Support and Resistance Trading Strategy for Passive Profits
The market is a lot like a massive building.
When you are walking in the hallway on any floor you aren’t worried that you will suddenly fall through. You feel like you are being supported.
And if you jump, you are likely to touch the ceiling but you don’t expect to smash through it. You are feeling the resistance.
But what if you did fall through the floor or break through resistance?
You’d wind up on another “level” and be on a different floor with its own support and resistance.
Now let’s ditch the silly concept and look at the market and how to use this support and resistance trading strategy.
But always remember, the market can always move up or down a floor if supports or resistances break.
Support and Resistance Trading Strategy – My Favorite Tools
In technical analysis there are a lot of tools you can use to find where there will be support in the market.
My favorite tools for the support and resistance trading strategy are:
- Volume profiles (click here to read another of my favorite swing trading strategies using volume profiles)
- Horizontal lines that connect highs or lows
- Simple and exponential moving averages
- Fibonacci (learn about Fibonacci trading here)
- Market delta, sell imbalances and order flow
All of these tools are explained in depth in our swing trader package here.
Support and Resistance Trading Strategy – How to Find Support Levels
The idea of finding a good support in the market is the same as it is in real life.
Would you feel safer walking across a tight rope or a concrete sidewalk?
Obviously the latter, because concrete is a sturdy support.
When you’re looking to setup a trade with the support and resistance trading strategy you are looking for as many confirmations as possible.
TRADING RULE: The best support is the one that has the most tools confirming it.
I like to find at least 3 different criteria to qualify a support swing trade.
Here is a trading level that we sent our Swing Trader subscribers for a long opportunity in the “green buying zone”.
The support levels are:
- The volume profile on the left (in gray) – this indicates a lot of activity occurred at this price and institutional buyers are likely to resume buying if price tests this level again
- The 38.2% Fibonacci level was hit and price stopped dropping (blue line horizontally)
- The green box is near the top of the 5 day volume profile (on the right)
Overall this would be an excellent long opportunity as we have at least 3 different tools confirming this support level, making it very “concrete” to walk across.
Now you might be wondering, isn’t this too simple to “work”?
No. In fact, the most simple strategies perform the best. The more complicated the system and setup you are looking for the less confidence you have in the most critical part of your strategy. You.
Here is how this long opportunity in our support and resistance trading strategy would have played out.
As you can see the market moved over 10 points from this level. If you had just bought 1 contract (which takes just a $500 account size) you would have made over $500 USD profit! In one day.
That’s the beauty of finding concrete supports and trading off them.
Support and Resistance Trading Strategy – Where to Place Stop Losses
Trading is very counter-intuitive.
Most new traders think it’s all about making as much money as possible. In fact, the most successful traders focus entirely on losing as little money as possible and keeping as much as possible when they do make it.
This skill is called risk management and it is very important to develop.
In the support and resistance trading strategy, you want to set a level at which you will exit your trade at a loss.
I know that no one trades to lose, but you have to lose to trade.
So it’s best to know before it happens rather than wait for it to happen and emotions to kick in.
So where do you place your stop loss?
The same way I use my favorite tools to qualify a trade, I use this list to disqualify also.
If I see price action break below my “concrete” support (floor), then clearly the price is going to drop down to the next floor of the condo building.
This means I want to sell below the support and wait for the next support below to try the trade long once again.
Support and Resistance Trading Strategy – Conclusion
When you are starting out trading, it is very important to make sure to keep things simple.
You need to look at the right information in a group of the right people.
In our Swing Trader package we provide you weekly support and resistance levels on equities, gold, oil and more.
From there it is up to you to select the best opportunities and practice your risk management techniques taught in our course.
Often time when traders have to hand pick their trade, manage the trade, manage the risk, manage their emotions and so on – they get overwhelmed and fail.
This is why we provide our subscribers with a weekly newsletter full of trade ideas, and daily updates to keep them up to speed throughout the week. We take a lot of the grunt work off your to-do list so you can focus on executing trades.
We invite you to join our family of TRADEPROs and learn the support and resistance trading strategy in full. You will have access to all the tools to create your dream life while trading only a few hours a week.
I hope you’ve learned about a new way to look at the markets.
Let us know how this support and resistance trading strategy works for you, or if you have any questions post them below.
I love helping traders like you reach their ultimate goals of financial freedom.
Good luck and good trading.
The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.