How to trade effectively with Support and Resistance in Forex

After you’ve gained a solid understanding of the basics of support and resistance levels, it’s time to apply these useful technical tools to your real trading.

Here, we divide trading with support and resistance into two simple, easy-to-understand methods: The Bounce and The Break.

1. The Bounce

As the name suggests, this method involves trading immediately after the price “bounces” off a support or resistance level.

Many new traders often make the mistake of placing orders directly at support or resistance levels, then waiting for the price to hit their order.

While this sometimes works, this approach assumes that the support or resistance level will definitely hold—even before the price actually retests that level.

You might wonder: “Why not place an order right at the support/resistance line to get the best price?”

But in reality, to increase your probability of success, you should wait for a clear confirmation signal that the support or resistance level has held firm.

For example, instead of buying immediately at support, you should wait for the price to touch the level and bounce back up before entering a trade.

• Buy trade: Wait for the price to bounce up from the support level, then enter a buy order.
• Sell trade: Wait for the price to bounce down from the resistance level, then enter a sell order.

This method helps you avoid the risk of sudden price breaks through support/resistance levels. Experience shows that trying to catch tops or bottoms during high volatility can lead to major losses!

2. The Break

In an ideal world, support and resistance levels would always hold, politicians would always tell the truth, fast food would be healthy, and everyone would have their own personal rocket to commute to work.

In ideal forex trading, we’d simply enter and exit trades each time price touches key support or resistance levels, making profits easily.

But the truth is: support and resistance levels often get broken.

So, in addition to trading bounces, you also need to know what to do when price breaks through these levels!

There are two ways to trade the break: Aggressive Trading and Conservative Trading.

Aggressive Breakout Trading

The simplest way to trade a breakout is to place a buy or sell order as soon as the price breaks strongly through a key support or resistance zone.

The key word here is “strongly”—you should only enter when the price clearly and decisively breaks through the level.

Imagine that support/resistance level just got a powerful punch from Chuck Norris: price breaks through quickly and easily.

• Buy when price breaks strongly above resistance.
• Sell when price breaks strongly below support.

Conservative Breakout Trading

Let’s say you just entered a buy order on EUR/USD after a bounce from support, but then the support level breaks and your position starts losing.

What would you do?

A. Accept the loss and exit immediately.
B. Hold on and hope the price goes back up.

If you chose the second option, you’ll easily relate to the conservative trading method.

Remember: every time you close a long EUR/USD position, you are essentially executing a short position of the same size.

When many traders are forced to sell and cut losses at the broken support level, the price usually continues to fall sharply.

This is the main reason why a broken support level often becomes new resistance (and vice versa).

To take advantage of this phenomenon, you need patience:

• Instead of entering a trade as soon as the breakout happens, wait for a pullback to the support or resistance level that was just broken.
• Then, once the price starts bouncing back in the direction of the initial breakout, enter the trade.

Important Notes:

Keep in mind:

In forex, prices don’t always retest broken support or resistance levels. Sometimes, the price continues moving strongly in one direction and leaves you behind.

That’s why you must always use a Stop Loss order and never hold a trade based on hope alone.