Support and Resistance Lines
Learning to understand the markets is critical to your success as a binary options trader. An essential part of this is choosing and using the tools and techniques which will most benefit you and your approach to trading. Whether you like taking risks or prefer to play it as safe as possible, the support and resistance approach will enable you to assess the market and place the best trades.
Understanding this indicator is paramount to any type of trade; it forms the basis of all other technical trades. Whilst it is possible to locate the support and resistance on a price chart yourself, it is much easier, especially for beginners, to use a custom indicator.
What They Are
As with most other technical approaches, the two elements of this indicator can be described as just two lines drawn onto a price graph. However, each has an important part to play in understanding the market. The point of resistance is when the market no longer accepts the prices increases of a particular asset and pushes them back down, this can often happen several times but the more times it happens the stronger the point or line of resistance becomes. The Support line if the opposite of this, preventing falling prices from going too low and pushing them upwards.
Are several options for successfully identifying these two points on a chart, the Fibonacci and Pivot points have both proved to be good at locating these indicators. The fact that these two tools are already used by many traders simply helps them fulfill their role.
It is also possible to identify these lines by using what is usually referred to as dynamic S/R. This approach relies on moving averages; the support and resistance will constantly move when using this approach as the information used to calculate them adjusts constantly. In many ways this can be seen as the most accurate approach.
The two lines on the chart are not definitive; it is possible and sometimes important for the price of an asset to go past the point of support or resistance; this can show a trending price and persuade you to trade on an asset; however to do this it is important to be aware of what the market as a whole is doing and particularly any big news stories. The more you become able to locate these levels the easier you will find it to understand how the price fluctuates around these levels and where the potential is for making money via trades.
The best and safest way of ensuring you have correctly identified any support and resistance level is to use a custom indicator. Over time you may wish to skip the indicator and rely on your own judgment but it is definitely the best way to start using this tool.
Start by opening your usual MT4 trading platform, if you click on file you will be given the option to select the data folder click on this and a pop-up window will appear which will allow you to see a folder called MQL4. If you open this you will be able to access the indicators folder and you can paste the .rar file, which you downloaded with the indicator, into it. You can then close all the boxes, including your trading platform. Start your trading site again and you will be able to click on the insert option. From here you can follow the instructions; this involves selecting indicators, then the custom option, before finishing with support / resistance. This will make your new tool available and useable with any price chart; automatically showing you these critical points.
Disadvantages of this tool
It is simply not possible to be accurate every time when drawing this information onto your charts. This is true whether you use automated software or create the points manually.
The indicator sees these points on a chart as constantly moving and, therefore, will draw several lines where someone who creates the points manually will simply draw an area of resistance or support. Of course, the more you become aware of this fact the easier it is to adapt your strategy accordingly.
The tool provides you with a reference point for your resistance and your support points. Not only is this essential to good trading, it is also an excellent way of you improving you r understanding of this technical analysis. The tool can simplify your need to it as part of a successful approach to trading. Ultimately you will find that the indicator is of little use as you will correctly locate the right levels yourself.
It is important to note that this is a tool to help you trade; it is an excellent way of checking that the trade you intend to place is accurate; you should never use this indicator by itself as it will not provide enough understanding of the market to allow successful trading.