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).
Features
- 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.
Example
Support set-up:
Resistance set-up:
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.
Warning!
Use this strategy at your own risk. It's not recommended to use this strategy on the real account without testing it on demo first.
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