Forex Trading Support and Resistance Strategy – Step by Step Trading Guide

Trading Support and Resistance

Find Resistance Levels

·       Open your chart and find the highest price level.

·       Now place a line on the chart and move it down the first resistance level that you find

 

1.     Line is drawn at top of the chart that you will move down.

2.    Price level that you will move the line down to.

3.    The green shaded area identifies the first resistance level.

Place a second line on the chart and move it down, below the current line you already have on the chart, until you find the next resistance level as the following chart shows.

 

1.     Line is drawn at the top of the chart that you will move down.

2.    The first resistance line that you have drawn.

3.    Price level where you will move your line down.

4.    The green shaded area highlights the second resistance level.

Continue to place resistance levels on your chart until you reach the current market price.

You do not want to put too many resistance levels on your chart – just the most important ones:

 

 

1.     Line is drawn at the top of the chart that you will move down.

2.    First resistance line.

3.    Second resistance line.

4.    Price level you have moved the line down to.

5.    The green shaded area shows the third resistance level.

Work your way up from the bottom and place support levels

Place a line on the chart and move it up to the first support level that you find

 

1.     Line is drawn at the bottom of the chart that you will move up.

2.    First support level where the line has been moved up to.

3.    Red shaded area shows the first support level.

Place another line on the chart and move it up to the next support level

 

1.     New line drawn that you will move up.

2.    First support line

3.    Second support level where you move the new line to.

4.    Red shaded area shows the second support level.

Continue to place support levels until you reach the current market price. You do not want to place too many support levels on the chart, but rather try to pick the most significant support levels.

 

 

1.     New line at the bottom that you will move up to a new resistance level.

2.    First support line.

3.    Second support line.

4.    Third support level that you will move the line to.

5 and 6. Red shaded areas show the third support level.

Once you have finished, you now have a price chart with a number of support and resistance levels that will look something similar to the chart above.

Now continue on to the next lesson to learn the first method of trading with support and resistance levels.

Finding entries at support or resistance

Now that you have placed your support and resistance levels, you can now look for possible entries at the support or resistance levels.

Enter trades at support and resistance

Look at the price chart and observe the support and resistance levels that you have drawn on the charts. You will look to place sell orders at the resistance levels and buy orders at the support levels.

Selling at the resistance levels

Take a look at the following chart – you can see a number of support and resistance levels:

 

 

1.     Resistance levels

2.    Support levels

The green shaded areas show where the price found resistance and the red shaded areas show where the price found support.

The next step is to wait until the price meets one of these support or resistance levels.

In the following chart, you can see where the price has moved up to resistance and has not managed to break above it:

 

 

1.     Resistance levels.

2.    Shaded shows that the price has found resistance at this level.

Now enter a short (sell) trade after the candle has closed:

 

 

1. Resistance levels

2. Short entry

Place your stop loss on the other side of the resistance level:

 

 

1. Resistance levels

2. Short entry

3. Stop loss

In order to place your profit target, find the next support level down and place your profit target there:

 

 

1. Resistance levels

2. Short entry

3. Stoploss

4. Next support level down

5. Profit target

You should make sure that your reward is bigger than your risk. It is up to you what your optimal risk to reward should be – ideally you should have a risk to reward of 1:2 or 1:3.

Buying at support levels

We will now show you an example of buying at support. The following chart shows a number of support and resistance levels:

 

 

1. Resistance levels

2. Support levels

The next step is to wait until the price meets a support level. In the following chart you can see where the price has come back down to a support level. You can then enter a long trade:

 

 

1. Resistance levels

2. Support levels

1. Long entry at the support level

The stop loss goes just below the support level:

 

 

1. Resistance level

2. Support level

1. Long entry at the support level

2. Stop loss below the support line

The profit target goes at the next resistance level up:

 

 

1. Resistance levels

2. Support level

1. Long entry after support held

2. Stop loss below the support level

3. Take profit at the next resistance level.

You should make sure that your reward is bigger than your risk. It is up to you what your optimal risk to reward should be – ideally you should have a risk to reward of 1:2 or 1:3.

You can go on to learn the second method of trading with support and resistance.

Finding entries using a breakout

This lesson will now show you a second way of trading with support and resistance levels using what is called 'breakouts' – when the price breaks through a support or a resistance level.

Trading when the price breaks through support or resistance

This method is different to entering when the price finds support or resistance. Instead, you wait for the price to break through a support or resistance level. There are two methods to do this:

1. Trading as soon as the price breaks through a level

2. Waiting for when support becomes resistance or vice versa.

Method One: Enter your trade as soon as the price breaks through

First you identify support and resistance levels on your chart, as shown on the following chart:

 

1. Resistance levels

2. Support levels

Wait until a candle either closes above resistance or below support. In the following chart, you can see that a candle has broken through, and closed above the resistance level:

 

 

1. Resistance level

2. Candle has broken through and closed above the resistance level.

You can now enter a long trade once the candle as closed. The stop loss goes below the support level:

 

 

1. Resistance level

2. Long entry

3. Stop loss.

In order to determine your profit target, you find the next support level above your entry as shown in the following chart:

 

1. Resistance level

2. Long entry

3. Stop loss

4. Profit target

Method two: Waiting for price to come back to support or resistance

Method two is very similar to method one, only instead of entering as soon as a candle closes above resistance or below support, you actually wait for the price to come back to the level it broke through. Take a look at the following chart where you can see a candle breaking below a support level and closing on the other side:

 

 

1. Resistance levels

2. Support levels

3. Candle has broken below and closed below the support level

Instead of entering a short trade as soon as the candle as broken below, you wait for the price to go back to the previous support level and see if this level now becomes resistance. Take a look at the chart below:

 

1. Previous support level.

2. Green shaded area shows the previous support level now acting as resistance.

Once the price has found resistance at the previous support level, then you enter into a short trade. The stop loss goes above the now resistance level as shown in the following chart:

 

 

1. Support that is now resistance.

2. Short entry after the price found resistance.

3. Stop loss on the other side of the resistance level.

To find your profit target, you then find the next support level down, as shown in the following chart:

 

 

1. Support that is now resistance.

2. Short entry after the price found resistance.

3. Stop loss on the other side of the resistance level.

4. Profit target at the next support level down.

Related Article

·        Support and Resistance

·        Supply And Demand

·        Institutional Concept of Trading