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Nothing is more noticeable on any chart that supports and resistance levels. These levels stand out and are so easy for everyone to see! Why? Because they are so obvious.

As a matter of fact, support and resistance trading is the core of price action trading.

The key to successful price action trading lies in finding effective support and resistance levels on your charts.

Now, in here, I talk about 3 types of support and resistance levels and they are:

1.The normal horizontal support and resistance levels that you are probably most familiar about.
2. Broken support levels become resistance levels and broken resistance levels become support levels.
3.Dynamic Support and Resistance Levels
Now, let’s look at each in much more detail.

Horizontal Support and Resistance Levels
These are fairly easy to spot on your charts. They look like peaks and troughs.

The chart below is an example and shows you to trade them:

How To Find Horizontal Support And Resistance Levels On Your Chart
If the price has been going down for some time and hits a price level and bounces up from there, that’s called a support level.
Price goes up, hits a price level or zone where it cannot continue upward any further and then reverses, that’s a resistance level.
So when price heads back to that support or resistance level, you should expect that it will get rejected from that level again. The use of reversal candlestick trading on support and resistance levels becomes very handy in these cases.

Significant Support & Resistance Levels
Not all support and resistance levels are created equal. If you really want to take trades that have a high potential for success, you should focus on identifying significant support and resistance levels on your charts.

Significant support and resistance levels are those levels that are formed in the large timeframes like the monthly, weekly and daily charts.

And when price reacts to these levels, they usually tend to move for a very long time.

Here’s an example of NZDUSD that hit a resistance level on the monthly timeframe and made a 1,100 pips move down to the next significant support level and price can now be seen bouncing up from that support level:

HOW TO TRADE SUPPORT AND RESISTANCE LEVELS-price action trading strategy

Now, here’s the technique I use to trade setups that happen in larger timeframes:

I switch to smaller timeframes like the 4hr & the 1hr, 30min, 15min and even the 5min and wait for a reversal candlestick signal for my trade entries. This is so that I can get in at a much better price level as well as reducing my stop loss distance.

That’s what’s multi-timeframe trading is all about.

Support turned Resistance Level And Resistance Turned Support Level
Now, the next one is this thing called Support turned Resistance Level And Resistance Turned Support Level.

There are many traders that don’t realize that usually, in a downtrend, when a support level has been broken to the downside, it often tends to act as a resistance level. Here is an example is shown on the chart below:

HOW TO TRADE SUPPORT AND RESISTANCE LEVELS-price action trading strategy

Look for bullish reversal candlestick around these type of resistance turned support levels as your signal to buy.

Can you see how the need for using other indicators is diminished once you understand how easy is to spot such trading setups like these?

What is a channel? And How Do You Trade A Channel? This section is about that.

The path price follows and the area enclosed within it is called the price channel.

The fundamental principle of how a channel form is based on support and resistance. Why price does that, I don’t know… but consider it as supply and demand at work.

There are 3 major types of channels:

1.the uptrend channel,
2.the downtrend channel and
3.the sideways/horizontal
This is what a downtrend channel looks like and how to trade it:

HOW TO TRADE PRICE CHANNELS-price action trading strategy

This is what an uptrend channel looks like and shows how you can trade it:

HOW TO TRADE PRICE CHANNELS-price action trading strategy

This is what a sideways channel looks like and how you can trade it:

 HOW TO TRADE PRICE CHANNELS-price action trading strategy

Sideways channels (or horizontal channels) are a little bit different from uptrend and downtrend channels because, with uptrend and downtrend channels, you would require 2 points to draw trendlines and wait for the price to touch them later on before you take a trade because the trend lines are at an angle.

But with sideways/horizontal channels, you can actually start trading the setup at point #2 which can be both a resistance or support level based on the fact that a prior resistance or support level is already visible and you should expect the price to bounce from those levels. Look for reversal candlesticks to buy or sell when you see such setups happening.

General Rules For Trading Channels
1. If you buy or sell on the other side of the channel, you wait for the price to reach the other end of the channel to take profit or exit the trade.
2. Place your stop loss on just outside the channel or just above the high of the candlestick (for a sell order) or just below the low of the candlestick (for a buy order) that touched the channel and shows 3.signs of rejection. This candlestick can also be a reversal candlestick.
3. You may also decide to take half the profits off as the price is in the middle of the channel for a profitable trade.



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22 Jan 2019 3:54 pm Posted by admin