How do you trade support and resistance? | Forex Factory

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How do you trade support and resistance?

  • #1
  • First Post: Edited Oct 11, 2010 2:38pm Oct 7, 2010 8:54pm | Edited Oct 11, 2010 2:38pm
I trade mainly support and resistance but I find it very difficult to decide whether I should buy or sell around those areas. Sometimes the price breaks a support/resistance area and never looks back and other times it tests support/resistance and makes a reversal. How do you decide whether to buy or sell when the price is at a support or resistance level and do you trade the same way on the small time frames as you do on the higher(h4+) time frames? On the chart below do you think that there was any way to figure out that EUR/USD
1. would test resistance and make a reversal?
2. Would break support and never look back?
Attached Image (click to enlarge)
Click to Enlarge Name: eurusd.JPG Size: 56 KB
If slaughterhouses had glass walls, everyone would be a vegetarian!
  • #2
  • Oct 7, 2010 9:44pm Oct 7, 2010 9:44pm
unfortunately you can never know.

I'm beginning to see that the more I trade, the more uncertain I am of where price will go. The best I can do is stack the odds in my favour and pray that I'm right.

You can add some indicators to give you more confidence or increase your chance of a right. However the bottomline is still the same. You will never know.

The best you can do is trade with the trend. If the trend is up, try to buy only.

And when you are wrong, just make sure your proper money management is in place and take the loss.

Rinse and repeat.
  • #3
  • Oct 7, 2010 9:52pm Oct 7, 2010 9:52pm
Quoting thelws
unfortunately you can never know.

I'm beginning to see that the more I trade, the more uncertain I am of...
  • #4
  • Oct 7, 2010 11:04pm Oct 7, 2010 11:04pm
Hi,

The less used and abused the lines are the more likely they are to hold. Price has to go somewhere at some point. Confluence of other factors such as fibs, zero numbers, along with S+R add to your odds of getting it right at least most of the time, and thats all anyone really need to make a profit.

The No brainer thread goes into great detail about this.
  • #5
  • Oct 7, 2010 11:11pm Oct 7, 2010 11:11pm
I find that it all depends on what else I see in the chart other then the support/resistance.

Like for example, in your screenshot you had both an upward trend-line break at about the same time as the support break. The added trend-line break would be confirmation for a short on the support break. The other thing I notice is that the pair had a decent run with small pullbacks so it would be due for a "breather". Lastly I also see that the consolidation lasted a little longer then the previous time before it.

It really has more to do with the type of trade you are making then the support/resistance. If it's a trending market maybe look for some of the things I mentioned above to confirm the support or resistance break. If it's a flat market and you're waiting for a breakout maybe trade within the range once or twice. Overall though I'd say breakouts are the hardest thing to pin down. A good article on it can be found at: http://www.investopedia.com/articles...anger-zone.asp

Hope that helps!
https://www.huntingtrader.blog
  • #6
  • Oct 7, 2010 11:36pm Oct 7, 2010 11:36pm
As others have said, you can never know these types of things ahead of time. Just take the trade, have a tight stop. Sometimes you will be right, other times, not right, but its all about the money management you use. Jim Cramer once said that a success rate for a student in school with a 40% is a failure, but not so in trading. Traders often lose more trades than they make. The reason they're successful is because they're making 3x or more on their good trades, and only losing about 1% on the bad ones.

one of the challenges with trading is that a pair can be trending up, AND down at the same time. How is that possible?. There are many different time frames traders like to choose. There isnt really a "best" time frame, however a pair thats going to the moon on the 10min chart, may still look bearish on the 4hr. Even if you trade off just one chart, there can be multiple trends, and multiple s/r levels on that one chart...the longer term charts have the better s/r levels (daily, weekly, monthly.)
  • #7
  • Edited 4:57pm Oct 8, 2010 4:45pm | Edited 4:57pm
Do you think it generally is a good idea to have a fixed risk/reward ratio or will that not be profitable. Does you risk/reward ratio vary from trade to trade? And what is a good rise reward ratio? 1/1, 1/2, 1/3 or maybe even more?
If slaughterhouses had glass walls, everyone would be a vegetarian!
  • #8
  • Oct 8, 2010 5:12pm Oct 8, 2010 5:12pm
Candlestick reversal patterns are perfect for this sort of thing. If price is going to reverse from support or resistance, it's going to show a reversal pattern, by definition.

Hammers, shooting stars, dojis, bullish and bearish engulfing, etc.
You are in a maze of twisty little passages, all alike.
  • #9
  • Oct 8, 2010 8:14pm Oct 8, 2010 8:14pm
Quoting Gambler180
Do you think it generally is a good idea to have a fixed risk/reward ratio or will that not be profitable. Does you risk/reward ratio vary from trade to trade? And what is a good rise reward ratio? 1/1, 1/2, 1/3 or maybe even more?
I always limit my risk to .50% of my account no matter what type of trade it is. The Risk:Reward has to be 1:1 or better or I won't enter. This is a personal preference, and fits my type of trading style. You will need to come up with numbers that fit you and your type of trading. For example; someone may have the same rules as me but sets their limit at 2% risk and their Risk:Reward at 1:2.
https://www.huntingtrader.blog
  • #10
  • Oct 8, 2010 8:22pm Oct 8, 2010 8:22pm
Yes, this is the right place to use candle sticks formations, especially dojies. People use the formations anywhere and therefore fail.
  • #11
  • Oct 9, 2010 7:10pm Oct 9, 2010 7:10pm
Quoting Gambler180
How do you decide whether to buy or sell when the price is at a support or resistance level and do you trade the same way on the small time frames as you do on the higher(h4+)
Attached is a snap of the EUR/USD in various time frames. I dont worry about if the trend is changing. This idea of 'due for a breather' will leave you standing on the sidelines, or worse - closing a trade for a loss. The only choice available is to buy at support (or add to position) in an uptrend.

Time and again I heard him say, "Well, this is a bull market, you know!" as though he were giving to you a priceless talisman wrapped up in a million-dollar accident insurance policy. And of course I did not get his meaning.
Edwin Lefevre, ROASO
Attached Image (click to enlarge)
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In trading, there is no bullshit. You either make money or you don't.
  • #12
  • Oct 9, 2010 8:07pm Oct 9, 2010 8:07pm
The only thing you have for sure in trading is that you never know in advance where the price is going.

The good news... there are only 2 directions to go...

S/R in TFs lowr than daily are a mess. I don't use them at all, but that's only my prsonal approach.

I look for reasons to enter a trade. One reason is not enough, never.

S/R on daily/Weekly plus some other confluence... candlestick formations (my favourite), OB/OS (yes, I use them, but never use ONLY them....), fundamentals... I always look for more thn only one reason to get in, but sometimes I get burn too, of course.

Cheers...
Many share my views with me. But I don't share them with them...
  • #13
  • Oct 9, 2010 11:12pm Oct 9, 2010 11:12pm
Quoting Gambler180
How do you decide whether to buy or sell when the price is at a support or resistance level and do you trade the same way on the small time frames as you do on the higher(h4+) time frames? Do you think that there was any way to figure out that?
Sam Seiden has lots of good stuff about supply/demand (S/R) trading. He uses high risk-reward. Spend some time reading his free articles if you're really serious about support and resistance trading.

http://www.tradingacademy.com/lesson...ed_article.htm
  • #14
  • Oct 10, 2010 12:16am Oct 10, 2010 12:16am
I would give you 2 advices based upon wot i have learned from some experienced traders around.....
1.Only trade support or resistance in the direction of main trend.
2.Every support or resistance becomes weaker every time the price revisits it.This means the chances of reversal from a S&R which is being visited for the very first time is much higher than the S&R which is revisted for 2nd or 3rd time.

Regards,
Mohammad Aadil
OPPORTUNITY LIES WHERE THE MAJORITY IS AFRAID TO GO....
  • #15
  • Oct 10, 2010 12:31am Oct 10, 2010 12:31am
download meta trader4 platform and choose template momentum,and there are 3 main forex indicators in the template which measure oversold and overbought times,also weakness nd strenght
rsi,stochastic and momentum,

but indicators are best on meta trader ,since broker charts are dodgy
  • #16
  • Oct 10, 2010 4:42am Oct 10, 2010 4:42am
http://www.traderinterviews.com/wimp...onusHighlights

This could help .
there is a bit in the audio that explains exactly why yours and my problem exists.

at support price can be pushed through to collect our breakout trades then after some pips turn round.

My tactic is especially after a consolidation.Trying to get the breakout trade which are the most profitable.

have an order set at a few pips below support. if its triggered moves in my direction then comes back to entry get out. place a new order at the new low same with the resistance.

often i see a breakout comes back past my entry and breakout the opposite way. dont worry at all about the few pips you lose on the fake breaks because a real break after consolidation is often quite large.

the trend s/r is pretty straight forward
in uptrend once resistance is formed thats the entry price get in at that price either after the retrace and comes back to the resistance price or as it comes close to it as support.

All the popular entry /exit methods and stop loss calculations are known to the people who are able to move the market.

Personally all i beleive we can do is minimise our losses when trying to get in.
Knowing price does have to move at some point after its been in a tight range stay in as long as we can when it does break. Even adding on retraces if we can.
Hope I have not bored you to death lol.
making green pips large and red pips small this is my goal.
  • #17
  • Oct 11, 2010 3:03am Oct 11, 2010 3:03am
Quoting thelws
unfortunately you can never know.

I'm beginning to see that the more I trade, the more uncertain I am of where price will go

Rinse and repeat.
it seems all trader have the same problems to you. and but we have to get acquainted with it for our future
  • #18
  • Edited 10:26pm Oct 11, 2010 10:07pm | Edited 10:26pm
Here is a tough one that I don't know how to trade. As you can see the price first broke a previous support(now resistance) and according to my rules I should sell at the first vertical line when the candle closes below the support (now resistance). Then soon after the price touches a previous resistance (now support) and at the second vertical line when a candle closes above the resistance(now support) I should sell according to my rules. How would you trade this? Would you keep the short position open because it is in the direction of the main trend, close the position and buy at the second vertical line or would you not open a new position and buy or sell when price breaks out of the current range?

Edit: When deciding whether or not to buy at the second vertical line the range hasn't formed so the third option is not relevant but if we assume that you have not made any trades and should look for a trading opportunity right now, what would you look for?
Attached Image (click to enlarge)
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If slaughterhouses had glass walls, everyone would be a vegetarian!
  • #19
  • Oct 12, 2010 1:56am Oct 12, 2010 1:56am
Quoting Gambler180
Here is a tough one that I don't know how to trade. As you can see the price first broke a previous support(now resistance) and according to my rules I should sell at the first vertical line when the candle closes below the support (now resistance). Then soon after the price touches a previous resistance (now support) and at the second vertical line when a candle closes above the resistance(now support) I should sell according to my rules. How would you trade this? Would you keep the short position open because it is in the direction of the main...
My opinion on your explanation :-
Current trade stick to the rules you entered with .

stop loss, when to move to break even, target profit.

new trade :-
Put horizontal line at current highs/ lows decide range trade or breakout .

breakout = put order few pips above below high low.
to get into the direction off the trend.
range look for entry at lows /highs with stops outside the range.

There are so many different ways to achieve the same goal its difficult to tell you what suits you .
making green pips large and red pips small this is my goal.
  • #20
  • Oct 12, 2010 2:37am Oct 12, 2010 2:37am
A down trend is a series of lower highs and lower lows..at least for the most part. I labeled each swing high. Price hasnt seemed to have done anything interesting, so I would have a buy order if price broke and closed above the recent swing high. Opposite for the short.

My stop would be below that swing low I marked, if I went long, but on the weekly, thats a pretty wide stop.
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