bodies suggest reduced buying or selling activity.
MetaTrader 4's many features and functionality make it an excellent tool for stock chart research, giving traders and investors a competitive edge. Users may quickly create trendlines to track price changes and determine optimal entry and exit locations. In addition, MT4 provides traders with an accurate visual of price activity, a range of prices, and an interpretation of buying and selling pressure. MT4's flexible indicator set and user-friendly interface make it a powerful tool for studying stock charts and making trades.
