If you are in a city you’ve never been in before, you use landmarks to help you get from one place to another without getting lost: a tall church, a skyscraper or any other easily identifiable object. Support and Resistance (S/R) is your skyscraper on the chart, your point of reference that helps you navigate the markets. It is the basis of technical trading and all traders should include it into their education. However, it can be hard for a newbie to understand what level is reliable or important and what level is not, so until you improve your skills to identify S/R levels, you can use the indicator we are going to talk next. It is called “Support – Resistance” and I think the name is self explanatory: the indicator finds and draws Support and Resistance levels on my Binary Options charts. Let’s see what use we can make of it:
What are Support and Resistance Levels and How to Use the Custom Indicator?
It is not too impressive at first glance, I know. But S/R levels are not graphically impressive; after all they are just lines…just lines that can make us money if used correctly. Now here comes the boring part (for some of us that don’t want to really learn) but don’t worry, I am going to keep it simple:
Resistance is a level that rejects rising prices into lower territory. The more times the level rejects price, the stronger it becomes.
Support is a level that rejects falling prices into higher territory. Just like Resistance, Support becomes stronger if it rejected price many times in the past.
Support and Resistance can be identified with the help of the Fibonacci tool as well as Pivot Points. The advantage of such tools is that they are used by many traders so they become somewhat self-fulfilling. We’ve prepared articles for each of these tools so if you want to learn more, check them out: QuickFib – A little Fibonacci Help Could Do Miracles and Pivot Points – Support and Resistance on Auto-Mode. Also, there is another form of Support and Resistance: dynamic S/R. This is provided by Moving Averages and it’s called “dynamic” because it constantly moves, adjusting to price action. A good way to get the feel of Moving Averages as well as horizontal S/R is to read Okane’s Homegrown Price Action Strategy for EUR/USD.
If price reacted in the past to a certain level, it is likely to do so again in the future but don’t imagine that a S/R level will never be broken. That would mean price is never trending, right? And you need good trends to increase your In-The-Money ratio. For a quick and easy trend following strategy, read The Trend is Your Friend Strategy. If you feel more adventurous and care to try a more complicated approach to trend trading, read my Getsuga Tensho Strategy.
The catch is identifying good support and resistance levels and watching price react around them. Another important thing to remember about S/R is that a broken Support can turn into Resistance and vice versa. Check out the picture below:
Ok, Support and Resistance levels are definitely useful for a trader, but it’s sometimes difficult for new traders to correctly identify them and that’s where our custom indicator comes in, automatically drawing the levels on the charts. Now for the installation part: once you have downloaded it, extract it using Winzip or Winrar and follow these instructions: on your MT4 platform go to File (top left part of the platform) then click on Open Data Folder. In the newly opened window, locate a folder named MQL4 and double click on it. Inside you will see a folder named Indicators. Open it and paste the contents of the .rar archive (the actual S/R indicator we are talking about). So let’s recap the steps: File – Open Data Folder – MQL4 – Indicators – paste the indicator.
Once the indicator is in the specified folder, close your MT4 platform (if you have it open) and then re-open it. For the next step you have to click on Insert – Indicators – Custom – Support-Resistance and then click OK on the little box that will appear. Good, now let’s see what sucks about it:
Why does the “Support – Resistance” Indicator Suck?
No computer program will be able to identify correctly and with 100% accuracy the best levels of Support and Resistance (at least I never came across one that does). I like to draw my own S/R levels, but if a novice has no idea about how to draw them, this indicator is better than not having S/R levels at all on your charts. Being an automated indicator, it cannot understand that Support and Resistance is a zone rather than an exact level and as a consequence, the indicator draws more than one line in a S/R zone. Look at the two pictures below to understand better what I am trying to say:
See how many lines the indicator draws? In this particular case the indicator incorrectly draws more lines than needed. However, it is not something to be worried too much about because since you know about the problem, you can avoid it easier: just be aware of the fact that sometimes 2 lines very close together are actually a zone of Support or Resistance.
Why “Support – Resistance” doesn’t Suck?
I think every trader should have some knowledge about support and resistance as it is an important part of trading. But in the beginning, S/R levels seem too complicated and hard to identify. At least that’s how it was for me and that’s what makes this indicator valuable. Think of it like some training wheels on your bike when you first learn to ride it; it helps, although a rider using training wheels will never go as fast as one that is experienced and doesn’t need them. With time, you will learn to ride with no training wheels on.
Wrapping it up
This is not a strategy and you should never forget that. Do not use the indicator alone when you trade. Instead, rely on it for confirming your strategy and helping you to see the price waves better. When you feel comfortable enough identifying your own levels, just delete it from your charts or keep it only to confirm the levels that you found. Support and Resistance is a very complex subject and what I wrote about it here definitely does not cover it entirely because I wanted to focus more on the custom indicator. I hope you find it useful and as always, “Thanks!” to the guy that created it, whoever he might be. For more custom indicators, you can visit our Tools page
Click Here to Download the Support Resistance Indicator
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