Strength in Support and Resistance: Mastering Trades on Market Bounces and Breakouts

Mastering Trades with Support and Resistance Levels

Support and resistance areconcepts related to supply and demand forces that move the price according tothe interests of most investors. They form the market structure and representprice zones of strong buying or selling pressure where the price tends tobounce. When these zones fail to support or resist, a breakout occurs, and theprice moves through that level.

Understanding these levels iscrucial to mastering trades in bounce or breakout movements. What do supportand resistance mean?

●    Support areas revealdemand forces in the form of clustered orders waiting to be activated as soonas the price reaches the area.

●    Resistance refers toareas where most of the market is willing to sell, increasing the supplypressure.

Volume is a highly importantindicator to measure how many orders were flowing at support or resistancelevels, which can give insights into how likely those levels can hold in thefuture. In this sense:

●    The higher thevolume at support, the more likely it is to hold and make the price bounce up.

●    In the case ofresistance, the higher the volume, the more probable it is to bounce the pricedown and hold that level.

Low volume at either level willsuggest a lack of strength and exposure to breakouts.

Check out also: Support and Resistance Trading Strategy: Identifying KeyLevels!

Mastering Bounce

A bounce occurs when the priceis rejected aggressively from an S/R level as a consequence of the strongdemand and supply staying on it. To trade bounce effectively, we can point outtwo methods: one for swing trading and one for day trading.

In the case of swing trading,traders can use the following methods:

●    Seizing arange-bound market to find easy support and resistance levels.

●    Establishing limitorders that will be activated automatically at areas where the price bouncednotably. Big engulfing candles are typical signs of strong pressure that canhelp identify those areas.

In the case of day trading,traders can use the following methods:

●    Looking for priceswings of previous trading sessions where the price action reactedaggressively.

●    Wait for the priceto reach that level and execute a trade. Such levels are typically reached formanipulation tactics or following a range expansion movement for a reversaltrade.

Mastering Breakouts

A breakout occurs when the pricegoes through an S/R level due to poor supply and demand in that area.

Typical breakouts can be spottedin

●    Trending marketswhen a trendline is broken.

●    Chart patterns likehead and shoulders or flags.

●    Range markets.

The are two methods to mastertrades during breakouts:

1. Trading the breakout immediately as it happens.

2. Waiting for the price to retest that zone to execute an entry. If the breakout occurs at a support, then that support will act as resistance, and the same case applies to resistance.

To master a breakout trade as ithappens can imply:

●    Measuring thestrength with indicators like RSI and Volume.

●    Constant monitoringand fast execution when establishing stop-loss or take-profit targets.

Source: Support and Resistance Trading Strategy: Trading Bouncesand Breakouts!

Conclusion

Support and resistance arecritical concepts to detect the areas where most of the orders are clusteredand such orders will affect the price path.