教育

Learn Support Bounce- For Swing Trading

已更新

Simply speaking a support is a zone where demand overcomes supply. There are more buy orders than the sell orders at this level, which could force the bids to go higher and hence the stock can rally.

I would like to discuss one of the efficient ways to trade support levels. This is not the only way and may not be the perfect one but still with good success rate.

There are a few simple points that needs to be followed.

🚀Step 1
There should be a support level from where the stock bounced significantly. Draw a horizontal line from the lowest point of the support.

🚀Step 2
Let the price pullback to this support zone and create a green candle. It could be a pin bar with long wick at the bottom or a full green candle that closes above support.

The setup may develop either at or near the support OR after the price breaks through the support and then fakes the break. Both ways we need a green candle above the support zone.

🚀Step 3
Buy few ticks above the high of the pin bar or full bar with stop loss few ticks below these candles.
Buying at the close of those bullish candles is another method to further reduce the risk (SL) but the first method will keep you from some awkward positions.

🚀Step 4
Here we are not looking for reversals. We are looking for 50% target of the previous down wave.

⚡Tip1:
Now we know the target and stop loss, before entering the trade please confirm that reward is 2 times, or more than the risk involved.

Ex if SL is 10 points, then target should be at least 20 points. So, the down wave must be more than 40 points.

⚡Tip2:
Once trade starts moving in your direction, keep trailing to bring your stop to breakeven or lock some profit on partial position if your like.

I will post some examples in the update section. One is right there on the SBI chart shown above. Two support zones and 3 buying opportunities that worked.

Keep boosting for more educational ideas in future.

Disclaimer: Examples shown in the idea are not an investment or trading advice. Apply your due diligence and backtest the strategy for good results.

註釋

This one doesn't qualify as SL was too much compared to 50% retracement.

註釋

This one failed

註釋

There is one last tip:
If the price breaks support and closes below it, then think of buying only if it closes back above the support (faking breakdown) within the next two candles. Also, in this case stoploss could go wide or the trade could not qualify for good potential risk-reward. Compulsive trades should be avoided at all costs.
Example:

註釋

The strategy works best when it is applied in an uptrend. As in this example the stock is in a strong uptrend (see monthly chart on left) and it pulled back to a support (see daily chart on right), giving a nice trade setup.

註釋

A question may arise in your mind that whether reaction from resistance areas work in the same manner as bounce from support areas?

In answer to this question👇

Support bounce and resistance reactions happen after the retest of those areas. Price gets attracted to the S/R area and tests demand and supply.

The price will test R in the same manner as it tests an S area. So technically yes, reaction from resistance works in the same manner.

But there is a difference. The bearish phase of the market is generally associated with sharp reaction due to fear and panic among traders during this phase. So, in many cases you will notice on the chart that price tends to fall vertically without pulling back up much. This way it gives fewer selling opportunities than in case of support bounce. Other than this difference, S/R play is the same.