There are numerous ways to recognize support and resistance levels. Some traders plot trend lines as support and resistance levels. Others use horizontal support and resistance levels. Most traders do it manually to plot support and resistance lines. Others use indicators to identify those levels. The support and resistance indicator MT5 was created as a tool that automatically plots horizontal support and resistance to help traders identify these price levels objectively.
What are Support and Resistance Indicators? The Support and Resistance indicator is a special technical indicator that automatically plots horizontal support and resistance levels. This plot of chalk points is formed horizontally to represent resistance levels, and magenta points also form horizontally to represent support levels.
How you can use the Assistance and Resistance Indicators for MT5
Because the levels identified by this indicator are valid support and resistance levels, traders can trade primarily based on these levels. Traders can trade reversals according to the price action interacting at those levels. However, because these support and resistance levels are somewhat short-term based, there will be many instances where the level will not hold up as a support or resistance level.
It would therefore be wiser to trade a breakout at this level rather than a reversal trade. Since these levels are support and resistance levels, they can also be used as a basis for placing stop losses. Aggressive traders looking to squeeze the most profit out of a breakout can also use these levels for trailing stop losses.
Buy Trade Setup
When to enter? Open a buy trade as the bullish breakout candle closed above the resistance level with strong momentum. Set the stop loss at the support level opposite the bullish breakout.
When to go out? Follow the stop loss below the support level as each level is identified by the indicator. The trade will close in profit as the trailing stop loss is hit.
Sell Trade Setup
When to enter? Open a sell trade as the bearish breakout candle closed below a support level with strong momentum. Set the stop loss at the resistance level opposite the bearish breakout.
When to go out? Follow the stop loss above the resistance level as each level is identified by the indicator. The trade will close in profit as the trailing stop loss is hit.
How Do Support and Resistance Indicators Work?
This Support and Resistance indicator plots horizontal support and resistance levels based on fractals, or the highest and lowest pivots. This strategy of identifying assistance and resistance levels is also typically employed by numerous traders. Rates have reversed at such price tag levels historically. Thus, it is also very likely that the market is also considering levels such as possible support or resistance levels where the price could reverse or breakout.
These Support and Resistance indicators are another tool that traders can add to their arsenal. Traders can use it either as an indicator of a breakout signal coming from a market bottleneck or as part of a trend reversal. Using this indicator for trailing stop loss exits can also be effective for traders who want to stay on top of the trend until it ends. However, this method is not the most efficient exit trade technique.