Trading strategy · Range Trading

Support & Resistance Bounce

Buy the floor, sell the ceiling.

Level: BeginnerTimeframe: 1H to DailyStyle: SwingMarkets: Stocks, forex, indices

What it is

Markets spend much of their time moving sideways between a floor (support) where buyers step in and a ceiling (resistance) where sellers take over. This strategy buys near proven support with a tight stop just below it and takes profit near resistance.

How it works

• Find a level price has reversed from at least twice. More touches make it more meaningful.
• Treat levels as zones, not exact prices. Price often pokes slightly through them.
• Wait for price to return to support and show a rejection, like a long lower wick or a bullish candle.
• Stop goes just below the support zone; target goes just below resistance.
• If price closes decisively through support, the range is broken. Step aside.

Pros

• Very clear risk: the stop sits right under the level
• Often excellent reward to risk
• Works on any market and timeframe

Cons

• Ranges eventually break
• Levels are subjective
• Needs patience to wait for price to come to you

Common mistakes

• Buying in the middle of the range
• Putting the stop exactly on the level, where everyone else's stop is
• Holding on after support clearly breaks

Lesson transcript

Lesson two: support and resistance. If you learn to read just one thing on a chart, make it this. Markets have memory, and they often react at the same prices again and again. Watch this market. It rallies, then drops, and buyers step in right around one hundred. That's our first touch. It rallies back up to about one hundred and ten and sellers push it down again. Then it falls back to one hundred, and buyers show up a second time. Two touches. Now we have a floor and a ceiling. Support is where buyers have defended price. Resistance is where sellers have defended it. Think of them as zones, not exact lines. Price often pokes a little through before it turns. Here's the trade. Price returns to support a third time. We don't buy blindly. We wait for a bullish candle that shows buyers rejecting the level. Then we buy. Our stop goes just below the support zone, not exactly on it, because that's where everyone's stops are. Our target is just under resistance, before the crowd starts selling. And price does exactly what ranges do. It travels back up toward the ceiling. Notice the reward to risk. A small stop, and a target nearly ten points away. The rules. Enter on a rejection at a level with at least two touches. Stop just beyond the zone. Target just inside the opposite level. And if price closes hard through support, the range is broken. Get out. Recap. Find levels that held at least twice. Buy the floor with confirmation, sell near the ceiling, and respect the break. In the next lesson, we'll trade exactly that break.

More lessons

See all 16 trading lessons