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Strategy SUPPORT AND RESISTANCE TRADING STRATEGIES

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Mikemachuma31

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Range trading takes place in the space between the support and resistance as traders aim to buy at support and sell at resistance. Think of the area between support and resistance as being a room. Support is the floor and resistance the ceiling. Ranges tend to appear in sideways trading markets where there is no clear indication of a trend.

Pro Tip – Levels of support and resistance are not always perfect lines. Sometimes price will bounce off a particular area, rather than a perfect straight line.

Traders need to identify a trading range and therefore, need to identify areas of support and resistance. The area of support and resistance can be identified and is shown in the chart below:
When the market is range-bound, traders tend to look for long entries when price bounces off support and short entries when price bounces off resistance.

It is clear to see that price has not always respected the bounds of support and resistance which is why traders should consider setting stops below support when long, and above resistance when going short.

When price does break out of the defined range, this can either be due to a breakout or a false breakout, also known as a “fakeout”. It is essential to adopt sound risk management to limit downside risk when markets breakout of the trading range.
 

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