ZigZag Support and Resistance Breakout Forex Strategy For MT4
Table Of Contents:
- ZigZag Support and Resistance Breakout Forex Strategy For MT4
- Critical factors you need to know
- Functions of the critical factors
- The long trade setup sequence
- The short trade setup sequence
- ZigZag Support and Resistance Breakout Forex Strategy For MT4 – Useful advice
- ZigZag Support and Resistance Breakout Forex Strategy For MT4 – Conclusion
Please note: This strategy was publicly published in the trading community and is free to use. We do NOT make an attempt to decide if this strategy is profitable or not, because we know that the major factors regarding trading results are the skills/experience of the trader who executes the strategy. Therefore, we are mainly explaining the components and rules of the strategy. If applicable, we are highlighting advantages, disadvantages and possible improvements of the strategy.
The ZigZag Support and Resistance Breakout Forex Strategy For MT4 is a trading strategy that uses the highs and lows of the zigzag indicator to define support and resistance zones. If a breakthrough in these support/resistance zones occurs then you can open a trade in direction of the breakout. But skilled traders prefer to get confirmation regarding the breakout by using other critical variables.
At the beginning of a new trend when a previous matured and preferred steep trend collapses you may have the biggest success with this strategy? However, to synchronize yourself with this trading method, you should be using other variables to find the quality trade signals. Though these are very basic terms, it plays an important role in the trade identification process. Let’s see the list of essential variables used in this system.
Critical factors you need to know
- Zigzag indicator
- Retracement phase
- Wave formation
- Potential trading zone
Chart setup with the ZigZag Support and Resistance Breakout Forex Strategy For MT4
Functions of the critical factors
To use the ZigZag Support and Resistance Breakout Forex Strategy For MT4, you should have a good idea about the above-mentioned critical factors. Many retail traders jump to the conclusion and say the zigzag indicator is not useful at all. But they don’t realize the fact, to get the real benefit of a tool, you must know how it works and integrate it with the right form of variables.
Zigzag indicator
The zigzag indicator is a simple indicator that draws the wave patterns based on the highs and lows. The default depth is set 12, deviation to 5, and back step to 3. Usually, the default settings should work perfectly fine but if you wish, you increase the deviation period while analyzing the daily or the weekly chart.
While using the zigzag indicator, you should be aware that this indicator is repainting in nature. So, to identify the most recent highs or lows, you should have a good idea about the retracement phase. And try to take the data reading from a higher time frame as highs lows are much more stable.
Retracement phase
We all know that trend is our friend when it comes to trade executions. But to ride a trend, you need to have the skills to identify the retracement phase. If the price moves against the prevailing trend but fails to break a critical high or low, we call it retracement.
Identifying the retracement in trend
Once you learn to identify the retracement in the trend, you should be able to spot the potential trading zone. Usually, the retracement comes to an end when the price of a certain asset hits a major support or resistance level.
Wave formation
Some of you might have decent knowledge about the Eliot wave pattern. If not, it’s absolutely fine since we will discuss the wave formation with the simple 1 2 3 patterns. In general, the second wave is bigger than the first wave. And the third wave is the potential zone where the breakout takes place.
Formation of 1 2 3 wave pattern
The formation is used to define the breakout zone. While using the ZigZag Support and Resistance Breakout Forex Strategy For MT4, we will be taking the trades at the breakout and rejection of the price. So, retracement and 1 2 3 patterns will play an important role in the trade execution process.
Potential trading zone
Smart traders usually take trades at the support and resistance level. So, if you intend to make a profit by using the ZigZag Support and Resistance Breakout Forex Strategy For MT4, you should have the skills to draw the support and resistance level.
If you intend to trade the major reversal, look for the breakout in the H4 or higher time frame. Stop considering the minor support and resistance level as the potential trading zone. However, if you take the trades with the trend, you may take trades at the minor support and resistance level.
The long trade setup sequence
Opening the long trade with the existing bullish trend is relatively easy. So, in this segment, we will learn the sequential steps to open the long trade. Since trades will be taken with the prevailing bullish trend, we may also look for the trade signals in the lower time frame.
Conditions to execute the long trade
- Find an asset that is already in an uptrend. Look for the higher lows in the H1 or higher time frame to identify the bullish trade.
- After an extended bullish rally, the price of the asset should start its corrective move. The correction or the retracement phase of an asset should end near the support level.
- Look for the bullish candlestick pattern at the support level. A bullish candlestick pattern should give us the indication that the zigzag line is going to make an upper move.
- As the zigzag line indicates the potential bottom formation, you may look at the economic calendar. Avoid taking the trades during the high-impact news release.
- After checking all these conditions, you should be able to open the long trades with low risk. Be cautious with your risk exposure as you can never know the result of any trade.
Execution of long trade
Stop loss
The stop loss for the long trade should be placed below the support level. If the price action confirmation signal is used, you may set the SL price below the tail of the bullish candlestick pattern.
Take profit
The take profit should be set based on the SL price. The minimum risk to reward ratio should be 1:4 since you will be taking the trades with the key trend.
The short trade setup sequence
Now we will learn the proper way to open the short trades at the break of a major support level. In this case, you may use the 1 2 3 wave pattern along with the retracement phase. Now let’s see the sequential steps to open the short trades.
Conditions to execute the short trade
- Select a major currency pair and draw the important support and resistance level. Since we will be trading the major reversal, we should trade in major currency pairs only.
- The 1 2 3 patterns should be completely formed right after the break of a major support level.
- The retracement in the price will no longer act as a corrective move rather it will be a part of the new bearish trend.
- At the zigzag indicator, you should see the red line segment is breakout through a major support level imposing a strong bearish pressure on that particular asset.
- Check the economic calendar and see if the fundamental data favors the bearish breakout.
- Once you have checked all these factors, you may open the short trade with low risk.
Execution of short trade
Stop loss
Since you will be taking the trades at the break of a major support level, the SL price should be set above the broken support. Note that the broken support will act as the critical resistance level.
Take profit
While using the ZigZag Support and Resistance Breakout Forex Strategy For MT4 to trade the major reversal, it is better to aim for a 1:5 risk to reward ratio. If the risk to reward ratio is low, the associated risk in taking the trades with the major reversal doesn’t justify the trade execution.
ZigZag Support and Resistance Breakout Forex Strategy For MT4 – Useful advice
Smart traders always rely on a simple risk management plan. But when you use the ZigZag Support and Resistance Breakout Forex Strategy For MT4, you should be able to use diversify risk management policy. If you trade with the existing trend, you may risk 2-3% of the account balance.
On the contrary, if you prefer to trade against the trend, it is better to lower the risk by 1%. By using a low-risk exposure, you should be able to offset the risk factors associated with the reversal trading method.
ZigZag Support and Resistance Breakout Forex Strategy For MT4 – Conclusion
Smart traders know that they need to learn the functions of the ZigZag Support and Resistance Breakout Forex Strategy For MT4 in the paper trading account. You may feel confident after reading the sequence to execute the long and short trade but still, it is better to practice in the paper trading account.
Once you start practicing in the demo account, you should feel comfortable with the ZigZag Support and Resistance Breakout Forex Strategy For MT4. If not, you don’t have to rely on this system. Remember, an efficiency of a trading system greatly depends on the trader’s style and skills. So, there is no hard and fast rule that you have to trade the market with a certain trading system.
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