This support and resistance strategy works on any forex pair.
It is simple and profitable and it is the best trading strategy for beginners.
In this article, I will share with you a step-by-step guide for trading this strategy. You will learn entry rules and important theory.
Find Support and Resistance Levels
First and foremost, in order to profitably trade support and resistance levels, you need to know how to identify them.
You should know how to distinguish a significant structure level.
I believe that you should look for a strong support or resistance strictly on a daily time frame.
That structure should be historically significant.
It means that it should be respected by the market at least 2 times, with a strong and clear reaction to that.
Here is the example of a key support on EURUSD.
The underlined key level was respected as the resistance, first,
then, after a breakout, it turned into support and a strong bullish reaction followed.
Above, you can see a perfect horizontal resistance level that was respected 2 times in a row in the recent past on GBPUSD.
Support and resistance levels that I showed you are truly significant.
But, trading more than 9 years, I realized that the historic reaction of the market to a key level is not enough to make it reliable.
One Important Rule
I found one more important condition that strengthen a key level - a market trend.
We will trade only supports that align with the market trend, meaning that we buy from such a support, if only the market is trading in a bullish trend.
In the example above, NZDUSD is trading in a clear bullish trend on a daily. If we buy the market from the underlined support level, we will take a trend-following trade.
That will be the best support level for buying the market from.
We will trade only the resistances that align with the market trend.
It means that we will sell from the resistance, only if the market is trading in a bearish trend.
Look at AUDUSD on a daily. The pair is trading in a bearish trend.
The resistance that I underlined will be valid for selling from, because shoring from that, we will trade with the trend.
Be Careful
Please, realize that if you sell the market that is in an uptrend from a resistance level, you will go AGAINST the trend. The probabilities of winning such a trade will always be lower.
You can see the EURNZD went through a resistance level, completely neglecting that, because the market trend was bullish.
Buying a key support in a bearish trend, we will take a trade against the trend. Such trades always have lower accuracy.
A key support on EURCAD was easily broken because the market was trading in a bearish trend.
Key Resistance Trading Strategy
Now, let's discuss the entry point, stop loss placement and target selection.
Once you identified a key resistance in a bearish trend, set a sell limit order on that.
On EURGBP, the market is trading in a bearish trend on a daily.
We see a significant resistance that meets our criteria.
We should set a sell limit order on that.
Stop loss for the trade will be 0.5 ATR.
I simply take the default ATR settings with 14 Length.
In our example, ATR is 27 pips.
Our stop loss for the trade will be 14 pips above the entry level.
Take profit for the trade will be the closest support.
Here is the closest support that I spotted on EURGBP. It will be our TP level.
You can see that the market perfectly reached the target.
Key Support Trading Strategy
Once you identified a key support in a bullish trend, set a buy limit order on that.
I see a perfect daily key support on EURJPY pair.
The market is trading in a strong uptrend.
A buy limit order should be set on that level.
Stop loss for the trade will be 0.5 ATR.
ATR is 139 pips.
Our stop loss will be 70 pips.
Take Profit will be the closest daily resistance.
311 pips of profit were made.
Trend is Your Friend
Market trend is always your friend.
The rule to trade support and resistance levels only in the side of the trend is very simple, but many newbie trades neglect that, and lose a lot of money.
Try this support and resistance strategy, back test it on different forex pairs and let me know your results.
Thanks for reading!
