## CompassFX

### MetaTrader 4.0 Line Studies

**Line Studies**

In technical analysis, lines and various geometric figures plotted on price charts are called Line Studies which are used to by traders to set market expectations or determine potential profit or stop levels. MetaTrader 4.0 includes these line studies:

Support and Resistance Lines

Price movement of a currency pair is the result of a market activity between buyers and a sellers. Buyers push prices higher. Sellers push prices lower. The direction prices actually move shows who is dominating the market at the current time. The price at which a trade takes place is the price at which a buyers and sellers agree to do business. It represents a consensus of their expectations..

**Support** is a
level at which buyers take
control over the prices and prevent them
from falling lower. Support levels indicate the price where the
most of investors believe that prices will
move higher.

**Resistance**, on the other hand, is the point
at which sellers take control of
prices and prevent them from rising higher.
Resistance levels indicate the
price at which the most of investors feel
prices will move lower.

When price action breaks below Support or breaks above Resistance, market activity increases. Some times, prices will dramatically move beyond the broken level; and other times, prices will retrace to the broken level to confirm an actual break. As a rule of thumb, experienced traders know that "old support becomes new resistance" and "old resistance becomes new support."

Trend Lines

A trend represents a consistent change in
prices. Trends differ from Support and
Resistance levels. Trends represent change;
whereas, Support and Resistance levels
represent barriers to change.

An **Uptrend** is
defined by successively higher Lows. A
rising trend can be thought of as a rising
support level where buying pressure pushes
prices higher.

A **Downtrend** is defined by
successively lower Highs. A falling trend
can be thought of as a falling resistance
level where selling pressure pushes prices
lower.

Similar when prices break support and resistance levels due to market expectations or sentiment change, prices can penetrate rising and falling trend lines. Usually, there is an increase in market activity when a trend line is penetrated. Market volatility is the key to determining the significance of the penetration of a trend.

Fibonacci Lines

Leonardo Fibonacci was an Italian
mathematician born 1170 AD. He is considered
to have invented numerical series during his
studies of Great Pyramid of Giza. Fibonacci
Numbers are a numeric sequence where each
next number can be got by adding the last
two ones: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55,
89, 144, etc. These numbers are interrelated
with a series of correlations. Each number
in the series is approximately 1.618 times
more than the previous number, and each
preceding one makes approximately 0.618 of
the consequent one.

**MetaTrader 4.0 includes
Fibonacci Arcs, Fan, Extension, Retracement,
and Time Zones.**

**Gann Lines**

W.D. Gann (1878-1955) developed a number of
unique methods of price chart analysis. He
paid the most attention to geometrical
angles reflecting the interrelation between
the time and the price. Gann believed that
certain geometrical figures and angles have
specific features to be used for forecasting
price dynamics. Gann considered that there
was an ideal ratio between time and price if
the price grew or fell at an angle of
forty-five degrees to the time axis. This
angle is designated as "1х1" and corresponds
with unit price increase for each unit time
interval.

**MetaTrader 4.0 includes the Gann
Fan, Gann Line, and Gann Grid.**

Linear Regression Channel

This line study based on linear regression consists of two parallel lines,
equally above and below the linear
regression trend line. This trend line is drawn
between two points on a price chart using
the method of least squares. As a result,
the trend line becomes the median line of
the changing price and is considered as an
equilibrium price line. Any deflection up or
down indicates the activity of buyers or
sellers respectively. The distance between either the top or bottom of the channel and regression trend line is equals to
the value of maximum close price deviation
from the regression line.

All price changes take place within Linear Regression Channel, where the lower line of the channel works as a support line, and the upper line works as a resistance line. Prices usually exceed the channel frames for a short time. If they keep outside of the channel frames for a longer time than usually, it forecasts the possibility of a trend turn.

Equidistant Channel

Equidistant Channel represents two parallel
trend lines connecting extreme maximum and
minimum close prices. Market price jumps,
draws peaks and troughs forming the channel
in the trend direction. Early identification
of the channel can give a valuable
information including that about changes in
the trend direction what allows to estimate
possible profits and losses. It is necessary
to give the direction of the channel and its
width to build the instrument.

**Andrews Pitchfork**

This line study consists of three parallel
trend lines and is based on standard rules
of interpretation of support and resistance
lines. The first trend line starts in a
selected extreme left point (it is an
extreme high or low) and is drawn exactly
between two extreme right points. This line
is the "handle" of pitchfork. Then, the
second and the third trend line issuing from
two above-mentioned extreme right points
(important peak and trough) is drawn
parallel to the first one. These lines are
"tines" of the pitchfork.

## Trading Platforms

**MetaTrader 4.0**