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.

Features

• Well-defined low stop-loss.
• Relatively high success rate.
• Unclear target levels.

How to Trade?

1.   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.

2.    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.

3.   Consolidation is a period without any trend, forming near support or resistance level, with the relatively small candlestick bodies.

4.    A close below the support level signals a short position.

5.    A close above the resistance level signals a long position.

6.  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).

7.    Take-profit can be set relatively to the stop-loss or as a trailing stop of some sort.

Example:

 Aperiod 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.