Charting Software and How To Apply Indicators

Introduction to Charting Software and How To Apply Indicators

Technical analysis is made possible through the use of indicators, which justify the entry and exits (trend indicators or oscillators), or through the use of trading theories that are applied to present and past prices with the purpose of trying to identify future behaviour. This is why I must stress the importance of using the correct tools for analysis and the advantages to you if your trading platform already provides them.

MetaTrader

The popular platform, Metatrader (MT4 and now MT5), offers plenty of advanced features that would benefit any level of trader. Specifically for technical analysis, its most important characteristic is its Custom Indicators feature, which allows a user to upload custom strategies and software for application to charts. Through this feature, any charting software that it is written in the famous mql program (through MetaEditor) can be uploaded into the trading platform.
Once charting software is applied to a chart and set to a specific time frame, the program has the ability to recognize patterns, such as wedges, ascending and descending triangles, head and shoulders, double tops or bottoms, pennants and much more. When applied to a financial product, such as a currency pair, this software allows those patterns to become visible and a result trading is made easier.

Alternative Platforms

Of course there are other software options to consider outside of Metatrader, which are available for upload in a similar way.

It sounds basic but the major aspect most take into consideration when searching for charting software, is whether or not it requires a subscription or flat fee. The primary concern should instead be in the research and short-listing of preferred programs, as many paid-for services ultimately offer very little that cannot be accessed for free on other platforms.

Here is a short and sweet summary of Metatrader’s competitors:

Let’s begin with JForex. Its first limitation centers on the fact that the trading platform is not on offer unless the client opens a life account with its broker, Dukascopy of Switzerland. Once inside, the first thing to note is that it has all the Metatrader characteristics in-built – in the sense that you can develop your own strategy, run and test it and so on. However, it surpasses its competitor with additional features; the main differences can be found within the indicators field. Whilst Metatrader divides the indicators into trend and oscillators, the default settings for JForex considers these to be momentum and trend indicators, plus additional ones, such as cycle indicators.

The main drawback for JForex is its speed. The platform loads particularly slowly and its weight takes a lot out of a standard PC. Moreover, automatic zooming is an issue. If, for example, you want to implement a top/down analysis using Elliot Waves Theory and then start labelling your charts, you will have a hard time moving from one time frame to another.

Another popular trading software package for charting the markets is eSignal. Access requires a monthly subscription fee, but this also enables customisable features. Some of this software’s features are indeed superior, such as the built-in Elliott Waves wave count generator. However, eSignal’s all-round offerings are not quite as ground-breaking as those found on Metatrader. Furthermore, any additional features will cost a user extra to enable. For example, if you were to purchase a normal subscription, but then want to trade on the FX market with trade indices or CDFs, it will cost you an extra fee per month. As a customisable package, the more extras you add, the more expensive your subscription will become, and this is most dissuading to all-round traders.

Last but not least, Bloomberg Terminal must be mentioned here. It is considered to be the preferred leading platform and software for trading professionals. Bloomberg’s offers are bountiful in all areas, and most importantly it provides access to virtually all the markets in the world; from Ghanaian currency to Asian bonds, whatever a trader can hope to trade. Though all this financial data certainly comes at a cost – a hefty $20K per year or more for a single subscription. This is definitely an investment for a well-seasoned trader.

Using Indicators on Charts

Technical indicators are split into two main categories: trends and oscillators. For the purpose of providing a more universal explanation, I am providing the following information with relation to MetaTrader specifically.

A trend indicator can be applied directly to a candlestick chart and behaves characteristically as the name suggests, following the trend of price. An example of this can be seen below (Fig. 1) where Bollinger Bands (a popular trend indicator) are applied to a EURUSD chart. Trading happens when traders look to buy the dips in a bullish trend and sell the spikes in a bearish trend.


Fig.1 Trend indicator

Oscillators, on the other hand, are always being plotted on a separate window below the actual price (see Fig 2). Trading with an oscillator typically means a trader is looking to sell in overbought areas and when a bearish divergence is forming, or buy in oversold areas and when a bullish divergence appears.


Fig. 2 Oscillating indicator

Metatrader offers indicators on its default settings. Adding one of these to your chart is a fairly simple task and can be achieved in the following two steps:

  1. Open the chart you wish to work with. Located at the top left of the menu is the Insert tab, on the drop down select Indicators. From here you may choose either Trend or Oscillators – simply pick which indicator you would like to plot on the chart.
  2. Immediately after, a small box will appear on the screen which will allow you to modify the standard parameters if you so wish. Once you have clicked OK, the indicator should appear on screen and the technical analysis will start. See below for screenshots.

Alternatively, another option available to you is to import an indicator to the Metatrader platform. This is again quite simple.

  1. Have the indicator you wish to import copied and ready to import. At the top left of the menu you will see the File tab, from here choose to Open Data folder. This action will open a new window within the Metatrader navigator on your computer. Under MQL, select the Indicators folder – this is where you can paste the new indicator.
  2. For the changes to take place you must now exit Metatrader. Once reloaded you should find your new import now listed under Indicators as previously instructed. Simply click and drag your indicator to any specified chart and you’re good to go!

In short, trading is a vocation that requires enormous dedication and research to ensure a good reward. Setting aside the time to make the right software choice for your trading needs will be well worth the hours. Plus, any tool that can be applied to charts and enables a more accurate technical analysis is worth learning and harnessing.