Introduction to the Support and Resistance Indicator
Most traders would think of diagonal lines connecting swing highs and swing lows whenever they think of support and resistance levels. However, swing highs and swing lows, otherwise called as pivot highs and pivot lows, can also be used as a support and resistance level.
This Support and Resistance indicator is based on such concept.
What is the Support and Resistance Indicator?
This Support and Resistance indicator is an indicator which automatically identifies horizontal support and resistance levels which are based on minor pivot highs and pivot lows.
These support and resistance levels can be key price levels which traders can base reversal trades or breakouts based on strong momentum.
How the Support and Resistance Indicator Works?
This indicator makes use of an underlying Fractals indicator as a basis for identifying minor pivot highs and pivot lows. It plots a red dotted horizontal line whenever it detects a bearish fractal, and a blue dotted horizontal line whenever it detects a bullish fractal.
Below is a chart comparing fractals and the support and resistance levels identified by the indicator.
How to use the Support and Resistance Indicator for MT4
Since this indicator identifies horizontal support and resistance levels, it should be traded as such.
Support and resistance levels identified by the indicator on the higher timeframes can be used as a basis for a possible reversal due to price bouncing off these levels while trading on the lower timeframes.
It can also effectively be used for trading momentum breakouts wherein traders could enter a trade as price breaks a support or resistance level with strong momentum. This technique is better used when trading in the direction of a longer-term trend.
Traders can also use these levels as a basis for trailing their stop losses with the assumption that price will reverse its trend if it breaches these support or resistance levels.
Buy Trade Setup
When to Enter?
Open a buy order as soon as a bullish momentum breakout candle closes above a resistance level identified by the Support and Resistance indicator. Set the stop loss on the support below the entry candle.
When to Exit?
Trail the stop loss below each support level identified by the Support and Resistance indicator until stopped out in profit.
Buy Trade Setup
When to Enter?
Open a sell order as soon as a bearish momentum breakdown candle closes below a support level identified by the Support and Resistance indicator. Set the stop loss on the resistance above the entry candle.
When to Exit?
Trail the stop loss below each support level identified by the Support and Resistance indicator until stopped out in profit.
Conclusion
Pivot highs and pivot lows are key price points where price strongly reversed from. As such, pivot highs and pivot lows can be considered as a basis for horizontal support and resistance levels. Fractals, although very minor, can also be considered as a pivot high or pivot low. However, because it is very minor, it would not be as reliable as a major pivot high or pivot low.
Although this indicator can still effectively be used as a support and resistance indicator, it is still best to pair this indicator with other indicators or just as a confirmation of a different type of trade setup.
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