How to trade price action signals from support and resistance levels
Support and resistance levels are a price action trader’s ‘best friend’. When a price action entry signal forms at a key level of support or resistance, it can be a high-probability entry scenario. The key level gives you a ‘barrier’ to place your stop loss beyond and since it has a strong chance of being a turning point in the market, there’s usually a good risk reward ratio formed at key levels of support and resistance in a market.
The price action entry signal, such as a pin bar signal or other, provides us with some ‘confirmation’ that price may indeed move away from the key level of support or resistance.
In the example chart below, we see a key level of resistance and a bearish fakey strategy that formed at it. Since this fakey showed such aggressive reversal and a false-break of the key resistance, there was a high-probability that price would continue lower following the signal…
The next example chart shows us how to trade price action from a support level in an uptrend. Note that once we got a clear pin bar buy signal, actually two pin bar signals in this case, the uptrend was ready to resume and pushed significantly higher from the key support level.