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).
- 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.
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.
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.