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How to trade Support and Resistance in Forex

 
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Author How to trade Support and Resistance in Forex
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Joined: 17 Jun 2015
Posts: 24

Post: #1   PostPosted: Sat Jul 18, 2015 9:58 pm    Post subject: How to trade Support and Resistance in Forex Reply with quote




The Bounce

As the name suggests, one method of trading support and resistance levels is right after the bounce.
Many retail forex traders make the error of setting their orders directly on support and resistance levels and then just waiting to for their trade to materialize. Sure, this may work at times but this kind of trading method assumes that a support or resistance level will hold without price actually getting there yet.
When playing the bounce, we want to tilt the odds in our favor and find some sort of confirmation 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 break through support and resistance levels.


The Break

In a perfect world, support and resistance levels would hold forever. In a perfect forex 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!
There are two ways to play breaks in forex trading: the aggressive way or the conservative way.

The Aggressive Way

The simplest way to play breakouts is to buy or sell whenever price passes convincingly through a support or resistance zone. The key word here is convincingly because we only want to enter when price passes through a significant support or resistance level with ease.

We want the support or resistance area to act as if it just received a Chuck Norris karate chop: We want it to wilt over in pain as price breaks right through it.


The Conservative Way

Remember, whenever you close out a position, you take the opposite side of the trade. Closing your EUR/USD long trade at or near breakeven means you will have to short the EUR/USD by the same amount.
Now, if enough selling and liquidation of losing positions happens at the broken support level, price will reverse and start falling again. This phenomenon is the main reason why broken support levels become resistance whenever they break.

As you would’ve guessed, taking advantage of this phenomenon is all about being patient. Instead of entering right on the break, you wait for price to make a “pullback” to the broken support or resistance level and enter after the price bounces.
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