Support and Resistance Trading Strategy

2017-09-22 17:29    FXYEAH

Support and Resistance Forex trading strategy — is a widely used trading system based on the horizontal levels of support and resistance. These levels are formed by the candlesticks' highs and lows. A break-through of these levels after a period of consolidation gives a signal for a trend. This strategy doesn't require any chart indicators except for the ability to draw lines (at least imaginary).

Features

  • Well-defined low stop-loss.

  • Relatively high success rate.

  • Unclear target levels.

How to Trade?

  1. Support level is formed by the lows of two or more candlestick bars that form a rather straight horizontal line with no lower lows between them.

  2. Resistance level is formed by the highs of two or more candlestick bars that form a rather straight horizontal line with no higher highs between them.

  3. Consolidation is a period without any trend, forming near support or resistance level, with the relatively small candlestick bodies.

  4. A close below the support level signals a short position.

  5. A close above the resistance level signals a long position.

  6. Stop-loss is set to the low of the previous candlestick (for the long positions) or to the high of the previous candlestick (for the short positions).

  7. Take-profit can be set relatively to the stop-loss or as a trailing stop of some sort.

Example

Support set-up:

Support and Resistance Trading Strategy Price Action Strategies 1

Resistance set-up:

Support and Resistance Trading Strategy Price Action Strategies 2

A period of consolidation is clearly seen on both example charts. In both cases the support/resistance level is formed by two candles on a rather short period. Stop-loss is placed close to the entry level. Take-profit couldn't be clearly set at the position entry moment, but a risk/reward ratio of not less than 1:2 could be used easily. 


Trading Strategy

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