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​Yes, Give it to me

Support and Resistance Trading Strategy — The Advanced Guide 

 September 1, 2016

By  Rayner

Last Updated on

The more times Support is tested, the stronger it becomes.

Support and Resistance are lines on your chart.

You should place your stop loss at Support and Resistance.

If you follow the “theories” above, it would cost you money in the long run. Because these are the biggest lies about Support and Resistance trading strategy.

And it’s not your fault because these are stuff that’s being taught in trading books and courses.

But don’t worry.

After reading this trading guide, you’ll never make these mistakes again.

Specifically, here’s what you’ll learn:

Are you ready?

Then let’s get started.

Truth #1: The more times Support or Resistance (SR) is tested, the weaker it becomes

First, let’s define Support and Resistance:

Support – Area on your chart with potential buying pressure

Resistance – Area on your chart with potential selling pressure

An example:


Now:

You’ve probably read trading books that say… the more times Support or Resistance is tested, the stronger it becomes.

But the truth is…

The more times Support or Resistance is tested, the weaker it becomes.

Here’s why…

The market reverses at Support because there is buying pressure to push the price higher. The buying pressure could be from Institutions, banks, or smart money that trades in large orders.

Imagine this:

If the market keeps re-testing Support, these orders will eventually be filled. And when all the orders are filled, who’s left to buy?

Here’s what I mean…

Support and resistance
Pro Tip:

Higher lows into Resistance usually result in a breakout (ascending triangle). Lower highs into Support usually results in a breakdown (descending triangle).

Let’s move on…

Truth #2: Support and Resistance are areas on your chart (and not lines)

This is a mistake I’m guilty of. Treating Support and Resistance (SR) as lines on my chart.

Why?

Because you’ll face these two problems:

  • Price “undershoot” and you miss the trade
  • Price “overshoot” and you assume SR is broken

Let me explain…

Price “undershoot” and you missed the trade

This occurs when the market comes close to your SR line, but not close enough.

Then, it reverses back into the opposite direction. And you miss the trade because you were waiting for the market to test your exact SR level.

An example:


Price “overshoot” and you assume SR is broken

This happens when the market breaks your SR level and you assume it’s broken.

Thus, you trade the breakout… but only to realize it’s a false breakout.


So, how do you solve these two problems?

Simple.

Treat Support and Resistance as areas on your chart, not lines.

Why SR are areas on your chart

Because of these two group of traders…

  1. Traders with the fear of missing out (FOMO)
  2. Traders who want to get the best possible price (Cheapo)

Let me explain:

Traders with the fear of missing out would enter their trades the moment price comes close to Support.

And if there’s enough buying pressure, the market would reverse at that location.

On the other hand, there are traders who want to get the best possible price, so they place orders at the low of Support. And if enough traders do it, the market will reverse near the lows of Support.

But here’s the thing:

You’ve no idea which group of traders will be in control. Whether it’s FOMO or Cheapo traders.

Thus, Support and Resistance are areas on your chart, not lines.

If you want to know my secret technique to drawing Support and Resistance, then check out this video:

Make sense?

Truth #3: Support and Resistance can be dynamic

What you’ve learned earlier is horizontal SR (where the areas are fixed).

But it can also change over time, otherwise known as, Dynamic Support and Resistance.

Now:

There are two ways to identify Dynamic SR.

You can use:

  1. Moving average
  2. Trendline

Let me explain…

How to use the moving average to identify dynamic SR

I use the 20 & 50 MA to identify my Dynamic SR.

Here’s an example:


However, it’s not the only way. You can use 100 or 200 MA, and it works fine.

Ultimately, you must find something that suits you (and not blindly follow another trader).

Trendline

These are diagonal lines on your chart to identify dynamic SR.

Here’s what I mean:


Pro Tip:

Treat Support and Resistance as areas on your chart (and not lines). This applies to both horizontal and dynamic SR.

Truth #4: Support and Resistance are the worst places to put your stop loss

I need not be an Einstein to guess where you’ll put your stops.

Below Support and above Resistance, right?

An example:


And why is this worst place to put your stops?

It gets hunted.


So… how do you avoid it?

Well, you can’t avoid it entirely.

But here are two things you can do…

  • Set your stop loss a distance from SR
  • Wait for the candle to close beyond SR

Let me explain…

Set your stop loss a distance from SR

You can do this by using the Average True Range (ATR) indicator.

Here’s how to do it in:

  1. Identify the low of Support
  2. Find the ATR value
  3. Take the low of support minus the ATR value

If you want to learn more, go watch this training video below:

Wait for the candle to close beyond SR

Here’s how it works…

You only exit your trade if price closes below the low of support or the high of the resistance.

Here’s what I mean:


And here’s something interesting… do you know the “real move” usually occurs after traders get stopped out of their trades?

And you can take advantage of this scenario by using a trading strategy I’ll share with you later.

But first…

Truth #5: Trading at Support or Resistance gives you favorable risk to reward

Big mistake traders make is this:

Entering trades when the price is far away from SR. This requires a large stop loss and offers you a poor risk to reward.

An example:


But if you let price come to you, then you’ll have a tighter stop loss, and this improves your risk to reward.

Here’s what I mean:


Remember…

Patience pays in trading. Stop chasing the markets and let price come to you.

Pro Tip:

Mark out your SR areas in advance. Then look for trading opportunities when the price has come to your levels. If the price is elsewhere, stay out.

Now…

If you want to learn more, go watch this training video below:

How to tell when Support or Resistance will break — so you don’t get “trapped”

The takeaway is this:

  • Support tends to break in a downtrend
  • Resistance tends to break in an uptrend
  • Support and Resistance tend to break when there’s buildup

Here’s why…

Resistance tends to break in an uptrend

Here’s a fact:

For an uptrend to continue, it has to consistently break new highs. Thus, shorting at resistance is a low probability trade.

Instead, going long at Support is a better trade.

Support tends to break in a downtrend

Likewise:

For a downtrend to continue, it has to consistently break new lows. Thus, going long at support isn’t a good idea.

But, going short at Resistance is a great idea.

Next…

Support and Resistance tend to break when there’s buildup

Consider this:

Support is an area with potential buying pressure. So, the price should move up quickly, right?

Now… what if price didn’t move up and instead, consolidates at Support?

What does it mean?

Recall the concept from Truth #1:

The more times Support or Resistance (SR) is tested, the weaker it becomes.

So it’s a sign of weakness as the bulls couldn’t push the price higher.

Perhaps there’s no buying pressure or, there’s strong selling pressure. Either way, it doesn’t look good for the bulls and Support is likely to break.

An example:


And the opposite for Resistance:

If you want to learn more, go watch this training video below:

Let’s move on…

A Support and Resistance trading strategy that lets you profit from losing traders

Here’s a fact:

Support and Resistance attracts a lot of attention from traders. There will be some looking to trade the reversal, and others looking to trade the breakout.

Since trading is a zero-sum game… for reversal traders to profit — breakout traders must lose.  And for breakout traders to profit —reversal traders must lose.

Do you understand?

Good.

Now… let’s learn a Support and Resistance trading strategy to profit from breakout traders.

Here’s what you need to do:

  1. Mark your areas of Support & Resistance (SR)
  2. Wait for a directional move into SR
  3. Wait for price rejection at SR
  4. Enter on the next candle with stop loss beyond the swing high/low
  5. Take profits at the swing high/low

Here’s what I mean…

1. Mark your areas of Support & Resistance

2. Wait for a directional move into SR

3. Wait for price rejection at SR

4. Enter on the next candle with stop loss beyond the swing high/low
Support and resistance
5. Take profits at the swing high/low

Support and Resistance trading strategy examples

Losing set-up at (GBP/NZD):

Winning set-up at (SOYBNUSD):

Winning set-up at (WTICOUSD):
Support and resistance

Now:

You must understand this trading strategy isn’t the “holy grail”. There are times you’ll lose to breakout traders — and at times, breakout traders will lose to you.

The only way you will survive in the long run is proper risk management. Thus, I suggest risking not more than 1% of your account on each trade.

Frequently asked questions

#1: How do we define how wide the Support and Resistance can be?

An objective way to do it is to use the Average True Range (ATR) value as a gauge. Here’s what I mean:

  1. Find out the current ATR value
  2. Add 1.5 (up to 2) times of that ATR value to your Support level

So that forms an area of Support (similarly for Resistance). You can use this method to gauge how wide Support and Resistance can be.

A more discretionary approach is to observe how the price behaves at the Support and Resistance area.

For instance, whether the price goes into Support briefly then get rejected or does it go deeply into Support then get rejected. I’ll take these two levels to form an area of Support and gauge how wide it should be.

#2: Is it important for price to break Support and Resistance with high volume?

Based on my research, I’ve discovered that volume doesn’t play a huge part in a breakout. So, the volume does not have a huge impact on whether a breakout is real or not.

#3: Hey Rayner, when you mention buildup, are you also referring to an accumulation?

Nope. A buildup is a tight consolidation where the candles are overlapping one another. It’s pretty difficult to identify Support and Resistance nor the swing high/low.

Whereas an accumulation is a range market, where its highs and lows can be easily identified and the market is swinging up and down within the range.

Conclusion

This is what you’ve learned today:

  • The more times Support and Resistance is tested, the weaker it becomes
  • Support and Resistance are areas on your chart (and not lines)
  • Support and Resistance can be identified using moving average
  • Don’t place your stop loss just below Support or above Resistance
  • Trading at Support and Resistance gives you favorable risk to reward
  • A Support and Resistance trading strategy

Now here’s a question for you…

How do you trade a Support and Resistance trading strategy?

Leave a comment below and let me know.

Do you want to learn a new trading strategy that allows you to profit in bull and bear markets?

In the Ultimate Guide to Trend Following, I will teach you this powerful trading strategy step by step, along with charts and examples.

You can download it here for FREE.

  • Hi Rayner!

    I enjoy your lessons but sometimes I don’t understand some parts of its. (Maybe it comes from my poor knowledge of english.) So I have a question connected to Support and Resistance trading strategy. In the screen of “3. Wait for price rejection at SR” – what you can find in the part of your article named A Support and Resistance trading strategy — that lets you profit from losing traders – we can see a build up at least I believed. I thought it is a sign to the price will go higher. Instead of the price went down. Why? It wasn’t a build up or it happened in sideways market?

    Thanks for your answer and keep up the good work

    Best Regards
    Gergely

    • Hi Gergely,

      Yes, there’s a slight buildup which failed as you can see price failed to breakout from it, only to close lower.

      Now, I don’t trade buildups in isolation. Always use these concepts in the context of the trend.

      Hope this helps!

    • Hi Rayner,
      Thanks for teaching people stuff that will improve their trading. What I have learnt from this article is worth more than what some people package as a training course. I really enjoyed it.

    • Hey, Hey!! What’s up my friend!! Haha. Hi Rayner, thanks for everything you do for all of us! Your a great guy! When I trade I use s&r. I first check and draw my sr lines on the weekly with a red line then daily lines with a blue line, then my 4 hour lines are orange and trade off of the line that gets the most touches before the open…….then I take the trade as close to the line as possible and set my stop beyond the line at no more than $200 risk and then I set my limit order to get out around the $250 sometimes $300 range and try to walk away and let the market go to work for me. I am just recently having some progress on ranging markets with this plan. I have found it to be very good for me when I set a profit target. I’m happy with $200 a,day for now but I want to keep improving. I know my risk to reward on this is out of wack. 2/1 is better but I just started to make a little money over the last few weeks and I like it!! Haha. I need to improve 1/1 will blow me out when I hit a losing streak again. I been trading for a year and 3 months and already blew up once with the help of a “veteran trader/broker” I’m doing it on my own now and your helping get alot!! Thanks again! God bless you and your family!!!

  • Thank You Rayner ,

    Its nice Study / guidance from you trading with support and resistance levels , i also studying W D Gann Methodology of trading for sup/Res with Sq of Nine table for trading any feed back on that pl guide me for becoming consistent trader.

    One again Thanking you

    Mandanna

  • Rayner,

    It’s a nice write-up about SR for sure. It would be fine if you share it in the form of PDF. Note that your views and info about trading is very helpful to the trader like.

    God bless you.

    Thanks………… Rony

  • Thanks rayner.
    Its good way to think SR as an area instead of lines.
    Now i will consider in the same as you told and will tell you the difference comes in my trading.

  • Hi Rayner,

    Great and helpful stuff you put up here. Thanks!

    Like to point out some “typo” below:

    The takeaway is this:

    Support tends to break in uptrend
    Resistance tends to break in downtrend

    If I am not wrong: it should be:

    Support tends to break in DOWNTREND
    Resistance tends to break in UPTREND

    Thanks again.

  • Thanks for the great article Rayner. This is incredibly educational information.

    I’m also glad to see you mentioned using ATR for placement of stop loses – that’s a tip that has really helped me improve my trading.

    Thanks again!

  • Thanks Rayner, through ur article and email….
    I learn a lot of thing about about market trend, candlestick, market overview, SNR and many more. Your lesson much simple and easy to understand for newbie such as i.
    Thanks for ur guide about 3 things we must have to be a consistent trader. Hope this lesson will be continuously for the future…..Thanks a million pips!

  • I am using upthrust and springs methods plus sma 20 and 50 sma during trending period. Quite similar to your idea in SR.

    Many thanks rayner.

  • Hi Sir,

    It was great information. Thank you so much.

    Can you please post about moving averages, RSI Levels and others also to find out better entry and exit points.

    Thanks Once again for such a great helpful information.

    • Hi Yong Liang,

      There’s no hard and fast rule here. Sometimes the SR can get pretty wide and sometimes it’s nice and tight.

      It’s discretion if you ask me.

  • Absolutely true! Support and resistance are not a single line. Your lessons are very easy to understand for those who’re keen learner and consider financial markets as serious business.
    Thanks you! Always excited to watch your every lesson.

  • Thank you again for an awesome article.
    My entry on S&R, I place a sell stop below the low of the rejected candle and wait for the price to continue with me on the next candle. My problem is panic, I seem not able to wait for a price to play out till the my TP or SL. I have to work on it though

    Thanks for the lessons Rayner

  • Hi Rayner,

    Got problem to suft your web, firefox browser says:

    “Secure Connection Failed

    An error occurred during a connection to el2.convertkit-mail.com. Peer’s Certificate has been revoked. Error code: SEC_ERROR_REVOKED_CERTIFICATE

    The page you are trying to view cannot be shown because the authenticity of the received data could not be verified.
    Please contact the website owners to inform them of this problem.

    Learn more…”

  • Hi Rayner,

    As a new comer for forex and loser this is good lessons for me. Thanks a lot. I am continuously reading your lessons. Thanks again.

  • Backtested Dynamic Stops against my closed positions. It would have added considerabley to my profits. In addition I could have used SR range as an opportunity to add on an up day and red flag (confirm) complete breakdowns.
    As always your tutorials are keepers!

  • I am a student of Price Action @ Support & Resistance. To us PA is the King, Queen and all in all in the market place. I begin by drawing my SR lines on the Bigboss(monthly)fine tune and add more on the Boss(weekly)fine tune and add more on the Worker(daily).I place my trades from the Worker depending on the direction given by the Boss and Bigboss. Then wait for PA on the SR’s drawn by looking for either bearish (Shooting Stars, Bearish Engulfing/Outside) or bullish candles(Hammer, Bullish Engulfing/Outside). Where this happens at a congruence of Fib, Trendlines or DSRI, it is a more probable trade. Thank you

  • Hi Rayner,

    Big thanks for your honesty. I find these each points in my analysis.

    Thanks again, good man.

    Rasik Talsania

  • in one of the blog, you have mentioned that one company has suffered a loss only a single day in the year which is that company, show me that blog. kindly reply.

  • Hey Rayner! You said that you must wait for the candle to close beyond the support or resistance levels to confirm a breakout but some examples here show the fact that price did close beyond the support and resistance area with consolidation even forming. Yet, after sometime fails and goes back to trade in the range. Can you please explain? I’m confused.

    Case in point: The successful failed breakout charts in the latter part of this post

    Best Regards 🙂

  • Hi Rayner,

    Thank you for your teachings .
    Your Pro Tips are very helpful .
    Your understanding of what is happening with price action and the possible scenarios that can result from it .

    Please, don’t stop putting up your You Tube Lessons.

    Regards Rodger

  • hi there

    thank you for your article… its pretty insightful (thank you). I have a question which might be two part. When one trades using support and resistance do we ignore trend direction and focus on the next swing low/high?

    how does one spot a change in direction and how would one trade it or do we look at break out and let price determine… I think I have FOMO and would like to enter as soon as possible which sometimes doesn’t really work out.

  • Great and helpful stuff you put up here. Thanks!
    I have been having issues with this strategy because i am always stopped out of the trade which has been giving me headache and made me start researching again till i came across this post ……i will put everything you taught into practice and share my success with you, i hope this solve all the problem . THANKS AGAIN.

  • Awesome post. I have learned a lot about SR. this is what I needed to understand before practice trading. Thanks for all your help and support.

  • Hi Rayner
    I have two comments please.
    I have noticed that you didn’t mention volume at all, don’t you think to break a SR we need high volume?
    Is there an indicator that can draw SR? Or does it always have to be done manually by the trader?
    Thank you

  • Hi my name is Mhlonipheni from South Africa I wait for bullish engulfing candle to form at support area and enter long at the break of the high of the engulfing candle stop loss 80 pips below support level.and trail my stop loss each time a second candle closes.For bearish I do the opposite (daily time frame)

  • Hey Rayner,

    For Truth #1: The more times Support or Resistance (SR) is tested, the weaker it becomes.

    However, fundamentally how we draw SR lines or trendlines, where maximum points (of swing highs/lows) get connected. Doesn’t it imply that if we draw SR lines or trendlines having maximum points, can be said as more times SR tested and that SR line or trendlines are weaker ones?

  • My experience tells me that the probability of multi-tests of SR levels leading to break-outs increases by dint of the frequency of the tests relative to the time-intervals between them; i.a.w., if the intervals appear on long term SR levels (W/D Frames) exceeding visibly the normal volatility of touches typical for an instrument then the holding power of a SR level seems to be stronger.
    Cheers
    Joerg

  • Hi Rayner, i Read Your This artical.. it helps me alot.. lots of love and respect for you.. and lots of prays for you my dear..
    regard
    bilal from kashmir, pakistan

  • Hi Rayner! Thank you so much for sharing all the valuable content, which btw is like a gold mine to us beginners! I’ve learnt quite a lot from your videos and articles and they are superb.

    I do have a small doubt.. “Enter on the next candle with stop loss beyond the swing high/low” …what is meant by swing high/low here?

  • hi Rayner, is there 1 ATR or 2 ATR +/- Resistance/support or 1% of capital used or some beyond swing high/low, as stoploss, little confused, please reply…

    • The reason you’re confused is because you’re looking for something definite.

      Think about concepts behind WHY I’m doing it and you’d realize the parameters isn’t important, the concept is.

  • You are always rocking.
    Help society to make wealthy.
    Great person in the world.
    I promise my self , will learn and trade always as you taught.

    Will surely help yo avoid FOMO

  • What is the most suitable timeframe to look for if the style of trading are as below:-
    1. Between 3hrs to 6hrs
    2. Between 6hrs to 12 hrs
    3. Between 12 hrs to a day
    4. Between a day to 3 days
    5. Between 3 days to a week

    The timeframe is very important in order to identify suitable areas of support/resistance and subsequently for a proper SL and TP.

  • Hi Rayner,

    I like your salutation everything you about to start a session. Hahaha! I just started this month learning how to trade. I only have 1month and using demo accounts. I have been paing people to teach me but this clear info you provid from your youtube platform is great.
    Thanks alot, you my mentor as from now on. My goal is to buy house by December 2019.
    One question before I go, how do I size the area of SR since you said we should treat it as area instead of a line.

    Thank you,
    Lunga

  • Hi Rayner!

    Thank you for the material provided. I can identify the trend and use EMAs to help me trade with the trend. I do understand that you sell resistance in a downtrend and buy support in an uptrend. My only problem was the idea of what support and resistance looks like and how to apply it as well as confirms. The struggle was in applying the concepts as well as knowing what happens if prices reaches that area. I do understand that you look for rejection in a downtrend and look where price is finding support in an uptrend but with all this information I just don’t seem to get it right.

  • New to forex business hence the terms are still strange to me. I believe with constant study I will get over it. Thanks for words of wisdom and simple teaching method.

  • Your teaching is laudable and commendable. Easy to understand and to comprehend with example to reveal the real picture of how the market works. I have suffered a lot of loses before encountering your books. Now, I will have to source for capital and go back to trading and begin to put to practise all what I have learnt from your book. You shall hear good news from me soon. Thank you so much for not keeping this knowledge to yourself alone.

  • Excellent support and best method of trading you are explained here.
    Requesting kindly share support and Resistance downloadable PDF format kindly share it here please
    Thanking you

    Rajalakshmi

  • Hi Rayner
    It was really help full your lessons to understand the market SR levels, and thanks for that and I also want to know about fibanacci retracement and extension please can you explain brief about that ……..

  • […] Trend and Range: The Best Trading Strategy for Trading Trend and Range 5 Ways To Identify The Direction Of The Trend Everything You Need to Know About Trading With Trend Lines Support and resistance mistakes How to Trade Without Indicators Support and Resistance Trading Strategy – The Advanced Guide […]

  • Hi Rayner,

    That was a great blog on SR. You keep us educating and we are proud to be with you.

    I would love to clear my thoughts with you.

    Instead of keeping stop loss above or below SR, can we make it as an entry points.

    Suggest your views on this.

    Thanks,
    Saran

  • The charts you show in your lessons what time frames are they and what time frames do you recommend under different trading scenarios and why?

  • Mr Rayner. Thank you for all these insight. Though I’m new to forex and I have decided to go into trading. I believe some of your video will guide me through. I’m yet to understand some terminologies. I hope that the book I downloaded will also help. Thank you very much for your help to humanities.
    from Micheal Atoyebi

  • Thank u Rayner, I can now successfully trade the support and resistance strategy.
    But I have a question how can I draw sr lines in mt4 when using a mobile device….is it possible or it can only be done on a computer….. thanks again
    Waiting for your reply

  • Your strategies are really good I am enjoying each and every one of the videos -really doing a good job keep it up….

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