Support and Resistance Strategy- a trading system widely used, based on the horizontal support and resistance levels. These levels are formed with the maximum and minimum of candles. Breakage of these levels after consolidation period gives a signal a trend. This strategy does not require any graphical indicator except for the ability to draw lines (at least imaginary).
Characteristics of this Forex Strategy
- The stop-loss is low and clearly defined.
- The success rate is quite high.
- The levels of objectives are not clear.
How to Trade?
- The level of support is formed with the minimum of two or more candles forming a horizontal line a fairly straight without no lower lows between them.
- The level of resistance is formed with maximum of two or more candles forming a horizontal fairly straight line without a higher highs not among them.
- Consolidation is a period without any trend, which is forming near support or resistance level with bodies rather small candles.
- A closed below the support level indicates the short position.
- A closed above the resistance level indicates the long position.
- The stop-loss is getting the minimum of the previous candle (for long positions) or the maximum of the previous candle (for short positions).
- Take-profit can be placed relative to the stop-loss or as a trailing stop.
Example of Support and Resistance Strategy
The situation with the support:
The situation with resistance:
The period of consolidation can be clearly seen in both graphs of example. In both cases the level of support / resistance is formed with two candles on fairly short period of time. The stop-loss is placed near the entry level. The take-profit could not be set at the time of opening the position, but the rate of risk / reward ratio of 1: 2 or more could easily be put.
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