For centuries, technical analysts have worked to better organise and visualise market data. The earliest known recording of commodity prices with an intent to forecast direction was in ancient Babylonia in the first millennium BC, according to The Evolution of Technical Analysis, written by Andrew W. Lo and Jasmina Hasanhodzic.
Charles H. Dow, considered the father of modern technical analysis, was the first to create an index measuring the overall price movement of US stocks. After Dow’s death, from his statements and observations in the Wall Street Journal, others further refined his work into what is now known as Dow Theory, consisting of primary, secondary, and minor trend identification.
Dow’s work essentially formed the basis for modern-day technical analysis in trends. Although Dow Theory still holds true for many market technicians, technical analysis has expanded into several subcategories.
What Causes Chart Patterns?
Market speculators exhibit several habits, which is observed in large numbers, form identifiable chart configurations. A common example is psychological levels or even numbers. People round numbers in everyday conversation; traders and investors do the same on charts.
Daily, weekly, monthly, and quarterly high and low-price points are also widely watched levels, with activity often seen around these barriers. Chart patterns, although somewhat subjective trading strategies, also play a role. The classic head and shoulder’s top and bottom formations, for example, are accepted reversal trading signals.
Keeping track of financial markets and forming technical chart patterns can be a challenge. This is where Autochartist, accessed via FP Markets and at most other Autochartist brokers, helps lighten the load and streamline market analysis. Autochartist was established in 2004 and is currently servicing 45 of the largest and most successful on-line brokers and institutions.
As a note, within this piece, we use a demo account (a simulated trading platform). It offers the same functions as a live account, though data from Autochartist is not set in real-time, there’s a slight delay.
Although labeled as an Expert Advisor (EA), Autochartist does not trade on your behalf. Autochartist, in simple terms, is the automation of technical chart patterns, such as support and resistance, breakouts, wedges, triangles, and more. Its technology also permits users to monitor global markets, like foreign exchange (Forex – currency pairs), Futures, CFDs, Cryptocurrencies (bitcoin) and Equities.
Installation of the Autochartist plugin on MetaTrader 4 (MT4), or MetaTrader 5 (MT5), is straightforward, with a link found under the platforms tab on FP Markets (figure 1.A). There’s also a step-by-step guide available here and a number of webinars available on YouTube.
How Autochartist Works
Once the Autochartist Expert Advisor is downloaded to MetaTrader, the ‘Navigator’ panel will house Autochartist within the Expert Advisor’s folder and an Autochartist Risk Calculator within the ‘Indicator’s’ file (figure 1.B).
To activate the Autochartist tool, simply drag and drop on to a selected chart, which in this case is the USD/JPY H1 timeframe (figure 1.C). This opens an additional pop-up setting box – click ‘OK’ to work with default.
What the Autochartist tool does then is scan financial instruments contained within the ‘Market Watch’ window for trading opportunities. The more instruments you have registered, the more patterns you’ll see, categorised by numbered pages (red arrow). Therefore, it is a good idea to remove any markets you don’t trade from Market Watch (figure 1.D).
Autochartist does a superb job of highlighting markets exhibiting large price movement. As an example (figure 1.E), the CHF/JPY daily chart underlines a large down move comprised of seven candlesticks. The same can be seen on the GBP/CHF daily chart, displaying a notable move to the upside, involving twelve candles.
You will also note the window has a ‘Filter’ function, denoted by red arrows (figure 1.F). This allows traders to filter which patterns are featured. As you can see, available selections are ‘Key Levels’, ‘Consecutive Candles’, ‘Fibonacci Patterns’ and ‘Breakouts’, with more options if you wish. Additionally, the timeframe ‘interval’ can be modified. This lets different trading styles, such as scalpers (scalping), intraday and swing traders, filter timeframes of interest.
Not only does Autochartist scan markets for opportunities, saving hours of screen time, it provides a handy risk-management tool: Autochartist Risk Calculator (ARC).
To activate the ARC, drag and drop from your indicator folder in the Navigator tab on to the chart (figure 1.G).
At the top of the box, you can check the ‘Show Expected Trading Ranges’ – this reveals where Autochartist thinks the price could move within the next 24 hours, 4 hours and on the hour.
Another feature of the ARC is its risk-management system. The orange line (see figure 1.H) represents your protective stop-loss level. You can see from the ARC, at a stop-loss price of 1.0825, while risking £100.00, it’s 42 pips distance from entry, with trade volume (number of units) registering 0.29. As price fluctuates, trade volume and pip distance will, of course, vary.
You can also take this further by setting a ‘Custom Entry Price’. By checking the said box on the pop-up window, an additional green line appears on the chart (figure 1.I). This is handy for setting limit orders. For example, if the trader wants to set a sell limit order at 1.0895, with a protective stop-loss order at 1.0929, the ARC calculates the trade volume (the risk) between the green (the entry) and orange line (the stop).
Important Note: Autochartist™ is a respected third party supplier of FP Markets. Traders should note that FP Markets offers the software to its customers as a bonus feature and does not warrant the completeness, accuracy, or timeliness of the information supplied. FP Markets does not have any connection with, or vouch for the accuracy of the trading styles described, or predict or guarantee any outcome as a result of their use.
Responsibility for the claims made in the materials is made by Autochartist™ and Autochartist™ alone. All predictions are not in any way provided by FP Markets. Autochartist™, its affiliates, and any third party contributor will not be liable for any claim, damages or other liability arising from, out of, or in connection with the use of the Charts. The Charts run on pricing data provided to a third party charting administrator, and you accept that the price data displayed in the Charts may be delayed and that Autochartist™ does not guarantee the accuracy or completeness of the data.
The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The strategies mentioned herein may not be suitable for all investors. The opinions and recommendations herein are by Autochartist™ and do not take into account individual client’s circumstances, objectives or needs, and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. Users of this service should take independent decisions regarding any securities or financial instruments mentioned herein.
DISCLAIMER: The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation, or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com, and should be considered before deciding to deal with those products. Derivatives can be high risk; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.