ATR Based Support and Resistance Zones

The ATR Based Support and Resistance Zones indicator provides a dynamic way to visualize supply and demand areas by utilizing market volatility through the Average True Range (ATR). It identifies high-momentum "impulse" bars and maps out potential support and resistance levels based on candle characteristics and volatility thresholds.

Usage

Traders can use this tool to identify high-volatility price pivots and potential areas of interest for future price action.

• Trend Identification: The indicator highlights bullish (green) and bearish (red) impulse candles. These occur when the current true range exceeds the ATR multiplied by a user-defined threshold, signaling a sudden surge in volatility.
• Zone Interaction: When an impulse occurs and meets the wick percentage criteria, a rectangular zone is projected forward. These zones act as areas where the price may find support or resistance in the future.
• Entry/Exit Timing: Traders often look for price to return to these zones to seek confirmation for entries or to set stop-loss and take-profit targets based on the structural boundaries created by the volatility.

Details

The script functions by calculating the ATR over a specific period and comparing it against the current bar's True Range. An impulse is detected if the current True Range is greater than or equal to the ATR multiplied by the "ATR Multiplier" and the previous True Range was lower than the previous ATR.

To ensure the zones are high-quality, the indicator employs a "Wick %" filter. This calculation measures the ratio of the relevant wick to the total range of the candle. A zone is only plotted if the wick percentage is below the user-defined threshold, ensuring that the impulse candle represents strong directional conviction rather than a rejection.

Settings

ATR Calculations

• ATR Length: Sets the lookback period for the Average True Range calculation. Longer lengths result in smoother, more stable volatility measurements.
• ATR Multiplier: Controls the sensitivity for impulse detection. A higher multiplier requires more significant price movement to trigger a zone.
• Horizontal Line Length: Determines how many bars into the future the support and resistance zones will extend.
• Wick %: Sets the maximum allowed percentage of the wick relative to the candle's range for a zone to be valid.

Supply & Demand Zones

• Line Style: Adjusts the border of the zones to be solid, dotted, or dashed.
• Line Width: Sets the thickness of the zone borders.
• Border Color: Customizes the color of the rectangular zone borders for both bullish and bearish zones.
• Background Color: Adjusts the fill color and transparency of the zones.

FAQ

How do I use the impulse candles for trading?

Impulse candles signify a breakout or a significant move in a specific direction. Traders often look for consecutive impulses or zones formed by these candles to confirm the strength of a prevailing trend.

What does the Wick % setting do?

The Wick % ensures that the candle forming the zone is a "marubozu" or high-conviction candle. If a candle has a long wick, it suggests a rejection occurred; by lowering this setting, you filter out zones where the price failed to hold its extreme levels.

How can I access the ATR Based Support and Resistance Zones?

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