When you begin trading Forex, you’re immediately faced with the question – how am I going to make the decision to buy or sell? While some traders rely on indicators, such as those built into the MT4 platform, others may use chart patterns, or even study macro or fundamental news to place a trade. In this post we’ll be giving you a brief introduction to some technical trading tools that are available in MetaTrader 4, specifically, the drawing tools.
Using the drawing tools in MT4
If you’re familiar with technical analysis, you’ve most likely seen trendlines before. Within MT4, you’ve got a few different ones to choose from, the most common being Diagonal, Horizontal, and Channels. There’s also Fibonacci, but we’ll cover that in a future post.
The image below highlights where you can find some of the drawing tools on your MetaTrader 4 platform, or you can find them in the ‘Insert’ menu.
Trendlines have been used as a trading tool for over a century to determine trades based on chart patterns such as triangles, pennants and wedges, support and resistance zones, as well as helping to determine overall trend direction. To draw a trendline, a trader needs to spot the swing highs/lows of a price chart and connect them with a line. As a general rule of thumb, price needs to react to a trandline 3 or more times for it to be valid. Once this happens, a trader can look for price to either bounce off the trendline, or alternatively break through it and trade accordingly.
Now, let’s see what some of these MetaTrader 4 trendlines look like on a chart.
As you can see, the above example shows a diagonal trendline that indicates this pair is in a current downtrend.
In the next example we can see that price is in a medium term uptrend, as shown by our channel.
Here, we have a horizontal line that defines a level of support.
Here’s an example of some current and previous lines drawn. Note that you can see some previous patterns that offered a profitable trade entry, as well as current potential trade setup. It’s important to note that many technical set-ups offer traders a well-defined risk/reward ratio.
I hope you’ve enjoyed this short intro into technical trading tools and how they can be used to define trends, areas of support and resistance, and chart patterns. As always, when trading it’s important to use a system that that suits your personality and gives you an edge, so whether you want to trade solely with trendlines or use them with indicators as confirmation it’s important to learn understand the value that MT4’s drawing tools can offer.
Have fun and safe trading.
Source: Vantage FX Blog