How to identify trades using Support and Resistance
Updated
Hey TradingViewers!
How's it all going!
In my previous post called When Support becomes Resistance, and Resistance becomes Support we identified where to place support, resistance and trend lines.
Following on from this, we're going to identify where the best places are to execute a trade. This post will identify trade setups, as well as the reason we're going to execute these trades where we are. This is the most important thing to remember, you should always have a reason and supporting arguments as to why you're opening a trade. Opening a trade without having supporting arguments is like driving a car for the first time, you can probably do it, and you *might* be fine, but it's dangerous. Additionally, if you start your analysis with the reasons why you're executing a trade, you begin a cycle of thinking before you trade. It stops any rash decisions, as well as giving you the opportunity to review trades that may not have gone your way. For example, perhaps your stop loss was too tight, or you bought at support, which was very close to resistance. If you're trading without any specific reason, you can't reflect and say i did this because of X.
So let's get to the chart. I'm using the exact same chart as my Support becomes Resistance, and Resistance becomes Support tutorial. As you can see I have placed either a tick, cross or "-" sign at specific entry points. On the chart, i have found 5 possible trade setups, these are identified using the tick and "-". The crosses indicate areas i would not place a trade. Let's go through these one by one, starting at the letter a.
There are two "-" signs identified on this chart, at "a" and at "d". These are valid trades, although they carry a higher level of risk than those with a tick, hence why i've made them separate entries.
Trade Setup "a"
I would consider a SHORT at "a" because of the following reasons:
I would not consider a SHORT at "a" because of this one very reason:
Trade Setup "b"
I like b for many reasons, and this is why there is a tick. Those reasons are:
At "b" the price is currently under:
For these reasons, i would place a SHORT at "b".
Trade Setup "c"
Similarily to Trade Setup "b", "c" has all the exact reasons i would place a SHORT . These are:
For these reasons, i would place a SHORT at "c".
Trade Setup "d"
So this is the first of our LONG trade opportunities. As with "a", this is labelled with a "-". This is again because it carries a higher level of risk.
I would consider a LONG at "d" because of the following reasons:
Trade Setup "e"
As with Trade Setup "b", there is a lot of things to like about a LONG position at Trade Setup "e". These are:
For these reasons, i would place a LONG at "e".
I hope that has helped clarify where i place trades where i do, and most importantly the reasons i do. So now we've identified areas we like, and the reasons behind them, let's look at where to place the order, stop loss and take profits in the link below named "How and where to place Orders, Stop Losses and Take Profits"
How's it all going!
In my previous post called When Support becomes Resistance, and Resistance becomes Support we identified where to place support, resistance and trend lines.
Following on from this, we're going to identify where the best places are to execute a trade. This post will identify trade setups, as well as the reason we're going to execute these trades where we are. This is the most important thing to remember, you should always have a reason and supporting arguments as to why you're opening a trade. Opening a trade without having supporting arguments is like driving a car for the first time, you can probably do it, and you *might* be fine, but it's dangerous. Additionally, if you start your analysis with the reasons why you're executing a trade, you begin a cycle of thinking before you trade. It stops any rash decisions, as well as giving you the opportunity to review trades that may not have gone your way. For example, perhaps your stop loss was too tight, or you bought at support, which was very close to resistance. If you're trading without any specific reason, you can't reflect and say i did this because of X.
So let's get to the chart. I'm using the exact same chart as my Support becomes Resistance, and Resistance becomes Support tutorial. As you can see I have placed either a tick, cross or "-" sign at specific entry points. On the chart, i have found 5 possible trade setups, these are identified using the tick and "-". The crosses indicate areas i would not place a trade. Let's go through these one by one, starting at the letter a.
There are two "-" signs identified on this chart, at "a" and at "d". These are valid trades, although they carry a higher level of risk than those with a tick, hence why i've made them separate entries.
Trade Setup "a"
I would consider a SHORT at "a" because of the following reasons:
- It was quite significantly rejected from Line 0
- The counter move from Line 2 wasn't able to surpass Line 0 and didn't create a higher high
- Constant rejection from the Line 1 downtrend line
I would not consider a SHORT at "a" because of this one very reason:
- The Line 2 support could have held and pushed the price above Line 0 and reverse the trend.
Trade Setup "b"
I like b for many reasons, and this is why there is a tick. Those reasons are:
At "b" the price is currently under:
- Line 0 - Top Level Resistance
- Line 1 - Downward Trend line Resistance
- Line 2 - Secondary Resistance
- As well as being under each of the resistance areas, you can see it tried to push itself past line 2 (which was support), and failed. As we recognised from "When Support becomes Resistance, and Resistance becomes Support", the level which was once support is now resistance.
For these reasons, i would place a SHORT at "b".
Trade Setup "c"
Similarily to Trade Setup "b", "c" has all the exact reasons i would place a SHORT . These are:
- Line 0 - Top Level Resistance
- Line 1 - Downward Trend line Resistance
- Line 2 - Secondary Resistance
- Although now, it's under the Line 3 Support turned Resistance. Another reason why a SHORT is viable here.
For these reasons, i would place a SHORT at "c".
Trade Setup "d"
So this is the first of our LONG trade opportunities. As with "a", this is labelled with a "-". This is again because it carries a higher level of risk.
I would consider a LONG at "d" because of the following reasons:
- Line 4 Is an upward trending line which has been tested and has moved significantly counter to the current trend each time it has been visited.
- Line 1 has now been breached and is acting as Support, signalling that the price is not going to continue downwards.
I would not consider a LONG at "d" because of this one very reason: - It is under all of the remaining resistances in Line 0, Line 2 and Line 3.
Trade Setup "e"
As with Trade Setup "b", there is a lot of things to like about a LONG position at Trade Setup "e". These are:
- Line 4 is acting as support, being tested multiple times and each time, has moved significantly counter to the current trend
- Line 1 is no longer acting as resistance, and therefore is support
- Price has pushed past line 3 and is resistance turned support.
For these reasons, i would place a LONG at "e".
I hope that has helped clarify where i place trades where i do, and most importantly the reasons i do. So now we've identified areas we like, and the reasons behind them, let's look at where to place the order, stop loss and take profits in the link below named "How and where to place Orders, Stop Losses and Take Profits"
Note
If you like my TA and want to see more, you can donate a coffee @ ko-fi.com/for_the_manyThanks, as Always
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