New article: Identifying Trade Setups by Support, Resistance and Price Action
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New article Identifying Trade Setups by Support, Resistance and Price Action has been published on mql5.com:
This article shows how price action and the the monitoring of support and resistance levels can be used for well-timed market entry. It discusses a trading system that effectively combines the two for the determination of trade setups. Corresponding MQL4 code is explained that can be utilized in EAs that are based on these trading concepts.
This article covers a trading methodology that can be used in any FOREX, stock, or commodity market, as well as MQL4 code examples that can be used in an Expert Advisor that would be based on this methodology.
Price action and the determination of support and resistance levels are the key components of the system. Market entry is entirely based on those two components. Reference price levels will be explained along with effective ways of choosing them. The MQL4 examples include parameters for minimizing risk. This is done by keeping market exit references and stops relatively close to the entry prices.
There's an additional benefit of allowing higher volume trades, regardless of account size. Lastly, options for determining profit targets are discussed, accompanied by MQL4 code that enables profitable market exit during a variety of conditions.
1. Looking at Support and Resistance
If you look at any price chart, for any market, having any timeframe, two facts will become apparent that are based on characteristics which consistently appear. One of these facts is that the market price shown at any point in time doesn't stay the same for very long. Given enough time, the market price will have significantly changed. Any price shown on the chart can be used as a reference level.
Certain prices, however, act as better references than others. We'll get to that shortly. The second aforementioned fact is that any chart will have certain prices at which point the market trend will reverse. Often times, the market will repeatedly reach these price levels and change direction shortly after. These are the support and resistance levels that virtually any trader has heard of. Support is a price level below which the market will not drop. Resistance is a price above which the market won't go.
Also known as tops and bottoms, these price levels send the message that this is as far as the market will go (for now) and reversals will begin near these levels. Support and resistance levels are good prices to use as reference levels, as they signify prices at which a new trend can start with higher probability. Other prices, found approximately midway between two relative support and resistance levels, are also good reference levels. We'll refer to these as midpoints.
Any portion of a price chart can be marked off with horizontal lines at relevant support, resistance, and midpoint prices to be used as references. An example of this is shown in Fig. 1 below.
Fig. 1. Support, resistance, and midpoint
Author: Michael Janus