Trading Strategies

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STR and RTS Trading Strategy

Apr 23, 2021 07:00

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The Support Turned Resistance-Resistance Turned Support trading strategy is a based on the fact that sometimes, a support level which has been broken will act as a resistance level when price goes back up to it. Here’s an example of a STR.

On the chart below, Notice the blue area is the support zone that was broken.

Price went down and later came back up and was pushed back down in that zone. It became a resistance Zone.

Similarly, a resistance level broken by price tends to act as a support level when price comes back down to the level. Here’s an example of a RTS:

So that is the basics of what this STR & RTS trading strategy is all about.

Timeframes : Any

Instrument : you can use this strategy any instrument

Indicators : None

Trading Rules :

Long entry rules for resistance turned support:

  • Once resistance level is broken, wait until price starts to fall back down to the resistance level it broke.
  • Different types of orders can be used to enter into a trade: for buy stop order wait until a candlestick touches the level and place your order 2-5 pips above the high of that candlestick. Buy limit orders can be placed 2-5 pips above the resistance turned support line. Or you can buy immediately at market once price hits that level.
  • Place your stop loss 10-30 pips below the resistance turned support line if you use buy limit and market orders. For buy stop order, place 2-5 pips below the low of the candlestick that touches that line.
  • For take profit targets, look for previous significant swing high and place your profit targets within that.

 

Let us explain with a chart below:

Short entry rules for support turned resistance:

  • Once support level is broken, wait until price starts to rise up to the support level it broke.
  • Different types of orders can be used to enter into a trade: for sell stop order, wait until a candlestick touches the level and place your order 2-5 pips below the low of that candlestick. Sell limit orders can be placed 2-5 pips below the support turned resistance line. Or you can sell immediately at market once price hits that level.
  • Place stop loss 10-30 pips above the support turned resistance line if you use sell limit and market orders. For sell stop orders, place 2-5 pips above the high of the candlestick that touches that line.
  • For take profit targets, look for previous significant swing lows and place your profit targets within that.

 

Let us explain with a chart below:

Pros :

  • Any trade that goes according to plan tends to give very good risk to reward ratio.
  • The use of reversal candlesticks can really enhance your sell or buy signal
  • This is one trading setup and method that many professional traders use and worth knowing
  • This is a 100% price action trading and you do not need any other indicators.

 

Cons :

  • Price does not always come back to a broken support level or resistance level
  • And when it does come, sometimes it does not obey it.
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