Forex trading really provides an opportunity to anyone, including newbies to learn, to make big profits with minimal capital. Already many facts mention that some people have achieved financial freedom from forex business. But it cannot be denied also that 90% beginner traders went bankrupt because they cannot master the science.
You have learned the basics of technical analysis from support, resistance, trend line, and channel. Now, you will learn strategies to seize market opportunities based on the basics of technical analysis. Before we continue, remember that basically trend line and a channel is also support and resistance. At the downtime, trend line serves as resistance. Conversely, at the uptrend, the trend line serves as the support. For more information, please visit trading tools
There are basically two strategies that you can apply based on support and resistance. The first is called “bounce trading”, the second is called “breakout trading”.
This trading method utilizes the “reflection” of the price when the price has reached support or resistance and bounces from there. The illustration below will explain what is meant by this bounce trading.
Essentially you are waiting for a bounce from the support or resistance area to trade. In the trading world, support and resistance will not last forever. At some point, these levels will surely break. At such times you can still try to look for opportunities with a strategy called breakout trading. This breakout trading strategy is one hundred percent different from bounce trading. If on bounce trading you are waiting for a bounce to buy or sell, on your breakout strategy instead utilizing a break of support and resistance with the assumption that a break of the support or resistance tends to be followed by a rally.
The illustration below illustrates the breakout trading strategy by utilizing a break of support or resistance.
A support or resistance is considered to be translucent if it meets at least one of two things:
- If you use candlestick chart, then the body of the candlestick should cut/penetrate the support or resistance line.
- In the event of a breakout, an increase in volume. The more significant the increase, the breakout is considered more valid. Regarding this volume, we will be on another occasion. that was an aggressive breakout trading strategy. But there are traders who choose to wait for further confirmation.
This non-aggressive group of traders applies a rather conservative breakout strategy. To make it easier, let’s call it a conservative breakout strategy.
This conservative breakout strategy actually combines breakout and bounce trading strategies. When the breakout is confirmed, you do not immediately take a buy or sell position like an aggressive breakout strategy, but you wait for a pullback back to the support or resistance area. After a pullback occurs, you wait for another reflection from the support or resistance level. Only then do you buy or sell transactions? so you can more easily understand the above exposure, we have prepared illustrations to illustrate this strategy.
Both aggressive and conservative breakout strategies have their own advantages and disadvantages. If you use an aggressive breakout strategy, the advantage you get is that you can immediately enter the entry and will not miss the “moment”. But of course, this strategy has weaknesses. Suppose you have to sell immediately when the support breaks, but the price goes up again and back above the support earlier.
Every trader has different styles. You can decide whether you will be the Aggressive or the Conservative. For those of you who are patient, conservative strategies may be appropriate for you to apply. But if you are a nimble person and love a challenge, it may be more appropriate to use aggressive strategies. Our education team will be able to help you choose the strategy that suits your personality.