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Trading against support and resistance sounds easy enoughjust find those lines and trade your heart out. Except, there always comes a time when the price will break out of the support or resistance constraints. If you don't react to this change, you're toast! |
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Actually, there is a very sound trading strategy that says: Trade support and resistance. You will be right on every trade until the last one, when the breakout occurs. And if you know how to manage your stop loss (see Chapter 15), you really won't be toastyou will suffer a manageable loss. |
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What is really happening on a breakout? Take a look at the example in Figure 12.18. See how many times the price bumped up against the resistance level, only to fall back. Finally, for whatever reason (and we don't care what the reason is, do we?), the sellers were no longer willing to sell at that price. Theyand their supplydisappeared. |
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Figure 12.18
Breakout Chart
Copyright 2000, TradeCast® Ltd. |
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