Support & Resistance Strategy For Trading Crypto

Trading Education #4

Strategy Based On Support & Resistance

Hey there, TraderSaan is here.
Today I am going to share one of my favourite Price Action(PA) Strategy based on Support and Resistance which is very effective for professional and successful PA Traders. Well, this is one kind of discreationary trading method. I will go through step by step process ( Entry, EXIT) of this strategy precisely.

I am actually a swing trader, meaning I hold my position for 2-3 days or more. So I usually trade at the timframe of 4 hour (H4), 1 hour(H1), or occasionally at 30 miniutes (M30). And one more thing is that I analyze the chart in tradingview and take trade in MT4 (for FOREX) and Binance ( for CRYPTO).

First of all what is Support & Resisance? Well, here is the link of my previous posts where I have discussed about Support and Resistance in details.
The Art & Science Of Support & Resistance. Support Or Demand Of Price Action Concept. Part 1

The Art & Science Of Support & Resistance. Resistance or Supply Of Price Action Concept. Part 2

BUY At Support & SELL At Resistance

This is one of the text book method that when the price comes at support zone, traders buy because they usually percieve this support zone as a demand zone which means demand comes to the market in that support zone, and when the price comes at the resistance zone, traders sell as they percieve this resistance zone as a supply zone which means supply comes to the market in that resistant zone.

But the problem is market really does not care about what text book says. And as a result, many times price breaks support and resistance and goes away. Suppose a scenario, you have bought a currency pair or crypto at support zone in an expectation and perception that market will go up, but in reality the price broke the support zone and went down. Then you have started thinking the support and resistance strategy is a bad one.

So how should we take trade with more odds!!
My approach, when it comes to support and resistance strategy, is that I always check fundamentals - not much, a little just to make bias. Look, fundamentals drive the market, so we should not avoid that part completely. There are some websites for crypto and currency market - fxstreet, reverr, dailyfx, bloomberg, reuters, investing . com etc. One should atleast give a little time of his/her trading hours to the fundamental sites of the particular thing he/she is going to trade.

Once you are done with fundamentals, then time to pay attention to the technical chart.
Suppose you are fundamentally bullish on Bitcoin, then you will look for only buy zone in the technical chart of Bitcoin, i.e., you will check wheather the Bitcoin price is in a suport or demand zone. But if the price is in resistance or supply zone, you should strictly show the patience till the price goes to the support zone.

In short, Bitcoin Fundamental is Bullish and Bitcoin price is at Support zone that implies you are going to BUY the bitcoin right away. And on the other side, If Bitcoin Fundamental is Bearish and Bitcoin price is at Resistance zone, you are going to SELL the Bitcoin right away.

So far we have learned how to make an approach to the market with this strategy. Now we will see our entry, stop loss, target profit level in this strategy.

Entry :
For BUY : Open a BUY position when the price has shown some kind of rejection in the support zone. Rejection means price cannot close below the support zone or candlestick pattern like DOJI.

For SELL : Open a SELL position when the price has shown some kind of rejection in the resistance zone.

Stop Loss :
For BUY : The stop loss of buy order should be at few ponts/pips below the support area.

For SELL : The stop loss of sell order should be at few points/pips below the resistance area.

Target Profit/ Take Profit :
For BUY : The target profit of buy order should be at the 75% of the range (the range is the distance between support and resistance). Suppose the range is about 100 ponts or pips, so one should set the TP for 75 points or pips above the support zone for BUY order.

For SELL : The target profit for sell order should be at the 75% of the range (the range is the distance between support and resistance). Suppose the range is about 100 ponts or pips, so one should set the TP for 75 points or pips above the resistance zone.

Time Frame : There is no specific time frame for this strategy. You can use this strategy at any time frame.

The images below are cherry picks for this strategy. Oberserve them very carefully.

Pair: Bitcoin vs US Dollar (BTCUSD)
Order Type: BUY
Entry: at 45500
Stop Loss : 45000 (just below the support zone, risking only 500 points)
Target Profit: at 50000 ( at the 75% of the range, here, support is at 45500 & resistance is at 51500, so the the range is of 6000 and the 75% of the range is 4500, so the TP is 45500+4500=5000, a simple math)
So I am risking only 500 points to get 5000 point, i.e., a healthy risk to reward ratio of 1:10

image source: tradingview, prepared by me

Pair: Bitcoin vs US Dollar (BTCUSD)
Order Type: SELL
Entry: at 45000
Stop Loss: at 46000(just above the resistance zone, risking only 1000points)
Target profit: at 38250 (at the 75% of the range, here, resistance is at 45k & support is at 36k, so the range is of 9k and the 75% of the range is 6750, so the tp is 45000-6750=38250, a simple math)
So I am risking only 1000 points to get 6750 points, i.e., a healthy risk to reward ratio of 1:6+

image source : tradingview, prepared by me

I always take a trade when my fundamental and technical analysis say the same thing. As follows:

Case I
Fundamental = buy, Tchnical = sell, that implies Not To Trade

Case II
Fundamental =sell, Technical = buy, that implies Not To Trade

Case III
Fundamental = buy, Technical = buy, that implies Jump In For Buying

Case IV
Fundamental = sell, Technical = sell, that implies Jump In For Selling

Disclaimer: This is not any financial advise or trading mantra. My purpose is to help traders to learn. This post is made for completely educational purpose. Hope it helps.

Thank you very much if you make it to the end. Happy trade.