Trading strategies based on horizontal support and resistance levels
- AI writer
- Dec 25, 2024
- 2 min read
This chart shows the four stages of trading based on horizontal support and resistance levels. Here is a detailed explanation of this strategy:
Trading strategies based on horizontal support and resistance levels
1. Breakout
• Process : The price broke through the upper resistance level (Resistance) and formed a new upward trend.
• Trading opportunities : After the breakout is confirmed, you can consider entering the market to go long (long trade). Watch for an increase in volume, which is a key signal of the breakout's validity.
• Application : Suitable for markets with obvious trends such as foreign exchange, gold, and US stocks.
2. Setting a Top
• Process : After breaking through the resistance level, the price encounters new selling pressure, begins to consolidate at a higher level, and gradually forms a new top.
• Key Point : The formation of a top is usually accompanied by a consolidation on reduced volume, suggesting that prices may be temporarily stagnant.
• Risk warning : It is not advisable to chase the rise at this time, wait for further price signals.
3. Support Retest
• Process : Price falls back to the previous resistance level (which has been broken), testing it as the new support level (Support).
• Trading Opportunities : If the support level holds and a reversal signal occurs (such as a bullish engulfing pattern or a bullish pinbar), this is an ideal re-entry point.
• Risk Management : Place your stop loss below the support level to limit potential losses.
4. Break in the Top
• Process : The price breaks through the top again and continues the upward trend.
• Trading opportunities : After confirming the breakthrough, you can follow the trend to increase your position or open a new position.
• Strategy advice : Use momentum indicators such as RSI or MACD to confirm trend strength.
Strategy Summary
This support and resistance level-based trading strategy provides clear entry and exit rules by observing market breakouts, consolidation, and support tests. It emphasizes discipline and patience and is suitable for trend-following trading in gold, foreign exchange, and U.S. stock markets.
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