Because here at BabyPips. As the name suggests, one method of trading support and resistance levels is right after the bounce. Many retail forex traders make the error of setting their orders directly on support and resistance levels and then just waiting to for their trade to materialize.
Sure, this may work at times but this kind of trading method assumes that a support or resistance level will hold without price actually getting there yet. That way, I am assured the best possible price.
When playing the bounce, we want to tilt the odds in our favor and find some sort of confirmation that the support or resistance will hold. For example, instead of simply buying right off the bat, we want to wait for it to bounce first before entering. By doing this, you avoid those moments where price moves fast and break through support and resistance levels. From experience, catching a falling knife when trading forex can get really bloody! In a perfect forex trading world, we could just jump in and out whenever price hits those major support and resistance levels and earn loads of money.
You should also know what to do whenever support and resistance levels give way! The simplest way to play breakouts is to buy or sell whenever price passes convincingly through a support or resistance zone.
The key word here is convincing because we only want to enter when price passes through a significant support or resistance level with ease. We want the support or resistance area to act as if it just received a Chuck Norris karate chop: We want it to wilt over in pain as price breaks right through it.
Imagine this hypothetical situation: Soon after, support breaks and you are now holding on to a losing position, with your account balance slowly falling. If your choice is the second one, then you will easily understand this type of forex trading method. Now, if enough selling and liquidation of losing positions happens at the broken support level, price will reverse and start falling again. This phenomenon is the main reason why broken support levels become resistance whenever they break.
People may say you are going the wrong way, when it is simply a path of your own. Partner Center Find a Broker. Trading Support and Resistance.More...