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Contents
- 1 We have developed an MT5 indicator that can automatically determine chart patterns!
- 2 What is a chart pattern?
- 3 Examples of specific chart patterns and trading strategies
- 3.1 Triangle Holding(rising)
- 3.2 Triangle holding (down)
- 3.3 Flag (rising)
- 3.4 Flag (descending)
- 3.5 Rectangle (Rising)
- 3.6 Rectangle (falling)
- 3.7 Head and Shoulders (Triad)
- 3.8 Head and Shoulders Inverse (Inverse Triad)
- 3.9 double top
- 3.10 double-bottom
- 3.11 triple top
- 3.12 triple bottom
- 3.13 Ascending wedge
- 3.14 descending wedge
- 4 How to utilize chart patterns in MT5
- 5 summary
We have developed an MT5 indicator that can automatically determine chart patterns!
What is a chart pattern?
Chart patterns are patterned waveforms of price fluctuations used to predict trends in financial markets. When a particular pattern is formed, it indicates in which direction price movements are likely to move in the near future and is used to gain an advantage in trading.
A means of displaying mass psychology on a chart in an easy-to-understand manner
Chart patterns represent market sentiment and demand/supply balance in terms of easy-to-understand criteria.
Chart patterns indicate the predominant trade direction based on reference lines, such as resistance and support lines,
These resistance/support ideas are used by market participants to
- Trend likely to continue yet.
- The trend is likely to reverse soon.
The decision will be based on points that are considered to be
By detecting the occurrence of a pattern and identifying the buy/sell reference line derived from the pattern, it is easy for market participants to visually understand when they are likely to make a buy entry (= new buy order, close a sell order) or sell entry (= new sell order, close a buy order). (= new buy orders and sell orders) and when they are likely to make a buy entry (= new buy orders and sell orders).
However, chart patterns only indicate the predominant direction of price movement in the near future and do not necessarily move in a certain direction when a particular waveform occurs. (= It is not a tool for predicting the future.)
While understanding the advantages of patterns, trading strategies should be considered for both scenarios in which rates move in the intended direction and those in which they do not.
We also recommend that you not be overconfident in chart patterns alone, but rather combine your judgment with that of other indicators to make a comprehensive evaluation and consider the final purchase or sale.
What to read from chart patterns?
environmental awareness
Various chart patterns exist, but basically
- Still
Trend to continue
Likely to continue - The trend is likely to reverse soon.
to read any of the following information. In other words, chart patterns can be classified into two types: patterns that indicate a trend continuation and patterns that indicate a trend reversal.
Entry/exit decision
Waveforms, lines, and other reference lines that make up chart patterns often function as resistance and support lines, so entry points are determined by using the timing of line breaks, etc.
Examples of specific chart patterns and trading strategies
Triangle Holding(rising)
impression
During an uptrend, a horizontal line forms on the upper side and an uptrend line on the lower side, and the two lines cross over time in this pattern.
environmental awareness
While the upper price is being held by the horizontal line, the lower price is cutting up and exerting upward pressure.
Until the two lines are broken either up or down, the direction of the pattern is not set, but basically we expect a break in the upward direction.
Trading Strategy 1: Upper Side Break
If the price breaks above the upper (horizontal) line, the uptrend is likely to continue and we will consider a long entry.
The stop-loss rate is set near the top of the previous low, taking into account the fact that the lower price is cutting off.
There are various ways to determine the interest rate, one of which is to calculate it using the risk-reward ratio.
If the winning rate is expected to be 50% or more, the profit/loss will be positive in the long run by setting the stop-loss and profit margin equal (risk-reward ratio of 1:1).
Trading Strategy 2: Lower Side Break
If the price falls below the lower side (uptrend line) without breaking through the upper side (horizontal line), the upper side will be considered as a resistance line and it will be difficult to move up, so short entry will be considered.
The stop-loss rate is set near the upper edge (horizontal line) as it tends to function as a resistance line.
The interest rate is set based on rules such as risk reward ratio.
Triangle holding (down)
impression
During a downtrend, a horizontal line forms on the lower side and a downtrend line on the upper side, and the two lines cross over time in this pattern.
environmental awareness
While the lower price is rebounding at the horizontal line, the upper price is cutting down and downward pressure is building.
Until the two lines are broken either up or down, the direction of the pattern is not set, but basically we expect a break in the downward direction.
Trading Strategy 1: Lower Side Break
If the price breaks below the lower (horizontal) line, a continuation of the downtrend is likely and we will consider a short entry.
The stop-loss rate is set near the top of the previous high price, taking into account the fact that the upper price is cutting down.
The interest rate will be set based on rules such as risk-reward ratio.
Trading Strategy 2: Upper Side Break
If the price breaks above the upper side (downtrend line) without breaking through the lower side (horizontal line), the lower side will be recognized as a support line, making it difficult for the price to fall, and we will consider entering long.
The stop-loss rate is set near the lower edge (horizontal line) as it tends to function as a support line.
The interest rate is set based on rules such as risk reward ratio.
Flag (rising)
impression
This pattern is formed during an uptrend when there is a struggle between two parallel downtrend lines.
environmental awareness
This pattern tends to occur during a temporary price adjustment phase after an uptrend.
We will continue to see a short-term adjustment decline between the inside of the two parallel downtrend lines, while looking for an opportunity to break the upper boundary,
In some cases, they continue to descend along the line.
Trading Strategy 1: Upper Side Break
If the price breaks above the upper boundary, we will consider a long entry, judging that the adjustment decline has ended and the price is likely to rise again.
The stop-loss rate is set near the top of the previous low.
If the price rises after the break, this point will function as a support line as the recent low, and conversely, a break below this rate will indicate that the price will continue to fall inside the parallel line again.
The interest rate is set based on rules such as risk-reward ratio.
Trading Strategy 2: Lower Side Break
If the price breaks below the lower boundary, we will consider a short entry, as the momentum is gaining more momentum than the speed of the original adjustment decline.
The stop-loss rate is set near the top of the previous high.
The interest rate is set based on rules such as risk-reward ratio.
Flag (descending)
impression
environmental awareness
This pattern tends to occur during a temporary price adjustment phase after a downtrend.
We will continue to see an opportunity for a lower side break while continuing the short-term adjustment up inside the two parallel uptrend lines,
In some cases, the price continues to rise along the line.
Trading Strategy 1: Lower Side Break
If the price breaks below the lower boundary, we will consider entering the market short, judging that the adjustment rally has ended and the possibility of another decline is high.
The stop-loss rate is set near the top of the previous high.
If the price falls after the break, this point will function as a resistance line as the recent high, and conversely, a break above this rate indicates that the price is likely to continue rising inside the parallel line again.
The interest rate is set based on rules such as risk reward ratio.
Trading Strategy 2: Upper Side Break
If the price breaks above the upper boundary, we will consider entering the market long, as the momentum has gained more momentum than the speed of the original adjusted rise.
The stop-loss rate is set near the top of the previous low.
The interest rate is set based on rules such as risk reward ratio.
Rectangle (Rising)
impression
This pattern is similar to the flag, but the top and bottom lines are horizontal lines, making it appear rectangular.
environmental awareness
As with the flag, we expect the market to go through an adjustment phase after the uptrend and then rise again.
On the other hand, a prolonged period of struggle inside the upper and lower lines will result in a loss of direction, so trades that follow the direction in which the line is broken should be considered.
Trading Strategy 1: Upper Side Break
If the price breaks above the upper boundary, we will consider a long entry, judging that the adjustment decline has ended and the price is likely to rise again.
The stop-loss rate is set near the top of the previous low.
If the price rises after the break, this point will function as a support line as the recent low. Conversely, if the price falls below this point, there is a possibility that the price will continue to struggle inside the parallel line again or that the line will break in the opposite direction.
The interest rate is set based on rules such as risk reward ratio.
Trading Strategy 2: Lower Side Break
If the price breaks below the lower boundary, we will consider a short entry, as the upper boundary is considered to be near the end of the trend after an adjustment phase.
The stop-loss rate is set near the top of the previous high.
The interest rate is set based on rules such as risk reward ratio.
Rectangle (falling)
impression
This pattern is similar to the flag, but the top and bottom lines are horizontal lines, making it appear rectangular.
environmental awareness
As with the flag, we expect the price to go through an adjustment phase after the downtrend and then fall again.
On the other hand, a prolonged period of struggle inside the upper and lower lines will result in a loss of direction, so trades that follow the direction in which the line is broken should be considered.
Trading Strategy 1: Lower Side Break
If the price breaks below the lower boundary, we will consider entering the market short, judging that the adjustment has ended and the price is likely to fall again.
The stop-loss rate is set near the top of the previous high.
If the price continues to fall after the break of the lower side, this point will function as a resistance line as the recent high. Conversely, if the price breaks out of this point, the price may continue to struggle inside the parallel line again, or the line may break in the opposite direction.
The interest rate is set based on rules such as risk reward ratio.
Trading Strategy 2: Upper Side Break
If the price breaks above the upper side, we will consider entering long as the lower side is considered to be near the end of the downtrend after an adjustment phase.
The stop-loss rate is set near the top of the previous low.
The interest rate is set based on rules such as risk reward ratio.
Head and Shoulders (Triad)
impression
This pattern forms three vertices (mountains) at the end of an uptrend. This pattern appears near the same rate within the three peaks, with the middle being the highest, the peaks on both sides at the same level, and the valley between each mountain at the same level.
It is called "head and shoulders" because the mountain in the middle looks like a head and the mountains on both sides look like shoulders. (In Japanese-speaking countries, it is sometimes called sanzon.
It is also called the neckline because the position of the valley of the same level that appears between the three mountains appears to be the position of the neck in relation to the head and shoulders.
environmental awareness
After an uptrend occurs, the high cannot be renewed and the low is renewed, suggesting a strong possibility of trend reversal.
Trading strategy: Neckline break
The neckline will be the rate to be considered as the recent low, so if the price breaks below it, we will consider a short entry, as a reversal decline is highly likely.
The stop-loss rate is near the shoulder rate (recent high).
The interest rate is set based on rules such as risk reward ratio.
In the case of the point where a market reversal begins, the risk reward ratio may be set larger, such as 1:1.5 or 1:2, because there are cases where the rate returns with great vigor,
A strategy such as recording a mountain below the neckline and entering an additional short when the rebound is confirmed is also effective.
Head and Shoulders Inverse (Inverse Triad)
impression
This pattern forms three vertices (valleys) at the end of a downtrend. Of the three valleys, this pattern appears when the middle is the lowest, the valleys on either side are at the same level, and the peaks between each valley are near the same rate.
environmental awareness
After a downtrend occurs, the low cannot be renewed and the high is renewed, suggesting a strong possibility of trend reversal.
Trading strategy: Neckline break
The neckline will be the rate to be considered as the recent high, so if the price breaks above it, we will consider entering long as a reversal up is highly likely.
The stop-loss rate is set near the shoulder rate (recent low).
The interest rate is set based on rules such as risk reward ratio.
In the case of the point where a market reversal begins, the risk reward ratio may be set larger, such as 1:1.5 or 1:2, because there are cases where the rate returns with great vigor,
A strategy such as recording a trough above the neckline and entering an additional long position when the rebound is confirmed is also effective.
double top
impression
This pattern occurs at the end of an uptrend when the top (mountain) of the same level is recorded twice and then the price fails to break above the top and reverses downward.
environmental awareness
Failure to break above the once-recorded high and below the recent low suggests a strong possibility of a reversal decline.
Trading Strategy: Neckline Break
As with the head-and-shoulders, if the position of the most recent low is called the neckline, we would consider a short entry from a position below the neckline.
The stop-loss rate is near the twice recorded high.
The interest rate is set based on rules such as risk reward ratio.
double-bottom
impression
This pattern occurs at the end of a downtrend when a top (or trough) at the same level is recorded twice before failing to break below and reversing up.
environmental awareness
The failure to break out of the once-recorded lower high and the break above the recent high suggests a strong possibility of a reversal up.
Trading Strategy: Neckline Break
As with the head-and-shoulders, if we call the position of the most recent high the neckline, we would consider entering long from a position above the neckline.
The stop-loss rate will be near the twice-recorded lows.
The interest rate is set based on rules such as risk reward ratio.
triple top
impression
Basically the same idea as the double top, but the pattern has been pushed back three times at the same level of rates.
environmental awareness
After an uptrend, the top recorded twice could not be broken again, and a break below the recent lows suggests a strong possibility of a reversal decline.
Trading Strategy: Neckline Break
As with the head-and-shoulders, if the position of the most recent low is called the neckline, we would consider a short entry from a position below the neckline.
The stop-loss rate is set near the high price recorded three times.
The interest rate is set based on rules such as risk reward ratio.
triple bottom
impression
Basically the same idea as the double top, but the pattern has been pushed back three times at the same level of rates.
environmental awareness
After a downtrend, the top recorded twice could not be broken again, suggesting that a reversal up is likely as the recent high is exceeded.
Trading Strategy: Neckline Break
As with the head-and-shoulders, if we call the position of the most recent high the neckline, we would consider entering long from a position above the neckline.
The stop-loss rate will be near the three recorded lows.
The interest rate is set based on rules such as risk reward ratio.
Ascending wedge
As the Japanese translation of the word "wedge" suggests, this pattern forms a triangle that tapers to a wedge shape.
impression
This pattern appears during an uptrend, with both the upper and lower sides of the uptrend line, and the slope of the upper side is gradual and the slope of the lower side is steep.
environmental awareness
Although the upper top is cutting up and the lower top is also cutting up, the slope of the upper side is more gradual than that of the lower side, indicating that the rate is converging while the upward momentum is weakening.
The heavy upside suggests that a reversal and decline is likely if the trend line connecting lower prices is broken.
Trading Strategy 1: Lower Side Break
If the price breaks below the lower boundary, a reversal decline is likely and we will consider a short entry.
The stop-loss rate is set near the previous high.
The interest rate will be set based on rules such as risk-reward ratio.
However, the wedge has narrow upper and lower sides near entry, and in some cases, an upper side break may occur from a lower side break damashi.
It is also necessary to quickly switch your perspective, for example, by immediately making a long entry (=stop & reverse) with a short loss.
Trading Strategy 2: Upper Side Break
In some cases, once the price is on the upside, it may continue to rise vigorously by breaking above the upper boundary. In such cases, we will consider entering long.
The stop-loss rate is set near the recent low.
The interest rate is set based on rules such as risk reward ratio.
As with the lower edge break, it is also necessary to quickly switch the entry direction as in stop-and-reverse when a damashi occurs.
descending wedge
impression
This pattern appears during a downtrend, with both the upper and lower sides of the downtrend line, and the slope of the lower side is gradual and the slope of the upper side is steep.
environmental awareness
Although the lower apex is devaluing and the upper apex is also devaluing, the slope of the lower side is more gradual than that of the upper side, indicating that the rate is converging while the momentum of the decline is weakening.
The lower prices suggest that a reversal to the upside is likely if the trend line connecting the upper price levels is exceeded.
Trading Strategy 1: Upper Side Break
If it breaks above the upper boundary, a reversal up is likely and we will consider entering long.
The stop-loss rate is set near the previous low.
The interest rate will be set based on rules such as risk-reward ratio.
However, the wedge has narrow upper and lower sides near the entry, and in some cases, a lower side break may occur from the damashi of the upper side break.
In such cases, it is necessary to quickly switch your perspective, for example, by immediately entering short (= stop and reverse) with a loss on the long position.
Trading Strategy 2: Lower Side Break
In some cases, once the price has weakened to the downside, it may continue to decline vigorously by breaking below the lower boundary. In such a case, we will consider a short entry.
The stop-loss rate is set near the most recent high.
The interest rate is set based on rules such as risk reward ratio.
As with the lower edge break, it is also necessary to quickly switch the entry direction as in stop-and-reverse when a damashi occurs.
How to utilize chart patterns in MT5
As explained so far, there are a wide variety of chart patterns, and the conditions for determining them are complex.
Although this can be achieved by manually drawing lines on the chart and visually confirming the pattern,
- If you want to perform pattern determination for multiple stocks or time frames, it requires an enormous amount of effort
- If lines are drawn manually on a case-by-case basis, subjective interpretations are introduced and regular judgments cannot be repeated.
The chart pattern determination itself needs to be automated, since problems such as the following can arise.
Since there is no standard MT5 function to automate this pattern judgment, we developed this indicator as a custom indicator.
Chart Pattern Automatic Judgment Image
Advantages of Automatic Chart Pattern Determination
It is the flip side of the issue,
- Immediate pattern determination for a wide range of stocks and time frames, resulting in overwhelmingly better time efficiency.
- Repeat judgments in chronological order based on certain criteria, enabling reproducible pattern detection and validation of trades based on them.
The following are some of the advantages of this system.
Also, by making the indicator
- Receive notifications on your PC or smartphone when you want to trade, such as a line break
- Automate the rule-based trades themselves by incorporating the indicator into automated trading tools.
- Automate past verifications through back-testing by creating an EA (automated trading tool) to speed up the cycle of improving trading rules and increase investment efficiency.
- Even beginners can quickly trade using chart patterns
This also creates a variety of benefits, such as
Chart Pattern Automatic Judgment Indicator Functions
Automatic chart pattern detection
All chart patterns introduced in this article are automatically determined, detected, and drawn.
buy-sell signal
Basically, the timing of a break of either line from the inside to the outside is a buy or sell signal, and the buy or sell signal is displayed on the chart at that time.
Stop-loss rate/gain rate display
The stop-loss rate (reference value) and the gain rate (reference value) are drawn on the chart starting from the buy/sell signal.
Since strategies in this area vary from investor to investor, these values are for reference only, but the stop-loss rate is drawn based on the stop-loss decision criteria described in this article,
The system also draws a profit rate based on the automatic calculation of the risk-reward ratio.
notice
Notification to
PC
Alerts are displayed on the screen of the MT5 desktop application version.
smart phone
Push notifications to the official MetaTrader 5 smartphone app.
Slack
Notifications are sent to the messaging application Slack.
Notifications for PCs and smartphones can only send text messages,
Even if you receive a notification on your phone when you are out and about, etc,
Even if one wanted to make a final trading decision based on the actual drawn pattern shape and signal position, there is no way to confirm it.
(It is not impossible to prepare a PC environment with RDP connectivity and open a desktop version of the application from a smartphone, but this is a difficult option considering the cost and time required to prepare the environment and ease of use).
To solve this problem, we developed our own notification function to Slack.
This allows me to receive notifications with screenshots and check the status from my phone,
You will also be able to manage your history and share it with friends and acquaintances by dividing the channels of your notifications by brand or time frame.
*Because if there is logic for notifications for Slack, automatic posting to other messaging apps and SNS will basically be handled as well,
It could be used as a BOT for automated tweets or for various other uses!
summary
This article provided an overview of chart patterns and automation images.
This labor-intensive rulemaking especially benefits from automation.
The most efficient means of achieving this is automation.
It is great to establish and implement rules manually, but if they can be automated, it not only reduces the effort required to implement the rules and makes it more cost-effective, but also allows you to continue trading 24 hours a day.
In addition to utilizing chart patterns, we encourage you to consider automation through the use of indicators and automated trading tools.
Use multiple indicators in combination!
To improve the accuracy of technical analysis, it is essential to evaluate multiple indicators in combination with each other in a comprehensive manner.
We are expanding our lineup of originally developed indicators on this site so that they can be used immediately,
Please also refer to the other indicator introduction articles.
Indicators are available free of charge!
This indicator is
Aiming for 100% annual interest! Automated Trading Tool Helios
is distributed free of charge to those who use the automated trading tool "Helios" in their real accounts.
We will provide you with an indicator and a set of support documents when you contact us through our service desk.
*Indicator-only use is available for a fee. Please contact the service desk for details.
If you want to use MT5, I recommend an overseas brokerage firm!
The secret to successful FX investing with MT5 is to combine it with an international brokerage firm.
Domestic Securities Companies
❌ Few MT5-compliant vendors exist.
❌ There is a risk of additional margin. May incur losses in excess of the amount deposited.
Securities Companies
✅ Many brokerages offer a zero-cut system that allows you to risk no more than the amount of your deposit.
✅ Major foreign brokerages such as HFM and XM are safe to use.
- Ability to trade in a low spread environment
- Take advantage of deposit bonuses to start trading with small amounts
- No deposit and withdrawal problems.
- Stable execution with minimal trade delays
If you use MT5, please consider opening an account at an overseas brokerage firm.
Don't miss new articles!
Free indicators will be developed and added as needed. To ensure that you do not miss any new articles, please also use the notification settings.
summary
To achieve efficient investment,
structuring and automation
is essential.
We will continue to compile ideas to help you analyze the market environment and provide you with tools that you can use immediately.
Automated trading tools make it possible to automate trades, but the decision of when to start and stop the EA is a personal decision.
In order to use the EA wisely, we hope you will make use of the indicator to help you analyze the market environment.
