One of the widely used trading systems relies on horizontal support and resistance levels. The tops and bottoms of the candles create these levels. A break outside these levels after a period of consolidation signals the next trend. This strategy does not use any indicators on the chart except the ability to draw lines (at least imaginatively).
- Low and well-defined stop loss orders.
- Relatively high success rate.
- Goal levels could be more precise.
Benefits of Support and Resistance Strategy
Trading with the Support and Resistance (S&R) strategy has been popular among seasoned and novice traders alike, with good cause. S&R trading is based on a simple concept: When prices reach a certain point, known as either support or resistance, it will encounter difficulty advancing further.
This makes it easier for traders to take advantage of these points that can be used as potential areas for entering and exiting trades.
As a result of using this approach, traders can benefit from improved risk management by setting stop losses or taking profits around expected areas of support or resistance.
What’s more, this method of monitoring price movements efficiently allows traders to plan out their trades and manage the risk-reward ratio without having to monitor the market manually constantly. Ultimately, this approach significantly increases the probability of successful execution when used with other technical indicators.
How should you trade under this strategy?
Learning a profitable forex trading strategy like Support and Resistance strategies can be a great way to capitalise on market movements. As the name implies, this approach centres around identifying price levels where the market will likely find support or resistance as it approaches them.
By capitalising on these points, traders can aim to enter trades at different times to capture profits when the market breaks above or below previous levels of resistance or support. Additionally, traders need to be aware that false breakouts and whipsaws can affect their trading plan and should factor this possibility into their strategies.
- The support line is formed from two or more bottoms of trading candles, which form a relatively straight horizontal line without bottoms below them.
- The resistance level is formed from the peaks of two or more trading candles, which form a relatively straight horizontal line without any higher peaks between them.
- Consolidation is a period in which there are no trends. It is formed near a support or resistance level with volumes, and the size of the body of the candle is relatively tiny.
- Closing below the support level gives a signal to open a buying position.
- Stop loss is placed at the bottom of the previous candle (with buy orders) or at the high of the previous candle (with short positions).
- Take profit can be placed close to the stop loss or by using some type of trailing stop.
With proper knowledge of how these strategies operate, forex traders can use Support and Resistance strategies to make more effective decisions in the market.
You can use this strategy at your own risk. Our website is not responsible for any losses related to the use of any strategy presented on this site. Using this strategy on the real account is recommended only after trying it on the demo account first.
Do you have any suggestions or questions regarding this strategy? You can always discuss support and resistance strategy with fellow forex traders in the trading systems and strategies forum.