Support and Resistance indicators are crucial for traders who are involved in or CFDs. Different variations of support and resistance trading are used in other financial markets as well for different types of assets and trading instruments.
Despite the popularity, the concept of trading those lines is still pretty arguable. But one will hardly disagree with the statement that support and resistance come as an essential part of the technical analysis, which attributes to different chart patterns. It is actually used to predict the trend or price from moving in a certain direction.
In this article, we will discuss how to identify the two lines as well as what the best support and resistance indicators are to use during trading.
The concept is not as hard to figure out, as it seems. You need to clearly understand the following: there is a point where the trend makes a stop. This point is the support or resistance depending on the direction the trend moves to.
Besides, we need to take into account support and resistance zones. They appear when a point is not confined to a single one (or reverses from a series of other points). The main challenge here is that you will never find a stand-alone support and resistance indicator in case you want to track dynamic changes in reference to supply and demand.
On the other hand, it is possible to adjust some capabilities of other indicators such as Fibonacci, Pivot Points, Wolves Waves, etc. Traders can extrapolate them to come up with your self-crafted support and resistance indicator.
If the price stops at a certain point that prevents it from further falling, it is support. To define the strength of the support, you need to clarify if the point appears to be a permanent reversal or only a temporary pause. When the price hits the support level, it means that the demand exceeds the supply.
All you need is to follow several simple steps:
If you are going to use the concept for long trades, it may become a critical point.
The support zone mainly refers to longer trading time frames, as it is almost impossible to comprehend it during the short-term trading sessions. When the market fails to bounce back from a single point, it uses several points that are closer to the required proximity. And this is how the concept converts those points into the support zone.
The action is opposite to the previously described process. The resistance occurs when the price tends to go up and make a pause during its rise. When you identify that point on the chart, it means that the supply exceeds demand at the resistance point.
Once again, we will need to complete several simple plotting steps:
If the action takes place more than twice, it is no longer a coincidence but a pattern. You may use the same rule when applying trend lines.
Once again, we need to keep an eye on the cluster of resistance points as well as their fluctuation that actually creates a resistance zone.
As we have stated earlier, the support and resistance extrapolate the concept of other indicators. Besides, you can use the support and resistance zone indicator that is free to download and install.
You may use it with the MT4 platform. Simply follow the given instruction:
3. When you open MT4, choose File - > Open Data Folder -> MQL4 – Indicators and insert the extracted file into the Indicators folder.
4. Restart the MT4 terminal and choose Insert - Indicators - Custom.
If you want to see it on the trading chart, make sure to click "OK" in the "Allow DLL imports". The indicator is very flexible. It comes with multiple settings and configurations to meet traders' preferences and likes. For example, you can set the level displayed period, minimum touches, and other criteria in the "Display option" block.
The "Level Setting" block makes it possible to customize breakout sensitivity, level vertical width, and its frequency on the trading chart.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.