Ultimate 4-Step Support and Resistance Trading Strategy

15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

This Support and Resistance Trading Strategy will allow you to take trades at the exact area where price action reverses. Trading support and resistance lines are critical for every trader to implement into their system.

In this article, you will learn how to identify support and resistance and support and resistance trading zones.

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Moving forward, letโ€™s continue with the best Support and Resistance Trading Strategy.

Intro: Support and Resistance Trading Strategy

This is a simple, easy-to-learn trading strategy. After you read this article, you will be able to identify these sweet spots where marvelous price action happens. Keep reading, and you wonโ€™t regret it. Also, readย trading discipline,ย which is an important skill for successful trading.

Support and Resistanceย Defined

Support and resistance are areas on your chart where you can draw invisible barriers to price movement. See below for some examples:

What Is Support?

Support is the level where the price finds it difficult to fall below until, eventually, it fails to do so and bounces back up. Itโ€™s simply many traders making trading decisions at that level.

Supportย acts as a floor that limits any further downward movement. Like this:

The Support Line In Trading

What Is Resistance?

Resistance is the level where the price finds it hard to break through to the upside and is pushed back down. It acts as a ceiling, limiting further upward price movement.

Like this:

A Resistance Line Example

You should frequently suspect a reversal at support and resistance, as there is a high probability that price action will reverse at those key levels. It already did that in the past and is likely to continue to do so in the future as traders tend to take caution on these levels.

Traders who had open trades will exit at those price levels, and others will initiate new trades at these levels. Thatโ€™s why it is crucial to learn to draw zones using technical analysis.

Support in the past can mean resistance in the future. The same thing goes for resistance. The Resistance in the past could mean support in the future.

Both are formed through the actions of the traders in the current market.ย 

So, the million-dollar question is, โ€œWhat causes the price to โ€œhitโ€ these certain levels and bounce off of it?โ€

Also, what causes the old areas of support to become the new areas of resistance?

The answerโ€ฆ

Itโ€™s simply traders making trading decisions.

The decisions to buy or to sell are made by analyzing the current prices against previous areas. This triggers an emotional response to traders.

They fear missing out on an opportunity, so they either buy or sell at these areas of support or resistance.

Ultimate 4-Step Support and Resistance Trading Strategy โ€“ "[Traders] fear missing out on an opportunity, so they either buy or sell at these areas of support or resistance." Click To Tweet

The support area is basically defined when the demand overcomes the supply. This limits the price from going down any further.

On the other hand, the resistance area is defined when the supply has been overcome with demand, which limits upward price movement.

That is where you see a โ€œBarrierโ€ form.

You will sometimes notice that a support/resistance area isnโ€™t exactly a straight line, which is why it is called anย area.ย What happens is traders will make different decisions at different prices in this area.

Never assume these areas will hold. However, they should always be areas of interest, and you should take note of them when you see them.

See an example below of resistance in the past acting as support in the future:

Support And Resistance - Pin Bar

This was taken from ourย Price Action Pin Bar Strategy,ย where we talk a lot about this very topic.

Finding these โ€œareasโ€ will help you make better trading decisions when the price action goes to these levels.

Be the smart trader and wait for confirmation before you trade a breakout of support or resistance. Also, read aboutย Scaling in and Scaling out in Forex.

Many people will get sucked into trading these areas too early because of fear of missing out on a trade. There are a fewย support and resistance indicators out there, so do a quick search, and you will find one that should fit your trading style.

Support and Resistance Zone Strategy

We donโ€™t use any technical indicators for this strategy. Only price action and its relationship to support and resistance zones.
Support And Resistance Zone Strategy

Steps for Trading Support and Resistance Zones Strategy

Now that we know the role of S&R Lines, which from now on we will call zones. Thatโ€™s because support and resistance are not a given line. If so, it would be easy for traders to know, and every trader on the planet would have an entry order at that price.

They are more like zones that can be breached and pushed into. The trend may pull the price action back out of it, or maybe price action will succeed in breaking it for good.ย This is why you want to think of these points as zones.

Our main purpose in this Trading Strategy is to identify those Zones, use them in our favor, and make great trade entries and exit points.

Step #1: Drawing Zones

The first step of this support and resistance trading strategy is to draw Zones on our charts.ย This allows us to easily spot where the price could possibly reverse. After you do this, it will resemble a support and resistance indicator. Only you now have zones to take advantage of.

Drawing Zones on the chart is better done on a higher time frame so that we can examine the main reversal levels and the more critical points on the chart, as a higher time frame shows us the bigger picture. Itโ€™s almost like what we talked about in our article about the importance of multiple time frame analysis.

We begin by drawing horizontal lines on recent Peaks and Bottoms, as you see below in our chart example. Examine this chart, as it is critical for you to understand these zones.

Support And Resistance Zone Strategy

When you are doing support and resistance trading, the more the price touches the line, the more the signal is. It shows that the level stood against the price, passing the test many times and will continue to do so. WHY?

Because history tends to repeat itself, and this continues to happen time and time again on every chart that you will ever look at. (Stocks, Options, Forex)

**Note: Make sure to leave spaces between zones, as drawing many lines will confuse you and worsen your trading decision. This strategy could easily be compared to our Red zone strategy, which shows you how to draw zones on your chart.

When you take a look back after drawing Zones, you will find that those lines withheld the price numerous times before and will continue to do that numerous times more.

Step #2: Wait on Price Action

The second step is waiting for the price action to touch the Zone. What you can do is set your charts on 2 to 4 currencies and wait for your chance, as it may take some time for the price to reach the support resistance levels.

Moreover, the reason we say 2 to 4 currencies is because this is a good number of pairs to be looking at and will not overwhelm you. This allows youย to have a good judgment on your trade opportunity.

Basically, the higher time frame takes less time and attention than the smaller time frame.ย Alternatively, the smaller time frame has more signals, as the zones may get hit more frequently. You have to be more focused if youโ€™re trading small-time frames.

Trading With Support And Resistance While Waiting For Price Action

In this chart, we see the price action approaching support and actually almost touching the support, so we wait to see the form and shape of the next candle.

If the price reverses, that will be good, as it is what we are expecting.ย We will need a strong reversal candle, though, to ensure that the price will reverse and that it will not collapse again.

On the other hand, if it breaks that level, it may be a real breaking or a fake breaking. We also should see a strong piercing candle that effortlessly breaks that level to ensure it will continue in the same way.

Step #3: Wait for Candle Close

The third step of this trading strategy is to wait for the candle that hits the zone to close.ย This will indicate the signal candle we are waiting for. Take a look at the candlestick pattern and ask yourself:

  • Is it a bullish or bearish candle?
  • Is it strong or weak?
  • Big or small?
  • Does it have long wicks or small wicks, or no wicks at all?

When you can identify the kind of candle, then you will be able to decide whether to sell short or buy long.

Knowing the type of candle is crucial to identifying whether the entry is valid or not.

A Strong Bullish Candle While Waiting For A Candle Close

In the chart example above, we see how support rejected the price and pushed it back up. We can also see the candle that formed afterward to signal the end of the down movement and the beginning of the upward movement.

So, how do we know it is strong? What is its secret?

Before we go any further, here are some important factors in determining a strong candle because spotting that specific candle on zones makes the difference between winning trades and losing trades.

The Qualities of a strong candle are:

  • Long body
  • Formed after the previous touched the level but could not break it.
  • Entirely taken the two previous candles.
An Example Of A Strong Bearish Candle

This example shows us how a strong candle should look. As you can see, the strong candle overpowers the one before.

Weak Candles Can'T Breach The Resistance Line

Here, you can see that those weak candles were not able to breach the Resistance line; they had long wicks and could not break that level. So, we wait to see what will happen with the next candle. Will the price action break that level, or will the resistance win and the price reverse?

In the first case ( the candle on the left that we marked for you), clearly, the price fell on the next candle, which made it a valid reversal.

Support And Resistance Reversal

In the second case ( the candle on the right that we marked), we had a very small candle, which did not mean anything except that the resistance stalled the price for a while.

Resistance Stalling The Price

Step #4: Identify Entries

The fourth step is to identify where you will enter the trade. You want this to happen at the pivot point or turning point. Here are the entry criteria.

Entry Criteria

Your entry should be slightly above or below the signal candle, which is the strong candle. This way, you are adding more confirmation to your trade to make sure that the price will move in the direction you expected it to move in.

Exit Criteria

Our stop loss should be placed on the other side of the zone and not too close to the level to give it some space. As we said, it is a zone. Putting the stop loss there makes sense because this is the end of the trade. The price is unlikely to reverse after that point.

So, according to the rules of this strategy, below is an example of trade:

Swing Trading Support And Resistance

We used a 3:1 risk-to-reward ratio, but you can adjust according to your rules.

Conclusion for the Support and Resistance Trading Strategy

Now, you should have an understanding of how this Support and Resistance Trading Strategy works. We showed you how to draw support and resistance zones and how to trade them successfully. You should also know how to determine the direction in which the price will probably move to get an edge in your trading.

If you liked this strategy or still need more information, please leave a comment below, and we will answer your questions!

Trading support and resistance and discoveringย support and resistance zones are pivotal to your trading success.

Our Fibonacci channel strategy and the Red zone strategy are very similar and will help you understand exactly what these so-called โ€œzonesโ€ are as well, so you can check them out also if you wish!

Please leave a comment below if you have any questions about the Road to Successful Trading!

Thanks for reading!

Further Reading

If you like this Support and Resistance Trading Strategy and have become consistently profitable in your trading, then you may be ready to become a full-time trader. We have the best guide on learning What Prop Trading Is All About. Or you can sign up directly with a global prop trader.

If you are here for Forex Trading, you may want to check out our Forex Beginnerโ€™s guide.

If youโ€™re more of a stock trader, you may be interested in applying this strategy to your single stock trading so that you can profit over and over again with this strategy.

Derivatives traders will definitely want to look into our Futures Trading Strategy to optimize their strategies or this article on options strategies.

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Support and Resistance Trading Strategy Frequently Asked Questions

What Is Support and Resistance Trading?

Support and resistance trading is a strategy used in technical analysis that identifies invisible barriers indicating the tops and bottoms of price levels on a price chart. These levels are where the price tends to bounce off and reverse direction.

How Do You Identify Support and Resistance Levels?

Support levels are identified by finding areas where the price has previously bounced off and held above. Resistance levels are identified by finding areas where the price has previously bounced off and held below. Traders often use trend lines, moving averages, and chart patterns to identify support and resistance levels.

What Are the Benefits of Using Support and Resistance Levels in Trading?

The benefits of using support and resistance levels in trading include better entry and exit points, improved risk management, and the ability to identify potential market reversals. Traders can also use these levels to set stop-loss orders and take-profit targets.

Can Support and Resistance Levels Be Used in Any Market?

Yes, support and resistance levels can be used in any market that has price data, including stocks, forex, commodities, and cryptocurrencies.

Are There Any Drawbacks to Using Support and Resistance Levels in Trading?

One potential drawback is that support and resistance levels can be subjective and open to interpretation. Additionally, these levels may not hold up during times of high volatility or major news events. Traders should use multiple indicators and tools to confirm their analysis and make trading decisions.

Support and Resistance Trading Strategy Video

Support and Resistance Trading Strategy PDF

Like this Strategy? Grab the Free Support and Resistance PDF Strategy Report that includes other helpful information like more details, more chart images, and many other examples of this strategy in action!

Tap on the E-Book Cover Below to get your copy of this Free strategy today.

Support And Resistance Trading Strategy Pdf Free
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Support And Resistance Zones
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15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

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  1. What if price closings passed my resistance line but the candle has a long wick? Should I wait for the close of the same colored candle completely passed the resistance line before entry?

    • Waiting for confirmation would be a great idea, yes. Support and resistance is no set โ€œpointโ€ but always a zone. So the trader needs to use their own discretion to get in a trade at these levels. Thanks for the comment! Let us know if you need any more help.

  2. I have a problem of indecision when the level has broken .. should i wait for another candle after breakout big and bold candle or not

    • Thanks for commenting. That is a big problem that most traders have, so you are not alone there. Iโ€™d recommend you wait for an entire candle to close. You can check out our youtube channel, Tim Black has a great way he finds where to enter trades.

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