ZigZag Support and Resistance Breakout Forex Strategy
Support & Resistance trading strategies are one of the most common trading strategies that actually work. Most successful traders would often tell you to first learn support and resistances. However, learning how to plot support and resistances is quite difficult for a newbie. It is often subjective and would depend on the judgement of a trader. One trader might call a level a support, but another may not consider it as such. This often brings confusion to a trader, which often leads to lack of confidence in the trading setup that he or she is trading.
However, not all is lost. There is a way to assist new traders how to identify levels of support and resistance. It is easier, faster, and less subjective. And, it uses a built-in MT4 indicator, which most traders take for granted. It is the ZigZag indicator.
The ZigZag Indicator
As the name suggests, the ZigZag indicator does draw a zigzagging line across the forex charts. It marks the highs and lows of price using a set formula, and connects both points with a line. By doing this, it allows traders to visually recognize the highs and lows of a chart, while removing the subjectivity of identifying such points as a high or low. It also removes the minor swings and focuses on the major swings.
How to Use the ZigZag Indicator for Support & Resistances
Swing highs and lows are natural support and resistance points. These are points, wherein price could bounce, or if price could break through, could mean a rally.
In order to use this to identify support and resistance areas, mark the highs and lows pointed out by the ZigZag indicator up to the body of the candle where the ZigZag indicator was formed.
How to Trade a Breakout Strategy Using the ZigZag Indicator
After marking the support and resistance areas using the ZigZag indicator, look for areas above and below the current price where the market could break out of. Areas marked above the current price will be considered as horizontal areas of resistance, while areas marked below the current price will be considered as horizontal areas of support. The areas of support and resistances nearest the current price will be the main area of support we will be looking for price to break out of.
Then, we will be waiting for price to break out of the areas of support and resistance. It is important to note that what we will be looking for is a close above an area of resistance or below an area of support. Wicks formed by highs and lows will not be considered as entry signals as these are often fake breakouts.
The Setup – Entry, Stop Loss & Target Take Profit
The entry candle will be the actual breakout candle where price closed above the resistance or where price closed below the support.
In a buy setup, the stop loss will be just a few pips below the area of resistance where price broke out of, while on a sell setup, the stop loss will be a few pips above the area of support where price broke out of.
Target Take Profit
The target take profit will be a few pips below the next area of resistance on a buy setup, or a few pips above the next area of support on a sell setup.
This strategy is basically a market flow strategy made simple. Many professional retail traders use market flow strategy to make money out of the forex market on a regular basis and live off it. However, many new traders find it hard to trade market flow strategies as it often requires skill in identifying areas of support and resistance. What this strategy does is that it allows new traders to do what the pros are doing, while making it easier.
One of the reasons why this strategy could be so profitable is because it targets the area of the next support or resistance. This allows for a very high risk-reward ratio, which is one of the main components of a good strategy. Its main setback however is the probability of fake breakouts. This is the reason why trades are taken on the close of the candle.
This strategy is not perfect. However, it is a logical way to look at support and resistances and the market.
How to install ZigZag Support and Resistance Breakout Forex Strategy?
Download ZigZag Support and Resistance Breakout Forex Strategy.zip
Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
Copy tpl file (Template) to your Metatrader Directory / templates /
Start or restart your Metatrader Client
Select Chart and Timeframe where you want to test your forex system
Right click on your trading chart and hover on “Template”
Move right to select ZigZag Support and Resistance Breakout Forex Strategy
You will see ZigZag Support and Resistance Breakout Forex Strategy is available on your Chart