Trading Support and Resistance Levels – Part 4

How to Trade Support and Resistance

Support and resistance lines are some of the most important price points for traders to look at when they are trying to figure out the market and how to trade it.

Those lines provide areas that need to be keyed in as they have the potential to be the exact points when the currencies should be bought or sold.

There are two main things to look at when talking about resistance lines and how to trade them, and those are the break and the bounce.

The Bounce

One way to get involved in the market effectively is to look for a bounce off of a support or resistance level and trade into that. It is far better than the mistake that many new traders make which is to try to trade precisely on the resistance lines.

You don’t want to do that because many other trades are likely also trading on those specific points as well. Instead, you want to wait until there is more confirmation that your trade is moving the way you expect it to.

Thus, you wait for the bounce off of the support or resistance lines.

The bounce is a move either higher or lower off of the support or resistance line (depending on the overall trend of the currency pair) that you can take advantage of.

You want to see the currency bounce off of those lines to confirm to you that the line really is set there and to try to make some money as the currency reverses itself from the moves that it had previously been making.

The Break

The polar opposite of the bounce is the break. This is when the currency pair breaks through the resistance lines that you drew and continues moving in the same direction.

This could signal that the currency is finally ready to make a move that goes beyond the resistance lines that were previously drawn for it. That could be a big deal in the sense that it might mean that you need to rethink your entire strategy for how you will trade the pair moving forward.

Are there more opportunities for the pair to continue to move in the direction that it is already headed? If you think that this breakthrough in the resistance is a legitimate thing, then it might be time to get on board now.

The break is another great reason to avoid putting a trade on right at the resistance point.

Imagine if you put a sell order right on the resistance point expecting that the currency would hit off of the resistance line and immediately decline. If you did that, you might be very upset when it actually broke through resistance and continued even higher in a reversal of fortunes for you.

Yet, this is exactly what can happen if you do not play your cards right. You should avoid the temptation to place your orders directly on the support and resistance points as it is unlikely that the pair will land specifically on those points each time.

Remember to double-check your work with the support and resistance lines by also looking at other indicators
to see if there is solid confrmation of your assumptions about the market.

You might be exactly right in your predictions about how the market is likely to move, but you need to ensure that this is the case by looking at other indicators to see if they are all pointed in the same direction as well. If they are, then it might be time to strike right now, and you should take the time to do so.