Trade Plan: Support Resistance A few weeks ago we discuss how to spot good support and resistance lines on a chart. In this Blog we will now try to put this knowledge into a Trade Plan idea using some advanced order management techniques of scaling in and out of trades. Please also review the Supply and Demand Trade Plan, as it is simlar to this Trade Plan. You can find these links at the bottom of this Blog post.
Description: The idea of this Trade Plan is to catch the trade on a pull-back and continuation of the trade between two support and resistance (S/R) lines. We shall use the 1-hour time-series and the 200 moving average (MA). Please review the article on identifying support and resistance lines. The key is to ensure that the quality of these S/R lines is high. Obviously the higher the quality the better the trading results.
Trigger: The Trigger is the retrace amount from the positive side of the trade direction of the S/R lines to the negative trade direction side. The first entry is at the 50% retrace mark and the second entry is at the 75% retrace mark. One may consider to drop down to the 15-minute charts to find a Doji in the Trigger area.
Target: The Target shall have two exits. The first when the trade reaches the S/R line in the positive trade direction. The second exit will by 2 times the Pip amount of the first entry to its Target.
Stop: The Stop for both entries is at the violation of the S/R in the wrong trade direction.
Filter: Trade in the direction of the 200 MA of the 1-hour time-series.
Order Management: The suggestion is to use Buy/Sell limit orders to enter the trade. The PSR (Profit Stop Ratio) will vary depending on the second entry between 1 to 1 to 2 to 1.
You may want to play with the specific parameters to refine. One could consider this on the 4-hour time-series as well, though the Stop amounts will be higher and may not be suitable for your risk profile. You may also find fewer opportunities. The upside of trading the 4-hour time-series is that the S/R lines tend to be of higher quality. Give this Trade Plan a look and see if you can make it work and/or improve upon it.
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