By CFDSpy.com
CFD trading using support and resistance levels is an easy strategy to understand. This strategy is one of the most utilized by traders. The markets tend to move up and down under fifty percent of the time creating areas where there appears to be no trend. This CFD strategy trades in that area either down or up). Selling the resistance and buying support.
Support Level
The support level can be determined when the instruments’ price falls to a point where there are more buyers than sellers. This level will actually help the stock bounce up again.
Resistance Level
The resistance level is opposite, when the high point in the market hits before we see more sellers than buyers.
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If support and resistance levels are clear, there will be more trades, making this a better strategy. If trading a volatile stock, it can show movements both up and down over 100 points per day. If the particular stock we are watching is up today by 40 points, it is deemed unpredictable and not suitable for us to trade.
Our main objective when using this strategy is to just ride from resistance to support, or support to residence. These are more often than not quite short trades, and in order to see a profit we must make sure that the distance between the two are large enough.
Below are 6 items that we should be able to determine when the levels are moving sideways.
- Our charts are showing that the market overall is moving sideways.
- Both the stock and the stock sector are moving sideways.
- We can spot clear support and resistance levels.
- We must wait for the price to near the support and resistance levels.
- We must determine how much of our capital we wish to risk in this spread betting trade and determine where we will place our stop-loss order.
- We will go short on resistance and long on support.
We are able see a profit when the overall market is moving sideways. In order to define going sideways we will want to use one or more of the following:
- ADX Indicator (Average Directional Index)
- Visual evaluation
- Moving average combinations
Whist utilizing this strategy we aim to make small profits quickly, we can lose our capital quickly if the support or resistance is broken and you do not exit immediately. Therefore, must be able to exit the trade straightaway when/if our stop loss order has been reached.
About: CFDSpy.com offers a wealth of information about Contracts for Difference and how to trade them, visit http://www.cfdspy.com/guide/trading-strategies.php to learn more CFD trading strategies.
