Trading the Lines
Now that you know the basics, it's time to apply these basic but extremely useful technical tools in your trading. Because here we want to make things easy to understand, we have divided trading support and resistance levels into two simple ideas: the Bounce and the Break.
The Bounce
As the name suggests, one method of trading support and resistance levels is right after the bounce.
Many retail traders make the error of setting their orders directly on support and resistance levels and then just waiting to for their trade to materialize.
Sure, this may work at times but this kind of trading method assumes that a support or resistance level will hold without price actually getting there yet.
Sure, this may work at times but this kind of trading method assumes that a support or resistance level will hold without price actually getting there yet.
You might be thinking, "Why don't I just set an entry order right on the line? That way, I am assured the best possible price."
When playing the bounce we want to tilt the odds in our favor and find some sort of confirmation that the support or resistance will hold.
For example, Instead of simply buying or selling right off the bat, wait for it to bounce first before entering.
If you’ve been looking to go short, you want to wait for it bounce off resistance before entering.
By doing this, you avoid those moments where price moves fast and break through support and resistance levels. From experience, catching a falling knife can get really bloody...
For example, Instead of simply buying or selling right off the bat, wait for it to bounce first before entering.
If you’ve been looking to go short, you want to wait for it bounce off resistance before entering.
By doing this, you avoid those moments where price moves fast and break through support and resistance levels. From experience, catching a falling knife can get really bloody...
The Break
In a perfect world, support and resistance levels would hold forever, Nifty would be healthy, and we'd all have Sensex. In a perfect trading world, we could just jump in and out whenever price hits those major support and resistance levels and earn loads of money. The fact of the matter is that these levels break... often.
So, it's not enough to just play bounces. You should also know what to do whenever support and resistance levels give way! There are two ways to play breaks: the aggressive way or the conservative way.