I
n principle, there are two main ways in which support and resistance can be traded.
The bounce
This is the situation where the trader waits for the price to bounce from the support or resistance line and then the trader enters the price rebound.
The two marked areas were valid signals as the price deviated from the support area.
The first pattern of reversal or indicator confirmation signal is an additional sign that the trade will be successful.
The basic premise is that the zone of resistance or support will hold and the market will actually turn around.
In this case, you prevent yourself from unexpected scenarios where the price break through the support and resistance levels, leaving you high and dry with a losing trade.
Breakout trade
There are two ways you can go in case of a breakout.
The aggressive way is when you are opening sales positions when the price breaks the support zone or buying in case of breaking the resistance zone. The strategy works effectively in market trends and it is not recommended to trade it on a flat market.
The opening of a position can take place at predetermined levels, after a breach of the channel levels.
You can choose how far from the channel border you want to place your order after a breakout.
A stop-loss order is placed inside the channel, more often in the middle of the channel, if it does not contradict your risk management strategy, or inside before the border of the broken channel.
The conservative way takes more patience.
After the price breaks out from the support or resistance level, the trader is waiting for the price to make a “pullback” and touch the channel border again and when the price bounces, he enters the market.
That is a great way to trade support and resistance zones. If enough withdrawals (selling and liquidation of losing positions) occur at the broken support level, the price will reverse and start falling again(i.e the price will return in the direction of the break).
This way the broken support level will become a resistance level.
REMEMBER: You have to be careful when you are opening trading positions on the go, because you could face a false breakout and this leads to losses.
