1. Ways to use support and resistance
Price zones at support/resistance can be used by you to:
Search for entry points
Look for take profit points
Set stop loss
2. Specific usage
To use support/resistance effectively, first, you need to identify the trend and follow the trend. You can take the time to review the article about identifying trends in trading here.
After determining the trend in a large time frame, you can draw important support/resistance points from which to wait for beautiful entries.
My example:
In this picture, ATOM has created an uptrend in the 4H frame. At this time, we can follow the 4H trend by waiting for the price to return to two important support zones (blue).
Why are those two important support zones? The first zone you can see is the old peak that the price just broke through. If you remember the characteristics of support/resistance, when resistance breaks => it becomes support. The second zone is the key-level of the trend, the bottom creates the next peak => also an important support.
We go to frame 1H and observe:
In the 1H frame, the price has respected the green area (the green candle shows buying pressure) and at the same time is confluent with the trendline => you can go long right after the green candle, stop loss below the blue area. The result of our command is win with R:R = 1:3
So, just in the example above, you have seen how to use support to find entries and set stoploss.
In addition, we can also use support/resistance to find a reasonable take profit point. For example: If you are long in the 1h frame following the 4H trend, you can take profit at the 4H or 1D frame resistances.
3. Some notes when using support and resistance
3.1. Steps to follow
When using support and resistance to trade, you need to follow these steps:
Identify trends (note and always remember this step, guys).
Draw important support/resistance zones.
Wait for the price to touch these areas and observe the price reaction. If the price is respected, enter the order.
Don't forget to set stoploss. And choose opportunities with good R:R (Risk/Reward) ratio.
3.2. How to draw support/resistance correctly?
There is no standard way to draw support/resistance. Some people draw lines, some people use zones. In my personal opinion, trading cannot be absolutely accurate, so I like to use price zones to determine support/resistance. The way to draw is to make it look "reasonable" and "touch the most price zones".
3.3. Which support/resistance is important?
When you first use it, many people will draw a lot of support/resistance zones on the chart. For example:
This causes several problems:
R:R order is low (because you just default to closing at these price ranges).
Not knowing how to go long/short, chaos.
Therefore, in trading, we only need to identify important areas. If you trade the time frame, say 4H, 1H and 15m combined, you should only identify the important support/resistance zones of 4H and 1H. Pay attention to areas where price often reacts a lot or are key-levels. Similarly, if you trade 1H, 15m and 5m, just determine the 1H and 15m frames.
For example:
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