How to properly trade bounce off support and resistance? When it is a good time to open a position when not.
After we got acquainted in detail what support and resistance are
– we looked at a few examples of where and how they are formed
– why they are so important.
– how we can determine our take profit when using it.
– how to combine them with trend lines.
– where support and resistance has been broken, and how to take advantage of this price break
– how the support and resistance help us determine the trend.
It’s time to look at bounce from a key area (resistance and support).
We call it a zone because the support and resistance are always different from the previous one.
But in the following examples, we will look in detail at what we mean.
Bounce of Resistance
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On the image above you can see we are on the EUR/JPY 4 hour chart. We marked the resistance zone with yellow. We have two previous highs that are not broken, and then we have this third high that is bouncing of this level.
As mentioned in previous articles, the more a level has been tested, the more reliable it is.
Opening a Position
After the price has pushed away from the resistance zone for the third time, we have opened a sell position. We have a very good candle with a small body and a large tail that bounces off the zone. It is because of these indications that we have opened a sell of EUR JPY.
Here is how our signal developed.
A little later, our open position is already in profit. Our position has both take profit and stop lever, which is currently moved to plus so that we can guarantee a certain profit if the price makes a sharp movement in the opposite direction.
Here there are several ways to manage the position:
1-Opening a position, we put a take profit, and a stop level and wait for the position to reach the take profit or hit the stop level.
2- Opening a position, we put a take profit and stop level and lurk it when the price of the instrument goes to profit, we move the stop level to plus. This way we guarantee a certain profit (if the price returns sharply, it will go to our stop, and will close the position of a certain profit).
3- We open a position, we put a stop loss and take profit, when the price goes into profit we can close a certain percentage of the position and let the other half develop if we are sure in our analysis.
4 – We open a position, determine to what price we will keep it at a loss, and determine to what price we will keep it at a profit, and monitor it.
How you will manage your position, you have to decide for yourself. In forex trading, you have to make some decisions for yourself.
And here comes the time when we decide to close our position and collect the profit.
As we can see in the image above, we moved the stop level even lower before closing the position.
The advice we can give you always guarantees a certain profit, this way you can stay calm in front of the charts.
The time has come to look at a similar example, but this time with support.
This time we are on the currency pair EUR USD on a 4-hour chart. We can see how the price does not have the strength to break the previous lows and this is where we draw a support zone. This support has been tested several times, which means that it is reliable.
Remember that the more times a zone (level) is tested, the more reliable it is.
We see that after we have correctly drawn our support zone, we have opened a Buy position of the currency pair EUR/USD. We have put the stop loss of the position at the end of the level, in general, it is good to put it a little further down, outside this zone, but we have judged so. The take profit of the position is at 1.1935.
As you can see, we trade 1 to 3, take profit, stop loss. But this does not mean that we will keep each position open right next to the take profit, everyone decides for himself.
Here is how our position has developed, we opened only based on the support level. We see that the price has risen and we are already at a profit, but we can also see that we have moved the stop level to a plus. We have mentioned in our other articles and videos that we like to guarantee a certain profit by doing that.
Guaranteed profit from the opening price and the price of the moving stop plus.
How to determine the take profit with support and resistance?
In the image above we have marked the previous high with orange color. We deliberately marked it in orange because you can actually close the whole position, or one part of the position, and let the other developers.
But since we have already secured a certain profit, we intend to let the position develop to the take profit.
So we think in this article we were able to answer the following questions:
Do support and resistance really work?
How to find support and resistance?
How are support and resistance drawn?
How to determine the take profit?
Where to stop in case of support and resistance?