Many beginners who engage in Forex trading lack knowledge of major price levels where the market is likely to reverse or stall. In simple words, if a novice doesn’t get the rationale behind the support and resistance concept, then more than likely they take on a position too early or too late with unnecessary loss and frustration.
Such platforms as MT4 and MT5 bring everything a trader needs into their hands; unfortunately, most of them do not know how to properly mark support and resistance levels. At first, it may seem very scary, but, actually, this is an integral element of work for anyone who wants to continually profit from Forex trading.
This beginner guide will not only be easy to help you understand how to easily mark the important levels of support and resistance, but it will also guide you on how to do that with the assistance of an automated EA tool. You will have knowledge and practicable tools at the end of this guide on how to trade the Forex market without a speck of fear.
What are Support and Resistance Levels?
Support and resistance are two of the most understood concepts in technical analysis terms, which helps the trader locate the possible points where the market is going to make a reversal. For easy understanding, it can be likened to the floor or ceiling of price action, in which the prices hit these barriers and could not fall or rise anymore.
- Support: This acts as a floor that stops or slows down the decline in prices. It is that point at which the buying pressure begins to intensify with the intention of forcing the prices back up.
- Resistance: It acts like a ceiling that won’t let prices go higher anymore. Instead it is the level where selling pressure goes high, and the price gets reversed or consolidates.
Let’s take an example: if a certain price of a currency pair is bouncing up from some specific level multiple times, that is your support. The price keeps on increasing and bounces down from some specific level; that is your resistance.
How Important Are Support and Resistance in Forex?
The markets will probably stall or reverse at support and resistance levels. And so, increasing a position there means more and more likelihood of enjoying profitable trades. Here’s why they matter so much:
- Risk Management: These levels give you better precision at the placement of stop losses and take profits so that the risk is minimized.
- Market Psychology: Support and resistance levels are the collective behavior of market participants. Buyers tend to buy at support, and sellers tend to sell at resistance, which reinforces such levels in time.
- Confirmation of Trend: If you can find these levels in agreement with the current trend, then your trade setups may be more reliable and likely to make successful trades.
How to Look for Support and Resistance on Your Charts
Now that you know the basics, it is time to get your hands dirty. Using your MT4 or MT5 platform, you can begin to start marking them manually in the following ways:
Change it to Candlestick View
Your chart should be on candle mode since it is the clearest presentation of price action.
Look for Major Pivot Points
These are areas where the market has reversed multiple times in the past. Mark these as potential supports (for downward reversals) and resistances (for upward reversals).
Horizontal Lines
Identify those bearing horizontal lines on your trading platform tool bar. More significant levels should start from higher time frames like 1 hour, 4-hourly, and even the daily one, then zoom into smaller time frames like 5 minutes or 15 minutes to capture day trading opportunities.
For example, if the price rebounded from a certain level three or more times, then it is acceptable to assume that this is a good support or resistance.
Automate Support and Resistance With a FREE EA Tool
While recognizing support and resistance levels manually is a good skill, you’ll be saving loads of time where automation will be at its best, especially when analyzing multiple pairs or timeframes. And that is where the free Expert Advisor (EA) tool comes in!
This tool auto-indicates support and resistance levels on your charts in real-time, even for an MT4 user. That’s not enough, though. The best part is that it actually color-codes the levels depending on the timeframes to easily pick out the most significant ones with a glance.
How to Get Your EA Tool On Your MT4 Platform
- Download the tool. Proceed to How To Trade and click on ‘Tools’. Find support and resistance EA by clicking on ‘Automation’ from the list.
- Install the EA. At first, unzip the files downloaded then copy them into the folder called ‘Experts’ in your MT4 platform. To locate this folder, go to File > Open Data Folder > MQL4 > Experts.
- Activate the Tool: Paste all files and then refresh your platform. You should now see the support and resistance EA under ‘Expert Advisors’ in navigator. Drag it onto your chart, enter your login and the tool will automatically put marks for support and resistance levels.
What Does the EA Tool Do
- Colored level: the device highlights support and resistance in any time frame from 1-hour yellow, 4-hour orange, and daily red to weekly blue.
- Live update: The levels automatically update with price action, becoming; hence your trades will be according to the most updated market data.
- Save time: Scanning the point of levels will be on your behalf, doing all the hard work for you.
Spotting Support and Resistance: Practical Application
Now, let’s really see how support and resistance work. Open up a currency pair chart, preferably some volatile pair like EUR/USD. Change the timeframes to the 5-minute, 1-hour, and 4-hour timeframes. Using either horizontal line tools or the EA tool, mark the key support and resistance levels. You will easily see how the price interacts with these levels—bounces off or breaks through them.
This exercise helps you in a good reading of charts and how support and resistance can play an important role in your trading strategy.
Conclusion
Supporting and resisting forces are the lifeblood of successful Forex trading. Whether you are monitoring the trend reversals or riding on the momentum, knowing how to master those levels will be of utmost importance. Now, thanks to the FREE EA tool, the process of marking those levels on your MT4 charts is simplified, saving you time and increasing the accuracy of your trading.
Let’s practice marking support and resistance levels on different timeframes and then combine it with the EA tool for absolutely smooth trading.
