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Support and Resistance Trading Strategy
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?
- 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.
- 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.
- Consolidation is a period without any trend, forming near support or
resistance level, with the relatively small candlestick bodies.
- A close below the support level signals a short position.
- A close above the resistance level signals a long position.
- 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).
- Take-profit can be set relatively to the stop-loss or as a trailing stop of
some sort.
Example
Support set-up:
Resistance set-up:
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. If you are having trouble detecting support and
resistance levels on the chart you can use our
free MT4/MT5 indicators for that:
Support and
Resistance or TzPivots.
Warning!
Use this strategy at your own risk. EarnForex.com can't be responsible for
any losses associated with using any strategy presented on the site. It's not
recommended to use this strategy on the real account without testing it on demo
first.
Discussion:
Do you have any suggestions or questions regarding this strategy? You
can always
discuss
Support and Resistance Strategy with the fellow Forex traders
on the Trading
Systems and Strategies forum.
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