Auto Support and Resistance Indicator Guide
Traders commonly use the support and resistance indicator in technical analysis, whether they’re on MT4, MT5, or TradingView. This tool marks specific price points on the price chart, acting as potential barriers that could block the price of a financial instrument from moving in a particular direction.
When traders use the support and resistance indicator, they can identify various areas of support and resistance, which then leads to more accurate trading decisions. Throughout this course, we strive to break down the complexities of this indicator, with an emphasis on making it understandable for all traders, particularly beginners.
Support and Resistance Indicator FAQ
What is support and resistance indicator ?
The support and resistance indicator acts as a highly effective tool, aiding your daily trading activities. It emphasizes the most critical price areas, which are often linked to profitable opportunities. Consequently, this MT4 indicator visualizes different price changes using two colored rectangles. A red rectangle denotes the support area, while a green one indicates the resistance area. The support and resistance indicator automatically identifies support and resistance zones, simplifying the trading process for both novice and professional traders.
What are Support and Resistance levels ?
Support and Resistance signify key levels where the balance of trade may have shifted between buyers and sellers, indicating traders sentiment. Specifically, support levels represent bullish traders, while resistance levels suggest bearish sentiment. The strategy on MetaTrader 4 platforms often involves selling near the resistance levels during an uptrend and buying near the support levels during a downtrend.
A resistance level refers to a price point that an asset doesn’t surpass over a specific period. This level emerges when demand starts to decline while the price increases. Additionally, resistance levels typically lie above the current price levels. The underlying principle here is quite straightforward. As the price escalates toward the resistance level and becomes more expensive, sellers grow more inclined to sell, and buyers are less motivated to buy. However, if the price breaks past this level, it’s likely to continue rising until it encounters another resistance level. We can represent the resistance level by drawing a line along the highest highs for the period under consideration.
A support level refers to a price point that a financial instrument doesn’t fall below over a certain period. This level materializes when demand begins to increase as the market price drops. Support levels are typically situated below the current market price levels. The procedure works as follows: as the price decreases towards the support level and becomes less expensive, buyers grow more eager to buy, and sellers are less inclined to sell. However, if the price breaches this level, it’s likely to continue its descent until it reaches another support level. You can represent the support level by drawing a line along the lowest lows for the period under analysis.
How do traders identify strong support and resistance zones?
The Support and Resistance Indicator differentiates between weak and strong zones.
- Weak support and resistance levels tend not to hold up, meaning they can be easily breached. Conversely, strong levels act as enduring barriers, obstructing price appreciation or depreciation over time.
- Strong support and resistance levels are those price points that have frequently triggered trend reversals over time. In other words, the higher the frequency of trend reversals, the stronger these levels become.
In summary, when the price trends towards strong support or resistance levels, it often rebounds multiple times before successfully breaking through them.
Strong and Weak Support zones example
If the price has been trending lower and then reversed into an uptrend several times at the same level, that particular price level where the reversal occurred constitutes a strong support area.
The distinction between weak and strong support areas is substantial. The likelihood of the price breaching a strong support level is quite low, given these levels undergo multiple tests. As a result, strong support levels present perfect trading opportunities on the MT4 platform.
Weak and Strong resistance zones example
Alternatively, if the price has been trending upwards and then reversed into a downtrend several times at the same level, that specific price level where the trend reversal occurred designates a strong resistance area.
The distinction between weak and strong resistance levels is significant. The chances of the price breaking through a strong resistance level are quite low, considering these levels have been tested multiple times. Consequently, strong resistance levels offer excellent trading opportunities on the MT5 chart.
How to trade with support and resistance indicator ?
Trading with the support and resistance indicator is straightforward. Traders often use it to trade breakouts and pullbacks. Indeed, the support and resistance levels assist traders in managing pullbacks or breakouts. Essentially, support and resistance set boundaries for price movements. So, if the price surpasses these levels, we refer to this event as a “breakout”.
A breakout occurring outside the resistance area presents a opportunity for traders looking to sell. Similarly, a breakout outside the support area turns out to be profitable for traders aiming to buy. Pullbacks typically happen when the price of the forex pair reaches potential highs and lows and then retraces. It’s leading to a change in the current direction.
Therefore, support and resistance aid traders in identifying whether there’s a reversal or continuation of the trend. This knowledge benefits traders as it enables them to minimize their trading risk by preparing in advance to adjust their planning.
Example 1 : Trading with a strong support zone
To trade within strong support zones, adhere to these guidelines:
- Buy Signal: When the price tests the strong support levels multiple times without succeeding to break them. The probability of the price increasing is very high.
- Sell Signal: When the price manages to breach key support levels within the strong support area. The likelihood of the price descending to lower levels is significantly high. As a result, the price is likely to continue its downward trajectory.
Example 2: Trading with a strong resistance zone
To trade with strong resistance zones you need to follow these instructions:
- Long Signal: When the market price breaches key resistance levels within a strong resistance zone. This is due to these areas being tested multiple times by the price before a successful breakthrough occurs.
- Short Signal: When the price tests the strong resistance levels multiple times without breaking through. The probability of the market price decreasing is significantly high. These levels undergo multiple tests by the market price without a successful breach. As a result, the price is likely to decrease.
Download Support and resistance indicator for MT4
The support and resistance indicator for MT4 is a tool for identifying support and resistance areas. These areas mark the highest and lowest points on the price chart. It’s illustrating the highs and lows of a forex pair. Trading with this indicator can guide traders in selecting the best trading points. Furthermore, employing the support and resistance MT4 indicator saves time and energy, as it eliminates the need to manually draw these zones. Consequently, it auto-plots the support and resistance by simply attaching it to your chart.
Download Support and resistance indicator for MT5
The support and resistance indicator for MT5 is a straightforward and effective technical tool on the MetaTrader 5 platform, functioning at any timeframe. This MT5 indicator helps identify support and resistance areas, displaying them as red and green lines (or rectangles). The green (or blue) line located above the current price level denotes the resistance level. Conversely, the red line positioned below the current price level signifies the support level.
Download Support and resistance indicator for Tradingview
The support and resistance indicator on TradingView is a built-in feature within the TradingView platform. Traders can leverage this tool to develop various trading strategies, including scalping, swing, day, and intraday trading. This TradingView indicator is especially beneficial for novice traders still learning how to plot these zones, and it can also save time for advanced traders. Given the high market volatility, using an indicator like this becomes crucial. This profitable tool can be a significant asset in your pursuit of wealth in the market.
The support and resistance indicator is a free-to-download technical tool that enhances the suitability of technical analysis for traders. This MT5 indicator saves you time by automatically plotting potential support and resistance levels once you affix it to your chart. However, like any other indicator, it’s advisable to pair the support and resistance indicator with another technical tool for more accurate signals.