By /// surefiretradingchallenge.com
Support & Resistance
Support and resistance levels also play an important role in my system because they can give me a clue of whether or not the price will continue moving in a certain direction.
I watch out for these areas for opportunities to enter reversal trades.
A level of support is the lowest maximum level that the price can reach. If price has reached the bottom, where it cannot move much lower, then it has hit a support level.
This happens because the security is deemed undervalued and sellers are no longer willing to sell.
A level of resistance is the maximum high level that price can reach. Price stops increasing because the security is overvalued and no buyer is willing to buy. Have a look at the image below for examples of support and resistance levels.
1. On the EUR/USD 5 Minute chart, wait for price to enter an area of interest, such as
previous support/resistance or round numbers.
2. Spot bullish divergence on the RSI and CCI with a line chart, or with an SMA 1 on a candle chart. Bullish divergence occurs when the price makes a lower low but the RSI or CCI makes a higher low.
3. From the recent low that shows divergence, wait for a bullish candle to close within
the next two bars.
4. Enter long (buy) on the close of the candle.
5. Set the stop loss below the swing low.
6. Set the take profit 1:1 based on the stop loss level.
Note: Don’t trade during news releases. There are no exceptions to the rules.