Cтратегия SupportResistance

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Support and Resistance Trading Strategy — The Advanced Guide

Last Updated on March 12, 2020

The more times Support is tested, the stronger it becomes.

Support and Resistance are lines on your chart.

You should place your stop loss at Support and Resistance.

If you follow the “theories” above, it would cost you money in the long run. Because these are the biggest lies about Support and Resistance trading strategy.

And it’s not your fault because these are stuff that’s being taught in trading books and courses.

After reading this trading guide, you’ll never make these mistakes again.

Specifically, here’s what you’ll learn:

Then let’s get started.

Truth #1: The more times Support or Resistance (SR) is tested, the weaker it becomes

First, let’s define Support and Resistance:

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Support – Area on your chart with potential buying pressure

Resistance – Area on your chart with potential selling pressure

You’ve probably read trading books that say… the more times Support or Resistance is tested, the stronger it becomes.

But the truth is…

The more times Support or Resistance is tested, the weaker it becomes.

The market reverses at Support because there is buying pressure to push the price higher. The buying pressure could be from Institutions, banks, or smart money that trades in large orders.

If the market keeps re-testing Support, these orders will eventually be filled. And when all the orders are filled, who’s left to buy?

Here’s what I mean…

Pro Tip:

Higher lows into Resistance usually result in a breakout (ascending triangle). Lower highs into Support usually results in a breakdown (descending triangle).

Truth #2: Support and Resistance are areas on your chart (and not lines)

This is a mistake I’m guilty of. Treating Support and Resistance (SR) as lines on my chart.

Because you’ll face these two problems:

  • Price “undershoot” and you miss the trade
  • Price “overshoot” and you assume SR is broken

Price “undershoot” and you missed the trade

This occurs when the market comes close to your SR line, but not close enough.

Then, it reverses back into the opposite direction. And you miss the trade because you were waiting for the market to test your exact SR level.

Price “overshoot” and you assume SR is broken

This happens when the market breaks your SR level and you assume it’s broken.

Thus, you trade the breakout… but only to realize it’s a false breakout.

So, how do you solve these two problems?

Treat Support and Resistance as areas on your chart, not lines.

Why SR are areas on your chart

Because of these two group of traders…

  1. Traders with the fear of missing out (FOMO)
  2. Traders who want to get the best possible price (Cheapo)

Traders with the fear of missing out would enter their trades the moment price comes close to Support.

And if there’s enough buying pressure, the market would reverse at that location.

On the other hand, there are traders who want to get the best possible price, so they place orders at the low of Support. And if enough traders do it, the market will reverse near the lows of Support.

But here’s the thing:

You’ve no idea which group of traders will be in control. Whether it’s FOMO or Cheapo traders.

Thus, Support and Resistance are areas on your chart, not lines.

If you want to know my secret technique to drawing Support and Resistance, then check out this video:

Truth #3: Support and Resistance can be dynamic

What you’ve learned earlier is horizontal SR (where the areas are fixed).

But it can also change over time, otherwise known as, Dynamic Support and Resistance.

There are two ways to identify Dynamic SR.

How to use the moving average to identify dynamic SR

I use the 20 & 50 MA to identify my Dynamic SR.

Here’s an example:

However, it’s not the only way. You can use 100 or 200 MA, and it works fine.

Ultimately, you must find something that suits you (and not blindly follow another trader).

Trendline

These are diagonal lines on your chart to identify dynamic SR.

Here’s what I mean:

Pro Tip:

Treat Support and Resistance as areas on your chart (and not lines). This applies to both horizontal and dynamic SR.

Truth #4: Support and Resistance are the worst places to put your stop loss

I need not be an Einstein to guess where you’ll put your stops.

Below Support and above Resistance, right?

And why is this worst place to put your stops?

So… how do you avoid it?

Well, you can’t avoid it entirely.

But here are two things you can do…

  • Set your stop loss a distance from SR
  • Wait for the candle to close beyond SR

Set your stop loss a distance from SR

You can do this by using the Average True Range (ATR) indicator.

Here’s how to do it in:

  1. Identify the low of Support
  2. Find the ATR value
  3. Take the low of support minus the ATR value

If you want to learn more, go watch this training video below:

Wait for the candle to close beyond SR

Here’s how it works…

You only exit your trade if price closes below the low of support or the high of the resistance.

Here’s what I mean:

And here’s something interesting… do you know the “real move” usually occurs after traders get stopped out of their trades?

And you can take advantage of this scenario by using a trading strategy I’ll share with you later.

Truth #5: Trading at Support or Resistance gives you favorable risk to reward

Big mistake traders make is this:

Entering trades when the price is far away from SR. This requires a large stop loss and offers you a poor risk to reward.

But if you let price come to you, then you’ll have a tighter stop loss, and this improves your risk to reward.

Here’s what I mean:

Patience pays in trading. Stop chasing the markets and let price come to you.

Pro Tip:

Mark out your SR areas in advance. Then look for trading opportunities when the price has come to your levels. If the price is elsewhere, stay out.

If you want to learn more, go watch this training video below:

How to tell when Support or Resistance will break — so you don’t get “trapped”

The takeaway is this:

  • Support tends to break in a downtrend
  • Resistance tends to break in an uptrend
  • Support and Resistance tend to break when there’s buildup

Resistance tends to break in an uptrend

For an uptrend to continue, it has to consistently break new highs. Thus, shorting at resistance is a low probability trade.

Instead, going long at Support is a better trade.

Support tends to break in a downtrend

For a downtrend to continue, it has to consistently break new lows. Thus, going long at support isn’t a good idea.

But, going short at Resistance is a great idea.

Support and Resistance tend to break when there’s buildup

Support is an area with potential buying pressure. So, the price should move up quickly, right?

Now… what if price didn’t move up and instead, consolidates at Support?

What does it mean?

Recall the concept from Truth #1:

The more times Support or Resistance (SR) is tested, the weaker it becomes.

So it’s a sign of weakness as the bulls couldn’t push the price higher.

Perhaps there’s no buying pressure or, there’s strong selling pressure. Either way, it doesn’t look good for the bulls and Support is likely to break.

And the opposite for Resistance:

If you want to learn more, go watch this training video below:

A Support and Resistance trading strategy that lets you profit from losing traders

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.

Do you understand?

Now… let’s learn a Support and Resistance trading strategy to profit from breakout traders.

Here’s what you need to do:

  1. Mark your areas of Support & Resistance (SR)
  2. Wait for a directional move into SR
  3. Wait for price rejection at SR
  4. Enter on the next candle with stop loss beyond the swing high/low
  5. Take profits at the swing high/low

Here’s what I mean…

1. Mark your areas of Support & Resistance

2. Wait for a directional move into SR

3. Wait for price rejection at SR

4. Enter on the next candle with stop loss beyond the swing high/low

5. Take profits at the swing high/low

Support and Resistance trading strategy examples

Losing set-up at (GBP/NZD):

Winning set-up at (SOYBNUSD):

Winning set-up at (WTICOUSD):

Now:

You must understand this trading strategy isn’t the “holy grail”. There are times you’ll lose to breakout traders — and at times, breakout traders will lose to you.

The only way you will survive in the long run is proper risk management. Thus, I suggest risking not more than 1% of your account on each trade.

Conclusion

This is what you’ve learned today:

  • The more times Support and Resistance is tested, the weaker it becomes
  • Support and Resistance are areas on your chart (and not lines)
  • Support and Resistance can be identified using moving average
  • Don’t place your stop loss just below Support or above Resistance
  • Trading at Support and Resistance gives you favorable risk to reward
  • A Support and Resistance trading strategy

Now here’s a question for you…

How do you trade a Support and Resistance trading strategy?

Leave a comment below and let me know.

Do you want to learn a new trading strategy that allows you to profit in bull and bear markets?

In the Ultimate Guide to Trend Following, I will teach you this powerful trading strategy step by step, along with charts and examples.

I enjoy your lessons but sometimes I don’t understand some parts of its. (Maybe it comes from my poor knowledge of english.) So I have a question connected to Support and Resistance trading strategy. In the screen of “3. Wait for price rejection at SR” – what you can find in the part of your article named A Support and Resistance trading strategy — that lets you profit from losing traders – we can see a build up at least I believed. I thought it is a sign to the price will go higher. Instead of the price went down. Why? It wasn’t a build up or it happened in sideways market?

Thanks for your answer and keep up the good work

Best Regards
Gergely

Yes, there’s a slight buildup which failed as you can see price failed to breakout from it, only to close lower.

Now, I don’t trade buildups in isolation. Always use these concepts in the context of the trend.

Hope this helps!

do you mean that only trade build up according to their trend?

build up on resistance in uptrend = long

build up on support in downtrend = short

thanks again rayner for sharing this precious tips.

Yes generally, that’s the case.

Hi Rayner,
Thanks for teaching people stuff that will improve their trading. What I have learnt from this article is worth more than what some people package as a training course. I really enjoyed it.

Glad to hear that. Don’t hesitate to let me know if you’ve got any questions, I’ll be glad to help.

Hey, Hey!! What’s up my friend!! Haha. Hi Rayner, thanks for everything you do for all of us! Your a great guy! When I trade I use s&r. 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…….then I take the trade as close to the line as possible and set my stop beyond the line at no more than $200 risk and then I set my limit order to get out around the $250 sometimes $300 range and try to walk away and let the market go to work for me. 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’m happy with $200 a,day for now but I want to keep improving. I know my risk to reward on this is out of wack. 2/1 is better but I just started to make a little money over the last few weeks and I like it!! Haha. I need to improve 1/1 will blow me out when I hit a losing streak again. I been trading for a year and 3 months and already blew up once with the help of a “veteran trader/broker” I’m doing it on my own now and your helping get alot!! Thanks again! God bless you and your family.

Thanks for sharing. Happy to hear you found something that works for you.

Support and Resistance Zones – Road to Successful Trading

This Support and Resistance Zones Strategy will enable you to take trades exactly at the area price will reverse. Trading support and resistance lines are critical for every trader to implement into their system. In this article, you will learn how to calculate support and resistance, identify support and resistance trading zones, stock support and resistance approach to trading, along with forex trading support and resistance.

I am going to guide you every step of the way. Follow along as we cover support and resistance in forex, how to trade support and resistance in stocks, and how to trade support and resistance in options. This is a simple, easy to learn and easy to understand trading strategy. After you read this strategy, you will be able to identify these sweet spots where marvelous price action happens. So, keep reading and you won’t regret it. Also, read trading discipline which is an important skill for successful trading.

What indicator are we using for this strategy?

Indicators Used in the Support and Resistance Zone Strategy

Our indicators for this strategy will be price action and its relationship to Support and Resistance. to be honest, this is, in our opinion, the best way to trade support and resistance. So what exactly are these key areas? How to trade support and resistance levels? Before we explain the strategy we are going to define support and resistance. Here is another strategy called The PPG Forex Trading Strategy.

What is Support?

We have a specific article on this very topic so go ahead and read that here if you do not know what support or resistance is. Support is the level where price finds it difficult to fall below until eventually it fails to do so and bounces back up. It’s simply many traders making trading decisions at that level.

What is Resistance?

Resistance is the level where price finds it hard to break through to rise above it until it fails to and is pushed back down.

You should always suspect a reversal at Support and Resistance as there is a high probability that price action will reverse at those key levels. That’s because it already did that before in the past and it will continue to do so in the future as traders will always take caution on these levels. Some who had open trades will exit at those price levels and others will initiate new trades at these levels. That’s why it is crucial to learn to draw these Zones using technical analysis.

Steps for Trading Support and Resistance Zones Strategy

Now that we know the role of S&R Lines, which from now on we will call Zones. That’s because support and resistance are not a given line. If so, it would super easy for traders to know and every trader on the planet would have an entry order at that price.

They are more like zones that can be breached and pushed into. The trend may pull the price action back out of it, or maybe price action will succeed in breaking it for good. This is why you want to think of these points as zones.

Our main purpose in this Trading Strategy is to identify those Zones and use them for our favor and make great trade entries and exit points.

The First Step of the Support and Resistance Zone Strategy.

The first step of this strategy is drawing those Zones on our charts. This allows us to easily spot where the price would probably reverse. After you do this, it will resemble a support and resistance indicator only you now have zones to take advantage of. Drawing Zones on the chart is better done on a higher time frame so that we can examine the main reversal levels and the more critical points on the chart as a higher time frame shows us the bigger picture. It’s almost like what we talked about in our article about the importance of multiple time frame analysis.

We begin by drawing horizontal lines on recent Peaks and Bottoms like you see below in our chart example: Examine this chart as it is critical for you to understand these zones.

When you are doing support and resistance trading, a line with multiple touches is far better off as it is clear that it stood against the price and passed the test many times and it will continue to do so. WHY?

Because History always repeats itself and this continues to happen time and time again on every chart that you will ever look at. (Stocks, Options, Forex)

Note** Make sure to leave spaces between zones as drawing many lines will confuse you and worsen your trading decision. This strategy could easily be compared to our Red zone strategy that shows you how to draw zones on your chart.

When you take a look back after drawing Zones will find that those lines withheld the price numerous times before and will continue to do that numerous times more.

The Second Step to Identifying Support and Resistance Zones:

The second step is waiting for the price action to touch the Zone. What you can do is set your charts on 2 to 4 currencies and wait for your chance, as it may take some time for the price to reach the support resistance levels. The reason we say 2 to 4 currencies is because this is a good number of pairs to be looking at and will not overwhelm you. This allows you to have a good judge on your trade opportunity.

Basically, the higher time frame takes less time and attention than the smaller time frame. Alternatively, the smaller time frame has more signals as the zones may get hit more frequently. You have to be more focused if you’re trading small time frames.

In this chart we see the price action approaching support and actually almost touched the support so we wait to see the form and shape of the next candle.

If the price reverses that will be good, as it is what we are expecting. We will need a strong reversal candle though to assure that price will reverse and that it will not collapse back again.

On the other hand, if it breaks that level, it may be real breaking or a fake breaking. We also should see a strong piercing candle that effortlessly breaks that level to assure it will continue in the same way.

The Third Step for the Strategy Is:

The third step of this trading strategy is to wait for the candle which hits the zone to close. This will indicate the signal candle we are waiting for. Take a look at the candlestick pattern and ask yourself:

  • Is it a bullish or bearish candle?
  • Is it strong or weak?
  • Big or small?
  • Does it have long wicks or small wicks or no wicks at all?

When you can identify the kind of candle then you will be able to decide whether to sell short or buy long.

Knowing the type of candle is crucial to identify whether the entry is valid or not.

In the chart example above we see how Support rejected the price and pushed back up. We also see the candle that formed afterward to signal the end of the down movement and the beginning of and upward movement.

So how did we know it is strong, what it’s secret?

Before we go any further, here are some important factors in determining a strong candle. Because spotting that specific candle on zones makes the difference between winning trades and losing trades.

The Qualities of a strong candle are:

  • Long body
  • Formed after the previous touched the level but could not break it.
  • Entirely taken the two previous candles.

This example shows us how a strong candle should look. As you can see, the strong candle overpowers the one before.

Here, you can see that those weak candles were not able to breach the Resistance line and had long wicks and could not break that level. So, we wait to see what will happen with the next candle. Will the price action break that level? Or will the resistance win and the price reverse?

On the first case ( the candle on the left that we marked for you): clearly, the price fell on the next candle which made it a valid reversal.

While in the second case ( the candle on the right that we marked): we had a very small candle which did not mean anything except that the resistance stalled the price for a while.

The Fourth Step to This Support and Resistance Strategy After You Analyze Your Zones:

The fourth step is to identify where you will enter the trade. You want this to happen at the pivot point or turning point. Here are the entry criteria.

Entry/Exit Criteria for This Support and Resistance Trading Strategy:

Your entry should be slightly above or below the signal candle which is the strong candle. This way you are adding more confirmation to your trade to make sure that the price will move towards the direction you expected it to move to.

Our stop loss should be placed on the other side of the zone and not too close to the level to give it some space. As we said, it is a Zone. Putting the Stop loss there makes sense because this is the end of the trade. The price is unlikely will reverse after that point.

So according to the rules of this strategy, below is an example trade:

We used a 3 to 1 RR but you can adjust according to your rules.

Now we have learned from this Support and Resistance strategy how to draw Zones and how to trade them successfully. We also learned how to determine the direction that the price will probably move to, so we could have a better edge in our trading.

If you liked this strategy or still need more information please leave a comment below and we will answer your questions!

Trading support and resistance, and discovering support and resistance zones are pivotal to your trading success.

Our Fibonacci channel strategy, and the Red zone strategy are very similar and will help you in understanding exactly what these so-called “zones” are as well so you can check them out also if you wish!

Thanks for reading!

Please leave a comment below if you have any questions about Road to Successful Trading!

Also, please give this strategy a 5 star if you enjoyed it!

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Support and resistance indicators: how to trade S&R in Forex

Support and resistance levels are one of the most important concepts in Forex trading. Many technical tools rely on support and resistance lines to find or to confirm trade setups, and they are probably one of the first tools that new traders learn in trading. Support and resistance levels can come in various forms, and there are even complete trading strategies which rely purely on these levels. Given the importance of this topic, we prepared a detailed article which covers everything you need to know about it and shows how to calculate support and resistance levels in Forex.

Explaining support and resistance in Forex

First, let’s start by explaining what support and resistance levels are. A support line in Forex refers to a level where the price had difficulties passing below, signalling that the price could again act as a barrier for sellers. Often, there are many buy orders located around important support levels, which is why the price looks like it is bouncing off those levels. In other words, that price level is providing “support” to the price.

A resistance level, on the other hand, is a similar concept to support levels except that resistance levels form to the upside. A resistance level refers to a price where the market had difficulties breaking above in the past, signalling that the same price level could again act as a barrier for the market to the upside. Traders often place their sell orders around important resistance levels, which can accelerate a downward movement once the price reaches the resistance level.

Many technical tools rely on support and resistance levels to identify potential trade setups. These levels are pure price action and are relatively easy to grasp and trade on, which is one of the main reasons why so many Forex traders swear on support and resistance trading in Forex.

How to identify support and resistance levels in Forex

There are various ways to identify support and resistance levels in Forex. While horizontal S&R levels are the easiest to spot, other levels such as round number psychological levels, trend line S&R levels, and Fibonacci retracements require certain tools for a trader to identify them. Here’s a list of the most important support and resistance levels in Forex.

  • Horizontal support and resistance levels

Horizontal support and resistance levels are located horizontally in relation to previous support and resistance levels, making them relatively easy to spot. The following chart shows a horizontal support and resistance level.

Traders usually trade on a bounce from a support or resistance level or a breakout of it. A large number of sell orders located just below a resistance level and just above a support level makes those levels hard for the price to break, eventually leading to a bounce off those levels. On the other side, a break of those levels is usually accompanied by a large buying or selling momentum, as buy orders are located just above a resistance level, and sell orders are located just below support levels. Pay attention to this the next time you’re trading horizontal support and resistance levels.

  • Round number support and resistance levels

Round number support and resistance levels refer to the psychological effect that round numbers have on market participants. Basically, when an exchange rate reaches a round number, such as 1.00, 1.10, 1.20, 1.25, 1.5, and so on, these levels often act as a support and resistance for the price depending on the side from which the price is approaching. This means that you can place your stop loss and take profit orders around round numbers, but also prepare for a potential bounce of the price off those levels.

  • Trend line support and resistance levels

We have covered horizontal support and resistance levels and round number psychological levels, which are also a type of horizontal level. Now, it’s time to explain how trend lines can act as a support and resistance for the price.

Trend lines connect higher lows during uptrends and lower highs during downtrends, making them an important tool for trend-following traders. However, they can also be used to identify potential price levels where the price might bounce. Each time the price approaches a rising or falling trend line, there is a high chance that the trend line will act as a support for the price during uptrends, or as a resistance for the price during downtrends.

As the following chart shows, a trader could enter into a long trade when the trend line shows to provide support for the price and exits when the price fails to make a fresh higher high or when the price breaks below the rising trend line.

It’s important to note that for a trend line to be an important support or resistance line, the price has to respect the trend line at least three times.

  • Fibonacci retracement levels

Fibonacci retracement levels are special types of support and resistance levels that aim to identify a price level where a market correction might end. Currency pairs have a tendency to trend, and every trend consists of highs and lows forming the characteristic zig-zag pattern of price charts. A market correction is a counter trend price movement which forms after a strong movement in the direction of the trend, and according to the Dow Theory, market corrections usually reach around 50% of the impulse wave.

Leonardo Fibonacci was an Italian mathematician of the Middle Ages who discovered the famous Fibonacci sequence of numbers. You may have heard about the Fibonacci sequence, which goes like this: 1,1,2,3,5,8,13,21,34… In essence, each number represents the sum of the previous two numbers. What’s even more interesting is that by dividing two consecutive numbers of the Fibonacci sequence, you’ll always get the same result: 0.618. This is called the Golden Ratio and occurs in many places in nature, including the human body.

Now, let’s get back to trading again. Since the Golden Ratio is widespread in nature, market participants feel that this ratio could also be successfully applied to financial markets. Traders consider that a market correction of 61.8% of the impulse wave could act as an important support and resistance level, together with other important Fibonacci ratios such as 23.6% and 38.2%. If you apply the Fibonacci tool from recent low to recent high, the resulting Fibonacci retracements drawn on your chart could act as important price levels where the market could bounce and return to its underlying trend. This is shown in the following chart.

As you can see, the price found support at the 61.8% Fibonacci retracement level on the EUR/USD pair. However, bear in mind that Fibonacci retracement levels don’t have to be exact and precise support and resistance lines. Instead, the price can retrace at so-called support and resistance areas, of which the most important are in between the 38.2% and the 61.8% Fib level. So, consider these levels as areas, or zones, and not necessarily as precise lines.

Support and resistance levels change their roles

When talking about support and resistance levels in Forex trading, we need to touch on an interesting characteristic of these levels, which is their change of roles. When a support level breaks, be it a horizontal, round number, Fibonacci, or trend line support, that support becomes a resistance level in the future. Similarly, a broken resistance level becomes a support level in future trading. A popular trading technique has been built around this feature of support and resistance levels, which is called pullback trading. Basically, a trader would wait for the price to retest a broken support level (which now becomes a resistance), or a broken resistance level (which now becomes a support) to enter into the direction of the breakout. This fascinating concept is shown in the following chart.

The chart above shows horizontal support and resistance levels on the weekly EUR/USD chart. Higher timeframes, such as the daily or weekly ones, are most of the time more reliable when it comes to support and resistance Forex trading. As you can see, the key resistance and key support lines are located above and below other less important levels, respectively. A broken resistance became a support, and a broken support became a resistance.

Final words: support and resistance levels in Forex

Support and resistance trading is an extremely popular way of trading the Forex market. These levels, which exist in other financial markets as well, are one of the most important concepts that novice traders should learn early on in their Forex journey. Simply put, a support level represents a price level where sellers had difficulties breaking below in the past, while a resistance level represents a price level where buyers had difficulties to breaking above in the past. As a result, these levels can be used to eventually predict the behaviour of market participants once the price reaches them again. There are many types of support and resistance levels, such as horizontal levels, trend line levels, Fibonacci retracements, and round number psychological levels, which have been covered in this article. Besides these types, other technical tools can also be used to identify potential levels where the price could find a support or resistance, such as moving averages (the 200-day MA is an important dynamic S&R level), channels, pivot points, and so on.

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