Support and Resistance vs. Trend Indicators: Which One Should You Trust?

Traders have a library of technical indicators at their disposal. Two primary ones that all traders should be familiar with are support and resistance indicators, as well as trend indicators. Each is useful in different market conditions and for various trading strategies — and the duo is especially powerful when there’s a confluence between them. Here’s a look at when and how you can use each one.

Support and Resistance Indicators

Support and resistance indicators identify price levels where price action tends to reverse or at least pause if a trend continues beyond one of these levels.

• Support is a price level where a downtrend is expected to halt due to high buying interest. If support holds, the price will stabilize or reverse upwards at this level. Support levels are sometimes referred to as “floors.”
• Resistance is a price level where an upward trend is expected to halt due to high selling interest. If resistance holds, the price will stabilize or reverse downwards at this level. Resistance levels act as “ceilings.”

Traders use support and resistance indicators to predict where these levels are. Knowing where a level is can help you decide when to enter or exit, and breaking support or resistance often indicates a strong trend. Be aware, though, that there can be false breakouts that return to these levels.

Some common support and resistance indicators are:

• Pivot Points: Precise levels based on historical price action (e.g., standard pivot points, Camarilla pivot points).
• Fibonacci Retracement: Potential levels based on the Fibonacci sequence (e.g., 23.6%, 50%, 61.8%, etc.). Includes extensions beyond 100% as well.
• Volume Profile: Potential levels based on previous trading volume (e.g., high-volume nodes, low-volume nodes, point of control).
• Price Channels: Broader ranges based on previous price action (e.g., Bollinger bands, Donchian channels).
• Point of Control: Smaller range where there’s a lot of buying and selling action, making it unclear which way price action might go if it reaches this point.

Trend-Following Indicators

Trend-following indicators help traders identify the overall direction and strength of a market trend. Unlike support and resistance indicators, which highlight areas where price may reverse or pause, trend-following indicators are designed to confirm whether a trend is emerging, continuing, or weakening.

Trends don’t guarantee that prices will move upward or downward with no pauses, but rather that the general direction is one way or the other. Short-term pauses and retracements are common.

• Bullish Trends are characterized by upward movement, marked by higher highs and higher lows.
• Bearish Trends are characterized by downward movement, marked by lower highs and lower lows.

Trends can be applied to the general market as well as to specific equities, options, or futures. Understanding and identifying trends helps align trades with the general direction that a security or derivative is moving. Market trend traders are familiar with the phrase “a rising tide lifts all boats” — even weak assets may go up when the market is bullish (or vice versa).

Common trend indicators include:

• Moving Averages (MA): Smooth out price action over a given period, typically set periods between 9 and 300 days (e.g., 9, 21, 50, etc.). A shorter MA crossing over a longer MA can be a powerful trend indicator, either upward (golden cross) or downward (death cross). Examples include Simple Moving Averages (SMAs) and Exponential Moving Averages (EMAs).
• Moving Average Convergence Divergence (MACD): This shows the relationship between two moving averages. This is a lagging indicator that makes comparing short-term vs. long-term MAs easier.
• Average Directional Index (ADX): Measures the overall strength of a trend, irrespective of its direction. Values above 25 typically indicate a strong trend, while lower values suggest weak or sideways markets.

When to Use Each Type of Indicator

Neither type of technical indicator is better than the other in all situations. The choice you should use depends primarily on market conditions and your trading strategy.

Support and Resistance

Support and resistance indicators are most effective in range-bound or sideways markets. Buying near support and selling near resistance can be effective when the market oscillates within a consistent range.

These are also helpful for setting stop-loss and profit-taking levels, regardless of current market conditions.

Trend Indicators

Trend-following indicators can perform well in markets with strong directional momentum, whether bullish or bearish (if you are short). In these markets, attempting to identify reversals using support and resistance indicators can result in repeated false signals. Sometimes, it’s best to go with the flow.

Looking for Confluence and Divergence

The strongest signals come when these two different types of indicators show the same likely price action.

It’s good when there’s a confluence between two of the same type of indicator (e.g., pivot point and Fibonacci retracement or MA and ADX). It’s especially good when there’s alignment between two different types of indicators — suggesting that multiple stars are aligning. If you see a golden cross at support, that’s a strong buy signal.

The two types of indicators can also counteract each other, as divergence may warrant caution. A strong upward trend nearing resistance could reverse back into the range, or it could break out of the recent range.

Using Both Types of Indicators

Regardless of the current market conditions or your trading strategy, it is advisable to utilize both types of indicators. That’s why we at Affordable Indicators offer a range of both Support and resistance indicators, as well as trend indicators, for NinjaTrader.

The Support and Resistance Suite goes beyond basic price action. While Price Action Confluence is certainly one component, so too are Key Levels Confluence, First Touch Signals, and Ichimoku Cloud Signals, which provide advanced and more comprehensive analysis.

Similarly, our Trend Indicators for NinjaTrader include ADX, MACD, RSI, and more. These can confirm strong trends or indicate when a trend is less specific.

For the most powerful trading solution, integrate both support and resistance indicators, as well as trend indicators. All of our indicators integrate seamlessly with NinjaTrader and with each other for streamlined and informed trading.

Download the suites today for better trading tomorrow — or in just a few hours. Here’s to profits!