Best forex support and resistance strategy
However, you can see that support is heavily diminished at this level as the rebound off support is only very shallow and price then rolls over and breaks down below support. So, at the point at which price has broken down through this support level we now know that demand has been overwhelmed and supply is now stronger in the market at this level. So, as price then trades back up to retest this broken support level we can then anticipate that the level will act as resistance and we can use it as an entry point for a sell trade.
This type of entry is especially great during trending markets where price action tends to display this sort of staircase structure where in bearish trends we form support, break support retest and continue lower and in bullish trends we trade up, form resistance, break resistance, retest it and then continue higher. When trading in this manner, we can either look to just trade the level or we can take a more conservative approach where we wait for price action confirmation. So, looking at this example you can see that price is moving higher, we then form this clear resistance level at this point, identified by two touches at the level.
Support And Resistance Forex Trading Strategy
Then we can see that demand overtakes supply and price breaks out higher. So, once price has broken above that resistance level we can then wait for price to come back down and retest it, anticipating that the level will now act as support allowing us to place a trade, positioning for a resumption of the bullish move. However, instead of just trading the level and hoping for price to find support what we can actually do is wait to see how price reacts as it tested the level, looking to identify reversal candles that give us a clue that the level is going to hold. And, if you look at the price action that the market displayed as the level was retested you can see something interesting.
So, we traded back down to test the level, and we actually pierced a little below the level which is common, we then stalled and got this small bullish candle and then you can see on the next candle we got this big bullish engulfing candle once again which gives us a strong sign that demand has stepped in and a reversal higher is underway, allowing us to place our buy trade. So, this is the type of process that we always want to follow when using these levels to place trades.
So, if we turn the RSI indicator back on for this example you can see that we get another fantastic confluent signal. At the point that price trades back down and retests that broken resistance level, now turned support, the RSI indicator was heavily oversold telling us that momentum is overstretched to the downside and a reversal higher is likely. Finally if we are using any indicators such as the RSI or any others, we want to make sure that they give us a confluent reading.
Hopefully this has now got you thinking about support and resistance in a more strategic manner and opened up some different ideas for you to consider when looking to place trades based on support an resistance. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon.
- How to Trade Support and Resistance.
- Support and Resistance?
- How to Trade Support and Resistance in the Forex Market - Forex Training Group;
- Best Support and Resistance Indicator.
Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days. Dow Jones StockWatch: Volkswagen, Not Voltswagen.
Intraday Market Analysis — Moving Resistance. Leave A Reply Cancel Reply. For an uptrend to continue, it has to consistently break new highs.
The Bounce
Thus, shorting at resistance is a low probability trade. Support tends to break in a downtrend. For a downtrend to continue, it has to consistently break new lows. And the opposite for Resistance: If you want to learn more, go watch this training video below:. Support and Resistance attracts a lot of attention from traders. There will be some looking to trade the reversal, and others looking to trade the breakout. Since trading is a zero-sum game… for reversal traders to profit — breakout traders must lose. And for breakout traders to profit — reversal traders must lose.
The only way you will survive in the long run is proper risk management.
So that forms an area of Support similarly for Resistance. You can use this method to gauge how wide Support and Resistance can be. A more discretionary approach is to observe how the price behaves at the Support and Resistance area.
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For instance, whether the price goes into Support briefly then get rejected or does it go deeply into Support then get rejected. So, the volume does not have a huge impact on whether a breakout is real or not. A buildup is a tight consolidation where the candles are overlapping one another. Whereas an accumulation is a range market, where its highs and lows can be easily identified and the market is swinging up and down within the range.
Maybe it comes from my poor knowledge of english. So I have a question connected to Support and Resistance trading strategy. I thought it is a sign to the price will go higher. Instead of the price went down. Always use these concepts in the context of the trend. Hi Rayner, Thanks for teaching people stuff that will improve their trading.
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What I have learnt from this article is worth more than what some people package as a training course. I really enjoyed it.
A Guide to Support and Resistance Trading
Glad to hear that. Hey, Hey!! Hi Rayner, thanks for everything you do for all of us! Your a great guy! I first check and draw my sr lines on the weekly with a red line then daily lines with a blue line, then my 4 hour lines are orange and trade off of the line that gets the most touches before the open……. I am just recently having some progress on ranging markets with this plan. I have found it to be very good for me when I set a profit target.
I know my risk to reward on this is out of wack. Thanks again! God bless you and your family!!! Great info Rayner….. I definetly owed you an edge in trading knowledge …. It would be fine if you share it in the form of PDF. Note that your views and info about trading is very helpful to the trader like. Thanks rayner.
Its good way to think SR as an area instead of lines. Now i will consider in the same as you told and will tell you the difference comes in my trading. Thanks again Rayner. As always I find your articles, downloads and videos very helpful. Keep up the good work. Thanks Rayner, through ur article and email…. I learn a lot of thing about about market trend, candlestick, market overview, SNR and many more.
Your lesson much simple and easy to understand for newbie such as i. Thanks for ur guide about 3 things we must have to be a consistent trader. Hope this lesson will be continuously for the future….. Thanks a million pips! I am using upthrust and springs methods plus sma 20 and 50 sma during trending period. Quite similar to your idea in SR. Can you please post about moving averages, RSI Levels and others also to find out better entry and exit points.
Hi, Thank for sharing. May I know how do we define how wide the Support and Resistance to be?