Support and resistance trading can be a very profitable trading strategy. However, most of the time when we look for support and resistance indicators for Metatrader 4 (MT4), we get an indicator that draws a whole bunch of lines at every swing high and swing low and it turns it into an absolute mess. We’re left staring at the mess and scratching our heads in finding our how exactly to calculate important support and resistance levels. There simply isn’t a proper way to filter out which lines are stronger, which are weaker and which should be completely ignored. Now, this is where The Forex Army has finally, after months of fine tuning, built an indicator that helps accurately identify support and resistance trading zones. The reason for this is more often than not, support and resistance comes in the form of ‘zones’ and ‘areas’ instead of specific ‘lines’ which most indicators make the mistake of. Given our in-depth understanding of technical analysis in determining support and resistance levels, we’re able to factor all these in during the creation of this indicator.
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. 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 (most inaccurate) because the subjective nature of taking the proper levels is too subjective. There are channels which require at least 2 points on top and 2 points below which are fairly more accurate. 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 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. This gives a much better idea on which levels to watch out for. The system is also able to find graphical overlaps (very strong form of support and resistance) which is essentially a support/resistance level at which price initially broke and re-tested without success. There are many sites out there including the resistance vs support articles on investopedia that teaches you the very basics of support and resistance, but we’re different, we take it two and even three steps further as we show you how to combine it all together to come up with a really fantastic support and resistance trading strategy.
The Resistance is always above current price. A couple of the key signs of resistance to look out for are swing highs. Another form of resistance is the pullback resistance. This is when a previous swing low is converted into a resistance because price has broken below and is now rising to test it again. Here is how a swing high and a pullback resistance looks like :
When more than 1 swing high combine, it becomes a stronger level of resistance.
The Support is always below current price. A couple of the key signs of support to look out for are swing lows as seen here : When more than 1 swing low combine, it becomes a stronger level of support.
Another form of support is 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.
This pullback support turns into a strong graphical overlap support if price reverses off it. This shows that there are more bulls than bears at this key decision point.
I highly recommend watching this video to see how the support and resistance indicator works on an MT4 chart. I explain in detail the settings below too.
There are a few settings that you should understand about this indicator to better help you use it effectively.
- 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.
- Recommended settings :
- 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.
- Recommended settings :
- 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.
- Recommended settings :
- 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.
- Recommended settings :
- 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.
Special edit : So a lot of people (and I mean a lot) have been asking me how they can get a hold of this indicator. If you’re completing this stage 3 course right now, you’ll have a special offer to get this indicator. All you’ll need to do is to fund an account of minimum $3,000 with tickmill to get this instead of paying $150 for this indicator. Once you complete the Stage 4 exam, you’ll be prompted to start your tickmill account registration to unlock stages 5-8. Use that opportunity to get this indicator for free.
Now that you have identified a support/resistance area, the next thing to do is to add in other elements to see how strong it is. We like to use a holistic approach to assess the strength of a support/resistance level. Horizontal support and resistance are graphical. There are 5 other things you can add to not only add different dimensions to assess the strength of these levels, but also greatly improve the probability of price reacting off these levels you have identified :
Firstly, you can use the leading element of Fibonacci Retracements and Extensions and assess whether the support and resistance levels identified coincides with a key fibonacci retracement level. If it does, that increases its strength. The key levels to watch out for are 23.6%, 38.2%, 50%, 61.8%. Here’s an example of a key support level on AUDNZD lining up well with the 50% Fibonacci retracement level :
Another way to assess the strength of a support/resistance level is to add in the oscillator element by making use of the many effective ways to read the Relative Strength Index (RSI) and Stochastics Indicators. This adds a different dimension into assessing the strength. Here’s an example using RSI on AUDNZD for a support level that we were approaching :
Last but definitely not least, a very good indication of whether we’re seeing a price reversal off our support and resistance levels is by using the dimension of price action, this is done through candlestick formations. If you see price testing our support and resistance levels and it forms a candlestick reversal pattern like a bearish engulfing, or a morning/evening star, then it’s an even stronger sign that we’re seeing a price reversal from here. Here’s the top 10 by Thomas Bulkowski on the best candlestick reversal patterns below. Stage 5 would cover the most important price action setups for us to look at.
Ultimately, as you are identifying support and resistance levels with the techniques you have learnt here, the more elements you can find to ‘support’ your support and resistance levels, the stronger that level will be and the more confidence you can have to trade off those levels. The perfect scenario would be when all the elements line up together, however, that is rarely the case. A good approach would be to allocate different risk for each type of trade. If there’s only a horizontal support/resistance level with 2 swing high/lows, you could allocate 0.25%. With each new element you find, you can add on another 0.25% to a maximum of 1% for each trade – this is good because it’s always better to hit harder when you are confident and scale back when you’re not so confident of your trade setups. A good and easy way to manage your risk allocation to each trade is with our very own TFA Trade Manager (which you’ll be reading about in stage 8) designed to work intuitively to your flow of trading. So in conclusion, we have shown you how we have created the best support and resistance indicator for MT4, the logic behind it and how you can include additional indicators to improve your trading probability and profitability. Go forth and bag some pips, soldier!
Special edit : So a lot of people (and I mean a lot) have been asking me how they can get a hold of this indicator. You can get a copy of this indicator for free at the end of this bootcamp (all 8 stages). So do your best till the end!