Compression support&resistance

The Compression support&resistance [LM] indicator identifies price compression zones using inside bar patterns to plot dynamic support and resistance levels. By detecting areas where volatility contracts, the tool provides traders with key breakout or bounce levels across multiple timeframes.

Usage

The tool detects a specific three-candle pattern where the second and third candles are inside bars relative to the preceding candle. The high and low of the first inside bar (the second candle in the sequence) are used to establish the support and resistance lines. Traders can use these levels to identify potential breakout points when price leaves the compression zone or as future pivot points for price bounces.

The indicator supports multi-timeframe (MTF) analysis, allowing users to project compression levels from higher resolutions (e.g., Daily, Weekly, Monthly) onto their current chart. This helps in identifying institutional-grade supply and demand zones that may not be visible on lower timeframes.

Details

The script focuses on the concept of price compression, which often precedes significant market expansion.

• Pattern Logic: A valid setup requires three consecutive candles forming a specific nested pattern.
• Volume Requirement: By default, the script looks for declining volume across the three candles, signaling a lack of conviction before a potential breakout.
• Volatility Filter: An optional filter ensures the pattern only plots if a certain percentage price change occurred within a specific lookback period, ensuring the compression follows a notable move.
• Rendering: On the current timeframe, the script uses the Line API for precise historical tracking. For MTF levels, horizontal plots with labels are utilized to maintain visibility of the most recent occurrences.

Settings

General settings

• Label Offset: Adjusts the horizontal position of timeframe labels.
• Show Labels: Toggles the visibility of the text labels next to the SR lines.
• Volume filter: When enabled, the pattern is only valid if volume is strictly decreasing over the three candles.
• Volatility filter: Enables a filter based on recent price movement.
• Volatility percentage: The minimum percentage move required within the lookback period.
• Volatility lookback period: The number of bars to check for the volatility percentage requirement.

Current resolution S/R setting

• Hide lines: Disables the rendering of lines on the current timeframe.
• Line count: Controls how many historical SR lines remain on the chart.
• Candle high/low color: Customizes the colors for resistance and support levels.
• Extend lines: Determines if lines should extend indefinitely or stop upon price intersection.

Timeframe S/R settings (Second, Third, Fourth)

• Resolution: Sets the specific timeframe for MTF calculations.
• Show S/R 1-4: Toggles which historical occurrences from that timeframe are displayed.
• Candle high/low color: Individual color settings for higher timeframe lines.

FAQ

How do I use the Compression support&resistance [LM]?

You can use it to find breakout zones; when price stays within the high/low of an inside bar on declining volume, the eventual break often indicates the next trend direction.

What does the volume filter do?

It ensures that the market is "drying up" during the compression, which is a classic signal that a volatility expansion (breakout) is imminent.

Where can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.