Candle Body Support/Resistance
Jul 9, 2024
The Candle Body Support/Resistance indicator is an advanced tool designed for traders seeking to identify key Support and Resistance levels through the analysis of high-volatility candles. Originating from a concept described by Steve Nison in "Beyond Candlesticks," this indicator enables users to define the candle body percentage to determine these critical levels, while occurrences of price testing are marked by dots that users can customize.
How to Use the Candle Body Support/Resistance Indicator for Trading?
Support and Resistance levels are derived from candles with significant volatility—specifically those candles with a large body size, determined by the range between the opening and closing prices. This volatility is gauged using a Volatility Threshold based on a user-set multiplicative factor of the ATR (Average True Range), making this indicator highly customizable and adaptive to various trading strategies.
The levels are initiated from the opening price, adjusted by a user-defined percentage of the open-close range. The flexibility to set precise percentages facilitates the creation of tailored support/resistance levels that might be reached by the price sooner based on those values.
For a test to be considered valid, a wick must pass through the Support/Resistance level, but the closing price should not breach it. The indicator can operate in two different modes: Trailing and Historical, each offering a unique vantage point. These modes are further explained in detail below.
Exploring Historical Mode
In Historical Mode, each volatile candle spawns a separate line that tracks potential future price actions. Whenever the price tests one of these lines, a dot appears to indicate the test has occurred.
The image above highlights how a red resistance line was initially tested before the price action led to the formation of a bullish candle closing below this resistance. Lines drawn in Historical Mode help forecast potential reversals and continuations where old support or resistance zones become evident.
To ensure clarity on the chart, these lines will delete themselves once they are either mitigated or reach their Maximum Line Length without being tested.
Understanding Trailing Mode
Trailing Mode dynamically updates a line when a new volatile candle of the same type emerges and the existing support/resistance isn't broken. This keeps the chart less cluttered and re-focuses analysis to the most recent price movements. Instead of deleting unused lines, as in Historical Mode, the line merely stays static until a new volatile candle is identified.
Comparing with the Historical Mode scenario, Trailing Mode showcases how historic support and resistance lines remain relevant, providing traders with an ongoing market context.
Switching back and forth between these two modes offers traders multiple perspectives and complements their trading techniques. Using the indicator in both modes can enrich market insights and enhance trading strategies.
Core Details of the Candle Body Support/Resistance Indicator
Support levels derive from bullish candles, originating from the opening price plus a user-chosen percentage of the candle's body. In contrast, resistance levels are calculated from bearish candles, starting at the opening price minus a set percentage of the body level.
This example illustrates how adjusting the Volatility Threshold and ATR length enhances flexibility, offering traders the advantage of tailoring the indicator to fit their personal trading strategies and conditions.
Managing Maximum Line Length
Lines in Historical Mode automatically retract when their duration reaches a pre-set Max Line Length. If a line hasn’t been tested, it will be removed to maintain chart cleanliness.
Customizing Indicator Settings
- Display Mode: Choose the indicator's operation mode.
- Support %: Defines the proximity of the Support Line to the opening price, specified as a percentage of the candle body.
- Resistance %: Alters the distance of the Resistance Line from the opening price, relative to the candle body's size.
Filtering Options
- Length ATR: Sets the number of bars considered in the ATR calculation.
- Volatility Threshold: Establishes the ATR multiplier.
- Max Line Length: Dictates the maximum duration (in bars) a Support/Resistance level will remain active.
FAQ
How do I access the Candle Body Support/Resistance Indicator?
You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.
What is the Volatility Threshold?
The Volatility Threshold is a user-defined multiplier applied to the ATR, setting the criteria for what constitutes a volatile candle.
Can I switch between Historical and Trailing modes?
Yes, users can switch between Historical and Trailing modes, each providing different insights depending on market conditions and trading strategies.
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