In this trading strategy we will be going through our very simple yet profitable, “The Best SUPPORT-RESISTANCE Indicator”. The concepts of trading level support and resistance are undoubtedly two of the most highly discussed attributes of technical analysis.
Part of analyzing chart patterns, these terms are used by “big traders” and “institutional traders” to refer to price levels on charts that tend to act as barriers, preventing the price of an asset from getting pushed in a certain direction.
The best trades usually happen around support and resistance, no matter how you see the chart, it will be obvious. Most “big traders” and “institutional traders” love to use support and resistance as a trading strategy.
In theory, support is the price level at which demand or buying power is strong enough to prevent the price from declining further.
The rationale is that, as the price gets closer and closer to support, and becomes cheaper in the process, buyers see a better deal, and are more likely to buy. Sellers become less likely to sell, since they are getting a worse deal.
In that scenario, demand or “buyers” will overcome supply or “sellers” and that will prohibit price from falling below support.
In theory, resistance is the price level at which supply or “selling power” is strong enough to prevent the price from rising further.
The rationale behind this is that as the price gets closer and closer to resistance, and becomes more expensive in the process, sellers are more likely to sell and buyers become less likely to buy.
In that scenario, supply or “sellers” will overcome demand or “buyers” and that will prohibit price from going above resistance.
One of the best uses of support and resistance is for defining entry and exit points for positions, coupled with efficient risk management settings.
Now that you know all the basics, it’s time to apply these basic but extremely useful technical tools in your trading. Because here at TraderDNA we want to make things easy to understand, we have divided how to trade support and resistance levels into two simple ideas: the Bounce and the Break.
- The Bounce
As the name suggests, one method of trading support and resistance levels is right after the bounce.
Many novice traders make the error of setting their orders directly on support and resistance levels and then just waiting for their trade to materialize.
- The Break
In a perfect world, support and resistance levels would hold forever.
In a perfect trading world, we could just jump in and out whenever price hits those major support and resistance levels and earn loads of money. The fact of the matter is that these levels break… and often.
So, it’s not enough to just play bounces. You should also know what to do whenever support and resistance levels give way!
The indicator will spot support and resistance levels with which the price has actively interacted before. The Support & Resistance Indicator aims to assist a trader in their everyday trading. It automatically spots the levels the price has actively interacted with before and draws them on the MT4 chart as rectangular areas.
The price range, (or height) of support or resistance areas depends on the spread between price highs and lows that the level goes through.
Resistance levels are marked in orange, and support levels are marked in blue.
The Support&Resistance indicator does not repaint. However, the occurrence of new highs/lows within the range of a specific support/resistance can expand its height.
The best timeframes to work with are M15-H1.