Support level is the bottom line that determines the level where price is expected to bounce back up after falling. The strength of each support level depends on how many touches the price has done and bounced back. A good support may have at least two or more touches to the level. See the picture:
Resistance level is the top line that determines the level where price is expected to bounce back down after rising. The strength of each resistance level depends on how many touches the price has done and bounced back. A good resistance may have at least two or more touches to the level. See the picture:
Note: the support/resistance levels at the higher time frames always have more weight (strength) than the counterparts at the current or lower time frames. That's why professional traders always go to draw the support/resistance levels at the higher time frames first before they actually find the entry points at their current time frame.
Now you know how to draw the support/resistance levels. What's next?
We then need to observe the price when it reaches those levels. We want to find out if the price is going to break through the levels or bounce back. To easily trade the support/resistance levels, here I will show just how to trade the price bouncing back.
So we are going to add one more indicator to identify overbought/oversold conditions. Overbought level means the level at which the price is rising to an extreme point by which the price is expected to move back down. Oversold level means the level at which the price is falling to an extreme bottom level by which the price is expected to move up.
In this case we will add Stochastic Oscillator to the chart with default setting. We can use other indicators to identify overbought/oversold conditions but they work the same.
When the price moves to touch a support/resistance level, we need to wait for what the price is doing (to break through or to bounce back). Remember we trade bounce-back only. We also have the method to trade break-out but I will show you in the next post.
Then we look at Stochastic Oscillator. We can confirm the overbought/oversold conditions only the stochastic oscillator is in the over 80 zone (overbought) and under 20 zone (oversold). So now we have two confirmed indications. We need to wait for one more confirmation.
This last confirmation requires your knowledge of reversal candlestick patterns. There are many patterns to learn. You can search on Google about them but engulfing reversal pattern is the most powerful one. However, we can see on our naked eyes when the price should fall back or rise back when it reaches certain levels.
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Bullish Reversal Patterns[/caption][caption id="" align="alignnone" width="1210"]
Bearish Reversal Patterns[/caption]In Summary
To trade support/resistance, you need to have three different confirmations according to my explained system above.
- The price has touched strong support/resistance levels.
- Stochastic Oscillator shows that the price is being in the overbought/oversold conditions.
- We look for the reversal candlestick patterns to form their clear shapes.
- Enter the trade.
If you need suggestions on how to set stoploss level and take profit level, please comment below. If you need to know what expiration is suitable for binary options trading, please comment below too. I hope you have learnt a sweet system from me today. Practice will make you understand it even better.
Example trades
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| 4 Hour Time Frame, Resistance level from D1 Time Frame |
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| 4 Hour Time Frame, Support Level from D1 Time Frame |
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