How to Trade Support and Resistance
The Bounce
As the name suggests, one method of trading support and resistance levels is right after the bounce.
Many retail forex traders make the error of setting their orders directly on support and resistance levels and then just waiting to for their trade to materialise.
Sure, this may work at times but this kind of trading method assumes that a support or resistance level will hold without price actually getting there yet.
You might be thinking, “Why don’t I just set an entry order right on the line? That way, I am assured the best possible price.”When playing the bounce, we want to tilt the odds in our favour and find some sort of confirmation that the support or resistance will hold.
For example, instead of simply buying right off the bat, we want to wait for it to bounce first before entering.
If you’ve been looking to go short, you want to wait for it bounce off resistance before entering.
By doing this, you avoid those moments where price moves fast and break through support and resistance levels.
The Break
In a perfect world, support and resistance levels would hold forever.
In a perfect forex trading world, we could just jump in and out whenever price hits those major support and resistance levels and earn loads of money.The fact of the matter is that these levels break… often.
So, it’s not enough to just play bounces. You should also know what to do whenever support and resistance levels give way!
There are two ways to play breaks in forex trading: the aggressive way or the conservative way.
The simplest way to play breakouts is to buy or sell whenever price passes convincingly through a support or resistance zone.
The key word here is convincing because we only want to enter when price passes through a significant support or resistance level with ease.
Instead of entering right on the break, wait for price to make a “pullback” to the broken support or resistance level and enter after the price bounces.