Simply Trend Confirmation Tool – Support and Resistance Indicator

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Simply Trend Confirmation Tool – Support and Resistance Indicator

As primarily a trend trader, my goal is to trade in the direction of the trend, by entering on pullbacks and then taking my profit on the next trending wave.

The basic envelope strategy discussed extensively in my day trade articles attempts to capture such moves. The problem is that unless you are very good at picking out trend shifts, and seeing higher-highs, lower-highs, lower-lows, etc develop in real-time, the strategy can be hard to implement. This is likely the case with a lot of trend following strategies. In theory it seems easy, but when traders go to actually implement a trend trade, they may find trends alter course more often, or the trend isn’t as smooth, as they anticipated.

Applying a simply support and resistance indicator on your chart can help in this regard.

The chart below is from MetaTrader 4 (a free downloadable trading and charting platform), although the lines can also be drawn manually.

The basic idea behind the indicator is that it marks short-term high points and low points with horizontal lines. Instead of getting caught up in watching every tick on the price chart, traders can simply look at the indicator.

Figure 1. Support and Resistance Indicator

In an uptrend, like on the left of side of figure 1, resistance lines (blue) and support lines (red) should be stepping higher. This is because an uptrend is created by higher-highs and higher-lows.

In a downtrend, as seen the on the right hand side of figure 1, notice how both resistance and support levels are moving lower as the price makes lower-highs and lower lows.

Using an indicator such as this, or manually plotting the lines yourself, can be used as a trend trade confirmation tool.

Only take long positions (buy calls) when both the support and resistance are stepping higher.

Only take short positions (buy puts) when both the support and resistance are stepping lower.

As an added benefit, if the price is moving within range, a barrage of support and resistance lines in a similar area will likely alert you that no trend is currently present.

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If you already have MT4, you can download a simple version of the indicator here: MT4 Support and Resistance Indicator

Like any indicator, or even if you do it manually, there are a couple pitfalls. Depending on how you trade, and on what time frame, you may find that marking every high and low makes the chart far too cluttered. Marking only “relevant” highs and lows may make the chart less cluttered but possibly some important information will be missed, such as subtle shifts in momentum near the end of the trend.

Some price analysis is still required to provide an overall perspective on the price action. For example, a slightly lower low and lower high may develop during a pullback after a very strong run higher. Being able to see that it is a pullback instead of a reversal still requires some analytical skill (See Should I Hold Through a Pullback? Part 1 and Part2).

Overall though, while it is isn’t perfect, an indicator such as this–or just drawing similar lines yourself–may help you see trend and reversals better.

ADX: The Trend Strength Indicator

Trading in the direction of a strong trend reduces risk and increases profit potential. The average directional index (ADX) is used to determine when the price is trending strongly. In many cases, it is the ultimate trend indicator. After all, the trend may be your friend, but it sure helps to know who your friends are. In this article, we’ll examine the value of ADX as a trend strength indicator.

Introduction to ADX

ADX is used to quantify trend strength. ADX calculations are based on a moving average of price range expansion over a given period of time. The default setting is 14 bars, although other time periods can be used.   ADX can be used on any trading vehicle such as stocks, mutual funds, exchange-traded funds and futures.

ADX is plotted as a single line with values ranging from a low of zero to a high of 100. ADX is non-directional; it registers trend strength whether price is trending up or down.   The indicator is usually plotted in the same window as the two directional movement indicator (DMI) lines, from which ADX is derived (Figure 1).

For the remainder of this article, ADX will be shown separately on the charts for educational purposes.

Source: TDAmeritrade Strategy Desk

Figure 1: ADX is non-directional and quantifies trend strength by rising in both uptrends and downtrends.

When the +DMI is above the -DMI, prices are moving up, and ADX measures the strength of the uptrend. When the -DMI is above the +DMI, prices are moving down, and ADX measures the strength of the downtrend. Figure 1 is an example of an uptrend reversing to a downtrend. Notice how ADX rose during the uptrend, when +DMI was above -DMI. When price reversed, the -DMI crossed above the +DMI, and ADX rose again to measure the strength of the downtrend.

Quantifying Trend Strength

ADX values help traders identify the strongest and most profitable trends to trade. The values are also important for distinguishing between trending and non-trending conditions. Many traders will use ADX readings above 25 to suggest that the trend is strong enough for trend-trading strategies. Conversely, when ADX is below 25, many will avoid trend-trading strategies.

ADX Value Trend Strength
0-25 Absent or Weak Trend
25-50 Strong Trend
50-75 Very Strong Trend
75-100 Extremely Strong Trend

Low ADX is usually a sign of accumulation or distribution.   When ADX is below 25 for more than 30 bars, price enters range conditions, and price patterns are often easier to identify. Price then moves up and down between resistance and support to find selling and buying interest, respectively. From low ADX conditions, price will eventually break out into a trend. In Figure 2, price moves from a low ADX price channel to an uptrend with strong ADX.

Source: TDAmeritrade Strategy Desk

Figure 2: When ADX is below 25, price enters a range. When ADX rises above 25, price tends to trend.

Source: TDAmeritrade Strategy Desk

Figure 3: Periods of low ADX lead to price patterns. This chart shows a cup and handle formation that starts an uptrend when ADX rises above 25.

The direction of the ADX line is important for reading trend strength. When the ADX line is rising, trend strength is increasing, and the price moves in the direction of the trend. When the line is falling, trend strength is decreasing, and the price enters a period of retracement or consolidation.

A common misperception is that a falling ADX line means the trend is reversing. A falling ADX line only means that the trend strength is weakening, but it usually does not mean the trend is reversing, unless there has been a price climax. As long as ADX is above 25, it is best to think of a falling ADX line as simply less strong (Figure 4).

Source: TDAmeritrade Strategy Desk

Figure 4: When ADX is below 25, the trend is weak. When ADX is above 25 and rising, the trend is strong. When ADX is above 25 and falling, the trend is less strong.

Trend Momentum

The series of ADX peaks are also a visual representation of overall trend momentum. ADX clearly indicates when the trend is gaining or losing momentum. Momentum is the velocity of price. A series of higher ADX peaks means trend momentum is increasing. A series of lower ADX peaks means trend momentum is decreasing. Any ADX peak above 25 is considered strong, even if it is a lower peak. In an uptrend, price can still rise on decreasing ADX momentum because overhead supply is eaten up as the trend progresses (Figure 5).

Source: TDAmeritrade Strategy Desk

Figure 5: ADX peaks are above 25 but getting smaller. The trend is losing momentum but the uptrend remains intact.

Knowing when trend momentum is increasing gives the trader confidence to let profits run instead of exiting before the trend has ended. However, a series of lower ADX peaks is a warning to watch price and manage risk. The best trading decisions are made on objective signals, not emotion.

ADX can also show momentum divergence. When price makes a higher high and ADX makes a lower high, there is negative divergence, or non-confirmation. In general, divergence is not a signal for a reversal, but rather a warning that trend momentum is changing. It may be appropriate to tighten the stop-loss or take partial profits.

Any time the trend changes character, it is time to assess and/or manage risk. Divergence can lead to trend continuation, consolidation, correction or reversal (Figure 6).

Source: TDAmeritrade Strategy Desk

Figure 6: Price makes a higher high while ADX makes a lower high. In this case, the negative divergence led to a trend reversal.

Strategic Use of ADX

Price is the single most important signal on a chart. Read price first, and then read ADX in the context of what price is doing. When any indicator is used, it should add something that price alone cannot easily tell us. For example, the best trends rise out of periods of price range consolidation. Breakouts from a range occur when there is a disagreement between the buyers and sellers on price, which tips the balance of supply and demand. Whether it is more supply than demand, or more demand than supply, it is the difference that creates price momentum.

Breakouts are not hard to spot, but they often fail to progress or end up being a trap. However, ADX tells you when breakouts are valid by showing when ADX is strong enough for price to trend after the breakout. When ADX rises from below 25 to above 25, price is strong enough to continue in the direction of the breakout.

ADX as a Range Finder

Conversely, it is often hard to see when price moves from trend to range conditions. ADX shows when the trend has weakened and is entering a period of range consolidation. Range conditions exist when ADX drops from above 25 to below 25. In a range, the trend is sideways, and there is general price agreement between the buyers and sellers. ADX will meander sideways under 25 until the balance of supply and demand changes again.

ADX gives great strategy signals when combined with price. First, use ADX to determine whether prices are trending or non-trending, and then choose the appropriate trading strategy for the condition. In trending conditions, entries are made on pullbacks and taken in the direction of the trend. In range conditions, trend-trading strategies are not appropriate. However, trades can be made on reversals at support (long) and resistance (short).

The best profits come from trading the strongest trends and avoiding range conditions. ADX not only identifies trending conditions, it helps the trader find the strongest trends to trade. The ability to quantify trend strength is a major edge for traders. ADX also identifies range conditions, so a trader won’t get stuck trying to trend trade in sideways price action. In addition, it shows when price has broken out of a range with sufficient strength to use trend-trading strategies. ADX also alerts the trader to changes in trend momentum, so risk management can be addressed. If you want the trend to be your friend, you’d better not let ADX become a stranger.

Price Action Indicator For MetaTrader 4

Detect Doji and Pin Bar Patterns On Manually Added Trend lines and/or Support and Resistance levels in MT4

This indicator will help you become a better trader

This custom Doji and Pin bar Reversal indicator is a very powerful tool but also one that is very simple to use. It is coded to a professional level and designed from the ground up to be one of the most handy trading tools for beginner, as well as, advanced Forex and Binary Options traders. In addition to alerts visible on the charts the Doji Reversal indicator is also configured to send trading signals to your email and mobile.

Trade the price action at support and resistance levels

Price action is the single most valuable piece of information that a trader can use in technical analysis. Most professional traders focus almost entirely on the price action and the support and resistance levels. Many traders look for specific candle patterns because there are a few powerful patterns that strongly indicate an upcoming bullish or bearish trend.

On their own, these candle patterns may not be very significant, but when they appear on daily price support and resistance levels or trend lines than these candle patterns can mean quite a lot. The most significant candle patterns are the Doji and the Pin bar candles.

When they appear on Support/Resistance lines or Trend lines they usually signify a trend reversal. It may be temporary and short-lived and the price may come back and test the same levels again. Eventually, the price may break the line and continue its main trend towards the next S/R levels. See picture for an example where first we see a trend reversal but the price comes back down towards the Support line and breaks it to continue its bearish trend. Here the indicator picked up both patterns correctly.

This custom indicator will detect Doji and Pin bar reversals

Our Doji Reversal indicator will automatically detect Doji candles, as well as, Pin bar candles within the price action. Price patterns including the Doji and Pin bar are used by many professional and successful traders in their every day trading. We’ve studied the strategies of many renown technical traders and a lot of them use the same techniques.

Almost all traders that we’ve come across rely on support and resistance levels and price patterns that include a Doji and/or a Pin bar. Their strategy is usually based on confirmed price action patterns at key levels of daily support and resistance. This type of trading works best on daily charts.

When a Doji or a Pin bar candle appear on a horizontal or diagonal trend line within your Meta Trader, the Doji reversal indicator will start to analyse the next candles and issue a signal based on a confirmed candle pattern that will follow.

This is why the Doji Reversal indicator is unique. It doesn’t only recognize the Doji and Pin bar candles on the trend lines, but it actually calculates the price levels of the next candles in relation to its own price levels before it issues a confirmed signal. The result of the calculation can be seen in the visible, short, dashed lines the indicator draws on the chart as it analyses the price levels of the next candles.

Get signals on your charts or sent to your mobile or email

The Doji Reversal indicator will issue signals in form of arrows visible on the charts and pop up and sound alerts which will notify you of trading opportunities when you’re in front of your computer. The signals will clearly state the following: DIRECTION – ASSET – TIME FRAME – DATE – TIME

The indicator will also send signals via a push notification to your phone or via email. This way you can leave your trading platform and focus on other things. You will receive the signals as long as your MT4 platform with the indicator remains running.

In order for the push notification and emails to work you will need to configure your MT4 trading platform with your details, such as your phone number and email server (Gmail, Hotmail, etc.) In case you prefer not to receive any signals, you can switch them off individually in the indicator settings.

Technical explanation how signals are generated

When a Doji or Pin bar candle is recognized on an existing trend line or a support/resistance line drawn on the chart, the indicator starts to analyze the next candle in relation to the Doji or Pin bar preceding it.

Once the price action of the next candle, or the following candle crosses the wick of the Doji or the Pin bar candle, the indicator will generate a signal. Depending on the price action levels, the signals can be generated on trend reversal and a price breakout and trend continuation.

Sometimes the price action in the next candle stays within the levels of the Doji or the Pin bar preceding it, in which case the indicator will analyze the following candles. You can change the number of candles that should be analyzed in the indicator’s settings.

Quick look at the Doji Reversal settings in Meta Trader 4

The indicator will work very well with its default settings. There is no need to adjust anything unless you want to configure it to fit your specific trading strategy. You can filter certain lines by blacklisting or whitelisting them by color.

Here is how to set up this custom MT4 indicator

Using the Doji Reversal indicator is very easy. The indicator will do most of the hard work for you but in order for it to work well and produce the best results it needs to be set up first. Perform the following steps:

1. Add trend lines and/or price SR levels to your MT4 chart

In case you haven’t done it already, draw trend lines and support and resistance lines on your daily charts of your favourite currency pair. These lines can be diagonal and/or horizontal.

By default, all lines visible on the chart will be taken into account but if needed, certain lines can be filtered by color in the indicator’s settings. You can also draw trend lines on the monthly and weekly charts. Some traders will draw trend lines on H4 and even H1 charts but we don’t recommend using anything below the H1 chart.

2. Load the Doji Reversal indicator into your charts

Load the Doji Reversal indicator from your custom indicators folder onto your chart. You can also load the indicator first and then draw trend lines. The order doesn’t matter. The indicator will work automatically. It will detect Doji candles and Pin bar candles around YOUR trend lines and support and resistance lines.

The default settings of the custom indicator should be good for most traders but in case slight configurations are required these can be made in the indicator’s settings. Refer to image with settings above.

3. Wait for the next signal based on the price action patterns

After you load our Doji and Pin bar Reversal indicator into your MT4 trading window you will most likely see a few signals. These will show you exactly how the custom indicator read the price action and followed with the analysis and the signals.

You can now relax and wait for the next live signals to be issued by the indicator. When you receive a signal it is recommended to check the charts before trading live. Keep in mind that in order to receive the signals your MT4 trading window must remain open. Signals will be seen on the screen and sent to email and mobile, if properly configured.

Download The Price Action MT4 Indicator Today

Start trading the price action at support and resistance levels by using our Trendline Doji and Pin bar Reversal indicator with free signals. The indicator is very easy to install and run and it will help you find better trading opportunities. The package contains the following:

  • Price Action MT4 Indicator
  • Installation Instructions
  • Free Trading Signals
  • No Monthly Or Anual Fees
  • Licence For 2 MT4 Accounts
  • 30-Day Purchase Guarantee
  • Free Upgrades!

Get your Permanent Licence for 2 MT4 accounts for a single payment of only $39 +vat

You will get access to this product immediately after payment. You will also receive an email with a confirmation of your purchase. Please read our Refunds Policy and Risk Disclaimer before purchasing this product.

ClickBank is the retailer of products on this site. CLICKBANK® is a registered trademark of Click Sales Inc., a Delaware corporation located at 1444 S. Entertainment Ave., Suite 410 Boise, ID 83709, USA and used by permission. ClickBank’s role as retailer does not constitute an endorsement, approval or review of these products or any claim, statement or opinion used in promotion of these products.

This custom indicator is programmed for the MetaTrader 4 trading platform and DOES NOT in any shape or form constitute financial advice. It is for reference and educational use only.

Frequently Asked Questions

Here are the most common questions asked by our visitors and customers.

Does this indicator repaint?

No, the Doji Reversal MT4 indicator does not repaint. It is a non-repainting price action indicator.

Will it work on its own?

No, this indicator needs trend lines or Support/Resistance lines to be active on your charts. It will than analyse the price patterns near those levels. If you are looking for a more automated solution where the Support/Resistance levels are drawn automatically, take a look at our Fibonacci Pin Bar indicator.

Can it be used on any time frame?

Yes, the Doji Reversal indicator based on the Doji and Pin bar patterns can be used on any time frame.

Can it be used on any asset?

Yes, this custom indicator can be applied to any chart and asset available in your MT4 trading platform.

Will this MT4 indicator send signals?

Yes, trading signals will be shown in a popup with sound alert, but can also be sent via email, or via push notification to your smartphone. (The last two sending methods may require additional MT4 configuration.) Please note that the signals and alerts are for educational purposes only and do not constitute financial advise. The signals are simply the result of pre-programmed market conditions as defined by the user and the indicator.

How much money do I need to start trading?

Always start on a demo. There are many MT4 brokers who offer free demo accounts with fake money. Please seek help from an accredited financial adviser if you intend to trade on a live account. Most MT4 brokers have a minimum deposit of $100.

Are there any subscription fees?

No, there are no recurring payments and there is no subscription. After the single payment the Doji Reversal indicator will be yours forever without any additional fees. The signals will be free as well.

How can I get new updates of the indicator?

All updates or any future improvements are free of charge. Users will be notified by email with a link to download a new version.

How many signals can I expect to receive?

This largely depends on the way you draw your trendlines, the charts you’re using to trade, and the number of assets you’re trading. On each asset on H1 chart you could receive from 1-3 signals per day.

Will this indicator make me rich?

There is no magic indicator that is going to make one rich quickly. Indicators are simply trading tools that help to trade. This indicator will help you recognize reversal patterns based on the powerful Doji and Pin bar formations appearing on your manually drawn trend lines and alert you of market conditions that meet the criteria. This is not a get-rich-scheme. Instead we take an honest and transparent approach to trading. This indicator is for educational use only and does not constitute financial advice.

Will this trend indicator trade for me?

This MT4 price action indicator is not an expert advisor which trades on its own. Any trades must be executed manually at trader´s own risk. Always seek help from an independent financial advisor before trading on a live account.

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