Horizontal support and resistance forex trading strategy is one of the most popular forex trading strategies used by many traders all over the world because its based on solid trading fundamentals of support and resistance.
In this post, you will learn how to trade support and resistance in the forex market.
This support resistance trading method forms the core of all support and resistance trading so it is best to know it.
HOW TO FIND SUPPORT AND RESISTANCE LEVELS
Regardless of what timeframe you use, whether it be 1min or weekly, you will see:
- where price has moved up, hit a resistance level and reversed from
- or price has moved down, hit a support level and bounced back up from.
Those are the very basic ideas of support and resistance.
So if you don’t know how to find support and resistance levels, the following steps will help:
- Look at the chart
- Look for a series of low points where price does not fall below this any further, this is your support level.
- Look for a series of high points where price does not rise above this any further, this is your resistance level.
- The more price bounces off this support & resistance levels, the stronger these levels become
- So next time price comes this level, expect it to bounce again like it did before.
That’s very easy to understand.
Timeframes: any but preferably 15mins and above.
Currency Pairs: Any
Indicators: no forex indicators required
Anything Else?: The use of bullish and bearish reversal candlesticks can enhance your trade entry signal.
- Once a support level is identified, draw a horizontal support line and wait for price to fall back to that support line.
- (a)When price falls back and touches the support line, wait for the that candlesticks to close and place a buy stop order 2-5 pips above that high of the candlestick that touches the support line or (b) place a buy limit order so when price reaches it, it activates it and you are in a trade 0r (c) you can buy immediately at market price when price touches that level.
- for buy limit or at market orders, place your stops 10-30 pips below the support line. This depends on what time frame you use as well, larger timeframes may require a larger stop loss.
- Take profit target levels should aim for the resistance levels above. Set them within the resistance levels so there is a greater chance of your profit target being hit.
- Once a resistance level is identified, draw a horizontal support line and wait for price to rise up back to that line.
- (a)When price rises back up and touches the resistance line, wait for the that candlesticks to close and place a sell stop order 2-5 pips below that low of the candlestick that touches the resistance line or (b) place a sell limit order so when price reaches it, it activates it and you are in a trade 0r (c) you can sell immediately at market price when price touches that level.
- for sell limit or at market orders, place your stops 5-30 pips above the resistance line-this depends on what time frame you use as well, larger time frames may require a larger stop loss.
- Take profit target levels should aim for the support levels below. Set them within the support levels so there is a greater chance of your profit target being hit.
- Consider closing half of your position when price travels to halfway point between the support and resistance levels.
- move stop loss and trail stop your profitable trades to lock in profit as your trade moves in favour.
- the best way as to trail stop is to move behind those swing highs or lows and place your stops just a few pips behind so there is less chance of you getting stopped out prematurely.
DISADVANTAGES OF THE SUPPORT AND RESISTANCE FOREX TRADING STRATEGY
- nothing is 100% certain, price can break the levels and not obey them.
- sometimes, there will be false break or spike only to obey it later
ADVANTAGES OF SUPPORT AND RESISTANCE FOREX TRADING STRATEGY
- many trader traders watch and trade this setup and its quite predictable what price does around support and resistance levels.
- the use of price action trading, especially the use reversal candlesticks will greatly enhance your trade entry
- great risk to reward ratio for trades that go according to plan
- stop loss is tight and placed at ideal locations-behind support and resistance level therefore less chance of getting stopped out prematurely.
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