Support Resistance indicator for MT4
Support and resistance are one of the two fundamental aspects when it comes to using technical analysis in forex markets. No matter what methods you use in your trading, in one way or another, they are tied to the support and resistance levels.
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If you think that you are trading with indicators, or whether you are using harmonic patterns, or Elliott wave theory, or regular chart patterns, each of these different approaches to the market analysis are based upon support and resistance.
Without understanding support and resistance levels, it can be difficult for traders to understand the market context.
One of the basic premises of technical analysis is that traders analyze the current price action and predict what the future price action would be.
In this context, the support and resistance levels are critical to technical analysis. Every time price bounces off a certain level or when price fails to break past a certain price level, this is nothing but support and resistance levels at play.
No matter what your approach is to technical analysis, the key aspect remains that you need to understand how the support and resistance levels work. It is even better if you are able to draw these support and resistance levels on your chart as you analyze the price action.
This can be a bit intimidating for beginners in forex trading. Which is why you can make use of the support and resistance indicator for MT4. This handy indicator allows you to automatically plot the support and resistance levels on the chart.
The indicator can be used in real time trading or you can also use the indicator to get some practice in identifying the support and resistance levels. Before getting into the details of how to use the support and resistance indicator for the MT4 trading platform, let’s gain some context about support and resistance levels first.
There are many names given to support and resistance levels. Some call it supply and demand. And in fact, there is a completely different method of analyzing the markets using the supply and demand as the key aspect for trading.
Regardless of the names that it goes by, support and resistance is key to trading. The sooner you understand how this works, the better your chances at improving your trading.
What is resistance and support in trading?
Resistance and support in trading are names given to price levels. It is nothing but another name for supply and demand.
Take for example a supermarket or any store. When there is a huge demand for a product, you will often see that the prices are marked up higher. As long as the demand exists, it is unlikely for the value of the product to fall.
Likewise, when stores have unsold inventory (read as less demand), they tend to offer discounts. The discounts are offered so that it can create demand. When there is more inventory, which is nothing but the product being available in higher volumes compared to the buyers, the prices tend to fall.
In the forex markets, resistance and support or supply and demand work in similar ways. When price reaches a particular level, there can be a huge level of demand for the security. This demand ensures that prices don’t fall below the particular level.
Likewise, when price reaches a key level there are more sellers in the markets who are willing to sell at that price. This ensures that the price of the security does not move higher than this selling level.
The above two are nothing but support and resistance levels explained in simple terms.
Prices, as you might already know do not move in a straight line. Price hits different levels of supply and demand. Thus, they tend to rise, fall and then rise again, within a trend. Even though there is an overall trend in the markets (it could be a downtrend or an uptrend), prices tend to zig zag their way through.
This zig zag fashion of movement in the price is nothing but price reacting to the support and the resistance levels.
When you have an understanding of the support and resistance levels, that is when you gain a bigger context of the markets. Even if you are trading with technical indicators, you will notice how price tends to zig zag . This is support and resistance in play.
While support and resistance levels play a key role in the markets, an important thing to bear in mind is that they keep changing all the time. Thus, in an uptrend, you will notice that the support levels continue to move higher while the resistance levels are breached.
Likewise, in a downtrend, you will see that the resistance levels grow lower and lower while the support levels continue to fall.
Also, a support level that is breached can in turn reverse itself and become resistance just like a breached resistance level can reverse itself and become support.
Understanding these concepts is important if you want to trade with the support and resistance levels.
There are different types of support and resistance levels. The most commonly used are the horizontal support and resistance levels. Trend lines also act as support and resistance levels but in a dynamic way.
In this article, when we talk about support and resistance, we look at the typical and the conventional way which is horizontal support and resistance levels.
How do you use a support and resistance indicator?
The support and resistance indicator is a customized indicator built for the MT4 trading platform. It is a handy tool that is designed to especially held beginners in forex trading. You might be trading forex for a while. However, support and resistance levels and its identification require a lot of practice.
This is where the support and resistance indicator can come to your rescue.
Firstly, installing the support and resistance level indicator is fairly simply. Download the indicator and then move it to the indicator folder where you installed your MT4 trading platform. Once the indicator has been installed, open your trading terminal and click on the navigator icon.
From here, right click on the indicators and click refresh. This will pick up the indicator that you just installed. Once the indicator is installed, you can drag and drop it onto the charts of your choice.
The first chart below shows how the resistance and support indicator looks like after you installed it onto your charts.
Support and resistance indicator on MT4 charts
As you can see in the above chart, the support and resistance indicator for MT4 trading platform plots horizontal lines. But there are not random lines drawn by the indicator. These are support and resistance levels that the indicator plots on the chart by looking at the past price action history.
If you carefully observe the above chart, you can see how the most recent price action has been behaving around these levels. This is nothing but support and resistance in play. For example, the top two horizontal lines basically depict the resistance level. You can see that price fails to break past this level.
Following a few attempts, price action then posts a strong decline from this level and also breaks past the minor support level indicated with the orange line.
The lower red line is basically your next level of support that price will most likely target.
The support and resistance level indicator plots the levels based on the daily time frame. But these levels hold up when you switch to lower time frames too. The indicator also plots the support and resistance level on the lower time frames while also retaining the main support and resistance levels from the daily chart time frame.
Support and resistance levels on daily chart
To illustrate this point, the next chart presented above shows the daily chart time frame for the security in question. Here, you can see further market context. The main resistance levels that we discussed in the previous section was drawn based on the price action history from the daily chart.
You can see how prices attempted three times to break past this resistance level. But the supply was too much for price to handle and eventually prices dropped sharply.
One thing to remember about support and resistance levels is that the ones formed on the higher time frame are more important than the support and resistance levels that are formed on the lower time frames.
This means that support and resistance levels from the daily or weekly chart time frames tend to be stronger and take much more time to be breached compared to the support and resistance levels on the lower time frame charts.
Support and resistance levels on H1 chart
The next chart above shows the support and resistance levels based off the 1-hour chart time frame. Here you can see how the orange line initially served as a support level but soon enough price breached this support level.
You will also notice that price quickly retraces close to this level before reversing the gains once again. This is nothing but support and resistance in play. In this case, the smaller time frame support level turned to resistance.
The support and resistance indicator for MT4, as you can see is relatively easy to use. While it takes some time to get used to the horizontal lines, this can be a great way to get some practice on identifying the support and resistance levels.
We should mention that there is some subjectivity involved when it comes to analyzing the markets and identifying the support and resistance level. It is not a math behind this concept and these levels can be interpreted differently.
This is why, the support and resistance indicator can be used to effectively understand these levels of reversal initially.
You can combine support and resistance with any trading strategy. Ideally, candlestick patterns and chart patterns forming near the support and resistance levels along with divergence based trading techniques tend to work really well.
Support and resistance level indicator – Conclusion
In conclusion, the support and resistance level indicator for the MT4 trading platform a custom indicator. It is not a leading indicator because support and resistance levels are based on past price action.
However, the support and resistance levels can predict what price is most likely to do. You will not become an overnight expert in using the support and resistance levels. Rather it takes a lot of time and practice to identify these levels with a fair amount of confident.
This is where the support and resistance level indicator for the MT4 trading platform can help you to learn how to draw these levels. The indicator also repaints. But this is expected because support and resistance levels do not hold the same amount of significance once they are breached.
Therefore, the support and resistance indicator for MT4 constantly redraws the levels and adjusts to the evolving price action that happens. Most traders tend to be averse to indicators that redraw.
They believe that by repainting, the indicator is attempting to correct itself. While this may be true for some technical indicators, the support and resistance indicator doesn’t work that way. It is essential that the indicator adjusts to new information via the price and then draws these levels.
Also note that a support or a resistance level that has been tested multiple times can weaken. This is when price tends to break that particular support or resistance level and it can move higher or lower and carve out new support and resistance levels.
Overall, the indicator presented in this article is a handy tool that is highly recommended if you want to understand how support and resistance works. It doesn’t matter whether you are trading with indicators or harmonic patterns. No matter your approach, support and resistance is key to understanding the market context.
It will help you to become a better trader and will also improve your confidence as a trader.