True frequent story: many amateur traders forget to use the simplest and still very effective strategy to trade, right after they learn more complicated things!
Complicated strategies, sophisticated indicators, complex trading signals etc... I don't argue they can be very good and profitable too, but why we forget the simplest which have confirmed over and over and is easier to learn and experience?
I am talking about Support and Resistance levels.
Supports are levels below the current price, which if price drops to them, market will face more demand (buying) that demand will impact the price (to rise, if the support is strong enough)
And every support which breaks, becomes a resistance level for next price meet.
This is a sample for support/resistance lines.
As you see in the image, the blue line was a resistance level till mid-June, but now it is perfectly supporting the price above. You can spot three attempts to break this support which all failed.
More times a support or resistance show strength against price changes, more credit they gain. but it doesn't mean they become stronger (wrong belief) they just get more credit to be known as a support/resistance.
Simply buy at a support level, take profit at the closest resistance and put a stop loss below the support.
How much below the support?
good question. it depends on your Risk to Reward ratio and wider to say, your money management rules. It is a very important issue which needs to be discussed separately, as I promised to keep this post Simple!
So I will write it in a different post soon, don't miss that :)
Thanks for reading.