Because here at BabyPips.com we want to make things easy to understand, we have divided how to trade support and resistance levels into two simple ideas: the Bounce and the Break.
As the name suggests, one method of trading support and resistance levels is right after the bounce.
Many retail forex traders make the error of setting their orders directly on support and resistance levels and then just waiting for their trade to materialize.
Sure, this may work at times but this kind of trading method assumes that a support or resistance level will hold without the price actually getting there yet.
You might be thinking, “Why don’t I just set an entry order right on the line? That way, I have assured you the best possible price.”
When playing the bounce, we want to tilt the odds in our favor and find some sort of confirmation that the support or resistance will hold.
For example, instead of simply buying right off the bat, we want to wait for it to bounce off support before entering.
If you’ve been looking to go short, you want to wait for it to bounce off resistance before entering.
By doing this, you avoid those moments where the price moves fast and breaks through support and resistance levels.
From experience, catching a falling knife when trading can get really bloody!