How to Trade Forex: Trading Support and Resistance Lines
Last week's blog on How to Trade was Trading Channels, this weeks blogs will be following on from this topic with Trading Support and Resistance Lines. It may also be useful to look at the Support and Resistance blog.
Now that you know the basics it's time to apply these basic but extremely useful technical tools in your trading. Because we want to make things easy to understand, we have divided trading support and resistance levels into two simple ideas: the Bounce and the Break.
As the name suggest, one method of trading support and resistance levels is right after the bounce. Many traders make the error of setting their orders directly on support and resistance levels and then just waiting for their trade to materialise. Sure this may work at times but this kind of trading method assumes that a support and a resistance level will hold without price actually getting there yet.
You might be thinking, "Why don't I just set an entry order right on the line? That way I am assured the best possible price."
When playing the bounce we want to tilt the odds in our favour and find some sort of conformation that the support or resistance will hold. Instead of simply buying or selling right off the bat, wait for it to bounce first before entering. By doing this, you avoid those moments where price moves fast and breaks through support and resistance levels.
In a perfect world, support and resistance level would hold forever. In a perfect trading world, we could just jump in and out whenever price hits those major support and resistance levels and earn loads of money. The fact of the matter is that these levels break... often.
So, it's not enough to just play bounces. You should also know what to do whenever support and resistance levels give way!
Trading Support and Resistance Levels Summary:
There are two simple ways to divide trading support and resistance levels, the Bounce and the Break
Don't make the mistake of setting orders directly on support and resistance levels and waiting for the trade to materialise
As always practise on a demo account, DO NOT live trade until you feel comfortable!
There are two ways to play breaks: the Aggressive way or the Conservative way which the How to Trade Forex blog will be covering next week.
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