If you want to become a profetional price action trader, then learning how to trade support and resistance levels is a must.
Here, on this tutorial, you will learn the most important things about support and resistance levels; you will learn how to draw them, when and where to draw them, but most importantly you will learn how to trade support and resistance levels the right way. I will also give you some options on how to close your trades for profits. First let me start by explaining what support and resistance levels are.
What is a support level
A supports level is where buyers are strong enough to reverse a down trend. For example, If a price has been in a downtrend for a while and then hit a certain level where it can no longer continue to go down and reverse back up, that level where it reversed is called a support level.
Here is an example of a support level
What is a resistance level
A resistance level is the opposite of a support level: a level where sellers are strong enough to reverse the uptrend. If a market price has been going up for a while and gets to a point where it can’t continue to go up and reverse from there, that level is called resistance level.
Here is an example of a resistance level
- MetaTrader4 Indicators: non
- Preferred Time Frame(s): 4 hour and daily time frames
- Recommended Trading Sessions: any
- Currency Pairs: any
How to trade support and resistance levels?
1. For starters, look for obvious resistance levels on your chart and draw a vertical line.
2. When you see price heading down to a support level and touched the support line,If so there’s a likely chance that the market may bounce up from the support level and go up so you can either place a buy trader as soon as the price touches the vertical line or you can wait for a reversal candlestick to confirm your buy trade.
3. Place your protective stop loss few pips below the support level.
4. Use previous swing high as your take profit target level.
- Look for obvious resistance levels on your chart and draw a vertical line.
- When you see price heading up to a resistance level and touched the vertical line, there’s a likely chance that the market might reverse and go down from the resistance level so you can either place a buy trader as soon as the price touches the vertical line or you can wait for a reversal candlestick to confirm your sell trade.
- Place your stop loss few pips above the resistance level.
- Use previous swing low as your take profit target level
See an example of a resistance level setup below
On this live example above, I placed a sell trade after i saw an obviously resistance level at 83.700. i placed my stop loss of 50 pips above the resistance level at 84.20. For take profit, I used the previous swing low at 79.30. Few days later my profit target was hit and i was out with 430 pips profit.
4 important things to know about support and resistance levels
Let’s look at the important things about support and resistance.
#1. Obvious support and resistance levels
If you want to trade higher probability trades, then you should only focus on obvious support and resistance levels. Obvious support and resistance levels are those that a formed on higher timeframe from like daily and weekly time frames that any everyone can see.
If a support or a resistance level is obvious then this means the banks, retail traders,corporation and other related financial institutions can also see it. It means that if a support or resistance level or zone is obvious them those sitting on the sideline will be looking to jump in once the price reach that obvious level, while those who are already in,will use those obvious levels to get out.
Example of obvious support and resistance level
Notice how obvious these levels are?
2. Major support and resistance levels vs manor support and resistance levels
Not all support and resistance levels are the same or equal; there are minor and major support and resistance levels and it is very important that you understand the difference between the two.
In most cases, minor support and resistance levels tend to cause the market to pause, while major support and resistance levels causes the market price to reverse.
Also read: How to trade trendline strategy
3. Support and resistance levels gets broken
Unfortunally Support and resistance levels are not a foolproof. They get broken. When a support or resistance level gets broken, rules tend to change: the old support becomes a new resistance and old resistance becomes a new support.
Look at the chart below to see what I am talking about.
Notice what happen after the support level get broken? Price break then retrace back to the old support and now it acts as a new resistance level. The opposite is also true with resistance- after a resistance level gets broken, it becomes a new support.
How to trade the breakouts
Once a resistance level is broken, the price will go up for a while, wait until the price reverse back to the horizontal line it broke. When that happen, wait for the price to touch the horizontal line and close above it before you can place a buy trade.
• Place your stop loss few pips below the candlestick that touches the horizontal line.
• For your take profit target, use previous swing high
Also when a support level gets broken, wait for the retracement then place a sell trade after the price has touched the horizontal line that it broke
Place your protective stop few pips above the horizontal line
For take profit, use the previous low as your profit target level .
That’s it for support and resistance levels…
Thanks for stopping in and i hope you learn a ton about support and resistance levels. If you enjoy this work, please distribute it for free to your acquaintances. I would also love to hear from you: leave me a comment in the comment section. otherwise, happy trading!!
Until next time!
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