Support and resistance levels are one of the first things any aspiring trader learns. Although it might seem very basic, it’s actually one of those things most people tend to disregard as they learn more about fancy indicators and such, when in fact it should very much be at the forefront of their thoughts when trading.
By spotting support and resistance areas (or levels), you can define areas in which the market might be clustered, or where an asset might bounce and provide a change in overall trend. They are key areas to keep an eye on, and you should always be aware of where they are, how far they are, and how strong they are for any asset you’re actively trading.
Before we go any further, and into the strategy, let’s define exactly what support and resistance levels are.
A support level is an area around which the price of an asset stops decreasing and may either stall or bounce back up. For short, traders call it a support.
A resistance level is an area around which the price of an asset stops increasing and may either stall or bounce back down. For short, traders call it a resistance.
Drawing the levels
As a trader, it’s important to know where the price of an asset you’re looking at might react. To do so, you must first spot the resistance and support levels, and of course draw them.
This task might seem easy, but it actually requires some discipline. You can’t just pick any high or any low and decide that this is where the levels are. Instead, you need to spot areas where the price stopped and/or reversed multiple times in the past. These will be the strong support and resistance areas, and these are the levels you should be aware of.
One good trick to do this well is to simply zoom out on your charts. Zoom out and look which horizontal lines seem to have been hit and bounced off multiple times in the past. These are the ones!
Your binary trading strategy
Finally, we get to the good stuff. Building an entire strategy based solely on support and resistance can be tricky. The fact is that, while you might be great at spotting the lines, these are not as easy to trade from if you don’t have other indicators helping you out (or a tremendous amount of experience).
Still, here’s a simple trick you can do: when you see an asset approaching and hitting a support line, you should buy it. Chances are the asset will bounce off that line and give you a winning trade. The opposite is obviously true for when an asset reaches a resistance line. Simple sell the asset, and gather your winnings.
Again, keep in mind that it’s not as easy as it seems. Levels break all the time, this is actually what makes the market move so crazily from time to time. But if you time your trade well and rely on your experience, you could be making money from this simple binary trading strategy.