Simply Trend Confirmation Tool – Support and Resistance Indicator

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Contents

Simply Trend Confirmation Tool – Support and Resistance Indicator

As primarily a trend trader, my goal is to trade in the direction of the trend, by entering on pullbacks and then taking my profit on the next trending wave.

The basic envelope strategy discussed extensively in my day trade articles attempts to capture such moves. The problem is that unless you are very good at picking out trend shifts, and seeing higher-highs, lower-highs, lower-lows, etc develop in real-time, the strategy can be hard to implement. This is likely the case with a lot of trend following strategies. In theory it seems easy, but when traders go to actually implement a trend trade, they may find trends alter course more often, or the trend isn’t as smooth, as they anticipated.

Applying a simply support and resistance indicator on your chart can help in this regard.

The chart below is from MetaTrader 4 (a free downloadable trading and charting platform), although the lines can also be drawn manually.

The basic idea behind the indicator is that it marks short-term high points and low points with horizontal lines. Instead of getting caught up in watching every tick on the price chart, traders can simply look at the indicator.

Figure 1. Support and Resistance Indicator

In an uptrend, like on the left of side of figure 1, resistance lines (blue) and support lines (red) should be stepping higher. This is because an uptrend is created by higher-highs and higher-lows.

In a downtrend, as seen the on the right hand side of figure 1, notice how both resistance and support levels are moving lower as the price makes lower-highs and lower lows.

Using an indicator such as this, or manually plotting the lines yourself, can be used as a trend trade confirmation tool.

Only take long positions (buy calls) when both the support and resistance are stepping higher.

Only take short positions (buy puts) when both the support and resistance are stepping lower.

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As an added benefit, if the price is moving within range, a barrage of support and resistance lines in a similar area will likely alert you that no trend is currently present.

If you already have MT4, you can download a simple version of the indicator here: MT4 Support and Resistance Indicator

Like any indicator, or even if you do it manually, there are a couple pitfalls. Depending on how you trade, and on what time frame, you may find that marking every high and low makes the chart far too cluttered. Marking only “relevant” highs and lows may make the chart less cluttered but possibly some important information will be missed, such as subtle shifts in momentum near the end of the trend.

Some price analysis is still required to provide an overall perspective on the price action. For example, a slightly lower low and lower high may develop during a pullback after a very strong run higher. Being able to see that it is a pullback instead of a reversal still requires some analytical skill (See Should I Hold Through a Pullback? Part 1 and Part2).

Overall though, while it is isn’t perfect, an indicator such as this–or just drawing similar lines yourself–may help you see trend and reversals better.

The Best Support and Resistance Indicator for MT4

Finally, a multi-timeframe dynamic support and resistance indicator that helps you automatically identify strong zones to buy and sell from.

Easily toggle through 9 different timeframes each with their own preset (and adjustable) settings.

Adjust the strength of your support and resistance zones with the on-screen toggle.

These key areas of support and resistance helps you with better stop loss, take profit and entry placement.

Stack and overlap up to 9 different timeframes onto your chart to find strong zones of support/resistance.

Intelligent filters help you filter out only the key support and resistance areas on the chart.

The indicator is created by a CFTe, CMT, CFA Certified team who use it every day in trading.

  • Top
  • Support and Resistance Strategy
  • Support & Resistance Simplified
  • Diagonal vs Horizontal
  • What makes this indicator different?
  • Video of indicator
  • Resistance Explained
  • Download Indicator
  • Support Explained
  • Indicator Settings
  • How to install
  • Improving the strength of the indicator
  • Trade Management

Support and Resistance Trading Strategy

Trading purely based on support and resistance can be a very profitable strategy – but only if you do it correctly. Before you can even begin to trade support and resistance, you need to understand how to interpret it and most importantly, how to filter out the good zones from the bad zones. Notice I say zones here and not levels. Because support and resistance works in the form of zones (areas), not specific levels.

Today we will be covering a few things, in particular, to prepare you to not only use this support and resistance indicator but also to make good money trading it.

Agenda for today:

  • Support and Resistance Simplified
  • Understanding Swing High and Swing Low Areas
    • Identifying swing high and swing low areas on the indicator.
  • Pullback Resistance and Pullback Support Areas
    • Identifying pullback support and resistance on the indicator
  • Horizontal Overlap Support and Resistance Areas
    • Identifying overlap support and resistance on the indicator
  • Improving Your Support and Resistance strategy Accuracy
    • Improving Your Accuracy with Fibonacci
    • Improving Your Accuracy with Stochastic
    • Improving Your Accuracy with RSI
    • Improving Your Accuracy with Price Action
    • Improving Your Accuracy with Correlation

At the end of this topic, you should be well on your way to making seriously good money using support and resistance to trade.

Support and Resistance Simplified

Let us first properly define what Support and Resistance levels are before moving further (to avoid any confusion).

Resistance = any level that is above price.

Support = any level that is below price.

Support and resistance levels are essentially key levels a person should watch out for because previous price action between the bulls and bears have given us a key sign into the importance of those levels. See price failing to break above this resistance line for the past 3 times? That’s clearly a strong level to pay attention to.

If you see price failing to break below this horizontal support line multiple times, it is a strong level to pay attention to too. One of the most common questions we’re asked is how to determine resistance and support lines – especially which ones are the most important since based on how we draw them, almost every level can be an important level.

Diagonal or Horizontal Lines?

Which is more accurate?

Quite simply put, there are many ways to draw support and resistance lines, but only a few correct ways to do so.

  • There are ascending/descending lines such as diagonal lines (most inaccurate) because the subjective nature of taking the proper levels is too subjective. If you get one point off by 1 pip, the line goes way off tangent.
  • There are channels which require at least 2 points on top and 2 points below which are fairly more accurate. This is because you are essentially taking a minimum of 4 points.
  • Then there are horizontal support/resistance levels which are the most accurate because it leaves extremely little room for subjective interpretation. To this tune, we’ll be focusing on the key support and resistance levels from such horizontal lines/areas.

What Makes the TFA Support and Resistance Indicator Different?

Versus the other 100 indicators out there.

What makes this support vs resistance indicator different from all the hundreds others out there is that it filters out a lot of the weak levels and on top of that, it doesn’t only find support and resistance levels, but instead more importantly, find support and resistance areas. Now, this is not some “demand/supply zone” indicator which many people are familiar with, it’s way better than that.

Using areas (instead of lines) gives us a much better idea on which levels to watch out for. After years of testing, the most important support and resistance levels can be broken down into these 3 :

1. Swing highs / Swing Lows

These are levels where price just reacts and bounces off multiple times. The more times price reacts off these levels, the stronger they are. Here’s a picture of how swing highs look like :

2. Pullback Resistance / Pullback Support

Pullbacks occur when a swing high/low has been broken – then price makes a “pullback” to the level. In the picture below, you can see that once our swing high resistance is broken, it turns into an “overlap support”.

3. Overlap Resistance / Overlap Support

An overlap support/resistance can only occur when price has broken a swing high/low and made a pullback to the pullback support/resistance. Only after price has bounced off our pullback support/resistance, then it turns into an overlap support/resistance. You can similarly refer to the picture above to better understand.

Video or our Support and Resistance Indicator in action

Watch our indicator in action!

Explaining Resistance with our Support and Resistance Indicator

Learn how to identify resistance zones

Remember : Resistance is always above price. Support is always below price.

We will now look at how our Support and Resistance indicator for MT4 identifies the 3 major types of support/resistance as mentioned above : swing high, pullback and overlap.

Finding swing high resistance on our MT4 Support & Resistance Indicator :

This is really straightforward. We don’t just pick any swing high, we pick the major swing high. How we define major swing highs here is based on the parameter we can adjust called “Swing sensitivity“. The higher this value, the more significant our swing highs are.

This picture below is when we have a swing sensitivity of 100. This means we only pick swing highs where there are more than 100 bars to the left and right of the major high. Notice there are just a few major lines?

Swing sensitivity: 100

Swing Sensitivity: 30

If we adjusted our swing sensitivity to something like 30, this would result in a lot more weaker lines appearing. This would mean there are many weak swing highs.

Combining swing highs to create strong areas of resistance

Now, when more than 1 swing high combines, it becomes a strong level of resistance. This is shown by a highlighted area on the chart with our MT4 indicator.

What our MT4 Support and Resistance indicator does is that it intelligently scans the entire chart for such levels and if they are close enough, they are combined to form a swing high resistance area .

Finding pullback Resistance on our MT4 Support & Resistance Indicator

Now that we have covered how swing high resistance looks like, l et’s look at the next strongest resistance: the pullback resistance.

Pullback resistance is formed when a swing low is broken and price makes a “pullback” to that previous level. In the example below, we can see that price broke a swing low resistance turning it into a pullback resistance.

Finding Overlap Resistance on our MT4 Support & Resistance Indicator

Once we have found a pullback resistance, it is important to keep an eye on this level. Because once price reverses off it, it becomes an overlap resistance.

Pullback resistance turns into a strong graphical overlap resistance if price reverses off it. This shows that there are more bears than bulls at this key decision point.

How do I get this indicator?

Please download this indicator and give it a try. The trial version allows you to use it on AUD/USD and USD/JPY without any restrictions.

If you prefer to purchase this indicator too – you’ll find a 70% discount coupon code in the email along with the link to get it ��

This indicator turned me into a profitable trader. Hands down the best support and resistance indicator in the market. I use it to scan for my major levels (with a bit of toggling) and pick out the major levels for me to take trades from. I do combine this with a few other tools like my trusty Stochastic and price action to snag really good trades. Love the multi-time frame feature and toggling of strength.”

“Desmond is a great coder and he has put together an amazing tool that has helped me improve my trading profitability. I like that it’s not a “black box” system that just pulls out signals from thin air. Rather, it allows you to adjust the sensitivity and strength to discover truly great trading opportunities. This can work as a plug-and-play indicator, but if you want to get the most out of it, please read up on how to play around with the settings to uncover truly profitable levels. Good work Desmond, keep it up!”

Explaining Support

Swing low support, pullback and overlap support.

Remember, as I mentioned earlier, the Support is always below current price. Resistance is above price, support is below price. Do not confuse the two.

Finding Swing Low Support with our MT4 Support and Resistance Indicator

We talked about “swing sensitivity” earlier. This is essentially the number of bars to the left/right that makes up a major swing low. The higher this number, the stronger the support.

Below is a simple example of a swing low support (green line) with swing sensitivity of 20. You will immediately notice that there aren’t many lines that are drawn on the chart as we filter out a lot of the noise with a decent swing sensitivity number.

Combining multiple swing lows to create strong areas of support

The key to finding strong areas of support is to combine multiple swing low levels together. Now, this is not one exact level. This is very often an area . Our indicator scans the past and present to find whether there were other big swing low support levels that occured near that area. If there is, it highlights the area on the chart.

When more than 1 swing low combine, it becomes a stronger level of support.

Finding Pullback Support with our Support and Resistance Indicator

On top of finding swing low support areas, another really strong sign of support is what we call the pullback support .

This is when a previous swing high is converted into a support because price had broken above it and is now dropping to test it again.

In the picture below, you can see how this works out.

How to find Overlap Support with our Support and Resistance Indicator

An overlap support is perhaps one of the strongest signs of support. How it works is really simple – it is a natural evolution of the pullback support we mentioned above.

This pullback support turns into a strong overlap support if price bounces off it the very first time it touches it. This shows that there are more bulls than bears at this key decision point.

Support and Resistance Indicator Settings

How to tweak and optimize it.

I highly recommend watching this video to understand how I would use the Support and Resistance indicator before we go any further into understanding how to tweak and adjust its settings.

There are a few settings that you should understand about this indicator to better help you use it effectively.

Multi-Time Frame Selector

The multi-time frame selector allows you to activate different support/resistance lines from other time frames to be viewed on your chart. In the picture below, you can see that even though I am on my H1 chart, I can activate the H4 support/resistance levels to see if there are any levels on the higher time frame I might have missed out on. This resulted in a big swing high I might have missed being shown.

SwingSensitivity :
This is how many bars you would need on the left/right of a high/low to create a swing high/low. This means that for example, if you have 20 as this value, then the swing high would require 20 bars to the left and to the right of it to be lower than it to create the swing high point. The higher this value, the stronger the swing highs/lows you identify.

InitialPips :
What the indicator does is it takes these swing highs/lows and plots a line to detect whether it coincides with other swing highs/lows. The InitialPips value is the ‘buffer’ it uses to detect whether another swing high/low is near it. A value of 5 would mean it scans 5 pips above and below the first swing high/low for any other swing high/low to reach it. The key idea here is to find areas where multiple swing high/lows coincide.

1 min chart : 1
5 min chart : 3
15 min chart : 5
30 min chart : 7
1 hr chart : 10
4 hr chart : 30

This is not a hard and fast rule, rather, the main idea is to provide more scanning area for overlaps as the time frame goes bigger.

FurtherPips :
Once the second swing high/low is reached, the indicator will use this new resistance/support area and do a modified scan based on FurtherPips. This works the same way as InitialPips.

1 min chart : 1
5 min chart : 3
15 min chart : 9
30 min chart : 15
1 hr chart : 25
4 hr chart : 50

This is not a hard and fast rule, rather, the main idea is to provide more scanning area for overlaps as the time frame goes bigger.

BrokenCount :
This value scans how many times the particular support/resistance identified has been broken. The more times a support/resistance level is broken, the weaker it is. A value of 0 means that the level can be broken only once. If it is broken a second time, it disappears.

BrokenBars :
This is the number of bars that must be closed below the support/resistance level for it to be considered truly broken (links with BrokenCount above). The reason for this is sometimes price tests these support/resistance levels and bounces back (like a doji). This actually means the support/resistance level is stronger and such a filter allows us to prevent such price action from tricking us.

I prefer to keep this at about 3 across all time frames.

ToggleStrength :
This toggles the thin lines with only one swing high/low and the thicker lines with at least 2 swing high/lows connected. This helps you pick out which are immediately the stronger levels to watch out for.

Here’s an image without the ToggleStrength. Notice how there are many more lines which have just 1 swing high/low on it. These are pointed out by the green arrows.

Support and Resistance Indicators For MetaTrader4 (MT4) and TradingView

Use the support and resistance indicators on MetaTrader4 (MT4) or TradingView.com to mark the recent swing highs and lows in price. This, in turn, can help identify the trend and spot potential reversals. Use the indicator as a trend confirmation and analysis tool, but not for trade signals.

Support and resistance are more than just lines drawn at price highs and lows on a chart. Support and resistance levels on a price chart are dynamic and may be horizontal, sloped, or projected. While drawing lines at recent highs and lows is one of the most basic forms of support and resistance, some new traders like to see the recent highs and lows marked on their charts. Having this gives a more pronounced picture of whether the price is rising or falling.

A support and resistance indicator draws horizontal lines at recent swing highs and swing lows. During an uptrend the horizontal lines along both the swing highs and lows move up. When that no longer holds true, the uptrend may be reversing to the downside. For a downtrend the horizontal lines will be dropping. When they start to rise, the uptrend may over and an uptrend starting.

There are a number of support and resistance indicators for MetaTrader 4 (MT4) and TradingView.

Support and Resistance Indicators for MT4

The first indicator is Support and Resistance (Barry). It is a simple indicator that draws dots along recent high points and low points. The lines extend out to the right until another new high or low forms, then a new line is drawn.

On the EURUSD chart below the lines move with the price, forming higher horizontal lines along the highs and lows as the price makes upward progress. This helps spot the trend and also see when the trend is reversing.

To use the support and resistance indicator, download the indicator via the link above and place it in your “Indicators” folder within your MT4 folder. The “Indicators” folder is inside the “Experts” folder. Launch your MT4 platform and add the indicator. On the “Insert” menu go to Indicators, then “Custom” and select Support and Resistance (Barry) to apply the indicator to the chart.

Alternatively, open your MT4 platform and go to the Code Base tab. Sort by name, then scroll to “Support and Resistance”. The indicator description is “Support and resistance indicator.” Right click on the indicator and select Download. The indicator is now under Insert>Indicator>Custom.

Other than changing the indicator colors (if you wish), there are no other settings to configure.

An indicator that is very similar to the one above, but is more customizable (and therefore preferred for more advanced users), is the PZ-SupportResistanace indicator. Give them both a try. Play around with the PZ-SupportResistance settings and see which one you like better.

TradingView Support and Resistance Indicators

Most charting platforms, that allow for customized indicators, will have have support and indicators. I use TradingView.com and have noticed a few support and resistance indicators (created by other traders) that you may like.

“[RS]Support and Resistance VO” draws lines along major support and resistance and levels. It then shades in a color, grey for uptrend or pink for downtrend. These colors can be altered in the settings for the indicator.

To add the indicator, open a TradingView chart. Click Indicators. In the search box type “support” and you should see the indicator name mentioned above in the list. Click on it.

There are loads of other support and resistance indicators available on TradingView. The “Swing high low support & resistance, by Patternsmart” is similar to the “Support and Resistance (Barry)” indicator discussed in the MT4 section.

Using the Support and Resistance Indicators

These indicators are not required for successful trading. I don’t use these indicators anymore, but I did find that indicators like this helped me to see the trend better when I first started trading. You may find the same thing, or not. As mentioned before, in an uptrend we want rising swing highs and lows, and in a downtrend we want the swing highs and lows falling. Since I am always looking to trade in the direction of the trend, these indicators act as a confirmation tool. They may also alert you when the trend is changing. Try them out and see if they help you read the price action better. If they don’t, then delete them.

Indicators are tools to help us in our own decision making, and shouldn’t be relied on exclusively. Because the indicators use fixed inputs, and don’t adapt, they may produce false signals or occasionally give us a false interpretation of the trend. Therefore, if you opt to use the indicators, still do your own analysis of the impulsive and corrective waves within a trend. Don’t use the indicators for entry signals, they not meant for that. They are meant to aid in analysis.

If you use one of the indicators, after a while you’ll likely find you don’t need it anymore, because you will be able to spot trends and reversals clearly on your own.

By Cory Mitchell, CMT

Over 300 pages of Forex basics and 20+ Forex strategies for profiting in the 24-hours-a-day Forex market. This isn’t just an eBook, it’s a course to build your trading skill step by step.

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