4 Ways to Leverage Support and Resistance for Optimal Trading

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What Are Support and Resistance?

Support and Resistance are not new concepts in stock trading, but they are tools that DLMvn always considers extremely useful and crucial for anyone who wants to succeed in this field. These price levels can help you determine the market trend, as well as the right entry and exit points for your trades.

When applying technical analysis, you will easily realize that support and resistance are not just simple price levels but an essential part of every trading strategy. So, what exactly are support and resistance?

Support is the price level at which, when the price falls, the buying pressure is strong enough to prevent the price from dropping further. It is the level where buyers see a “bargain” and increase their buying activity, causing the price to bounce back up. Resistance, on the other hand, is the opposite level, where sellers find the price high enough to decide to sell, preventing the price from going beyond this point.

4 Trading Strategies Using Support and Resistance

1. Range Trading

Range trading is a strategy that uses support and resistance levels to identify entry points. DLMvn often views this as an easy-to-apply strategy, but never underestimate its difficulty. When the price moves within a certain range between support and resistance, the goal is to buy at the support level and sell at the resistance level. Remember, this is a strategy mostly used when the market is range-bound, with no clear trend.

A small tip that DLMvn wants to share is that support and resistance levels are not always specific price points. Instead, they can be price zones, so you need to be flexible in defining your trading range.

Keep in mind, range trading also carries risks, as the price does not always bounce back at these levels. Therefore, you need to have a solid stop-loss strategy in place to avoid losing control if the price breaks through support or resistance levels.

2. Breakout Trading

When the price breaks through a support or resistance level, you should start paying attention to the possibility of a breakout to identify a new trend. However, not all breakouts are reliable. DLMvn finds that one of the mistakes many traders make is rushing into a trade immediately after the price breaks a support or resistance level without waiting for further confirmation.

To avoid falling into a false breakout trap, wait for a pullback before entering a trade. This will help you determine if the buying or selling pressure is strong enough to maintain the trend.

Imagine that in a breakout scenario, if you only rely on the price breaking through the support level and enter a trade without waiting for the market’s reaction, you could easily fall into a “fakeout,” and of course, this would not benefit your strategy.

3. Trading with Trendlines

Trading with trendlines is a familiar and highly effective strategy for using support and resistance. The method is simple: you just need to draw a line connecting the lows in an uptrend or the highs in a downtrend. The key point is that trendlines act as dynamic support or resistance levels.

DLMvn advises that in strong trends, entry points have a higher probability of success when you trade in the direction of the prevailing market trend. Therefore, only look for trading opportunities in the direction of the main trend to minimize risks.

4. Using Moving Averages as Support and Resistance

Moving averages (MA) can be used as dynamic support and resistance levels. MA 20, MA 50, and sometimes MA 100 or MA 200 are popular indicators that DLMvn always uses to assess whether the market will continue its trend or reverse.

In a strong trend, moving averages can act as dynamic support or resistance levels. For example, once the price breaks through MA 55, this level may turn into resistance. Later, if the market reverses, MA 55 will become support.

However, do not rely solely on one moving average, as these dynamic support and resistance levels can change under different market conditions. You need to practice to find the moving average setups that work best with your trading strategy.

Things to Remember When Using Support and Resistance

Support and resistance are not magical tools, but when used correctly, they can lead to highly effective trading strategies. However, you need to remember that prices will not always “respect” these levels. Therefore, combine them with appropriate risk management measures.

DLMvn emphasizes that trading strategies using support and resistance can be very effective if you know how to correctly identify price zones and apply suitable risk management methods. As long as you practice, learn, and gain experience, you will gradually realize their true power in trading.