The Simple S/R Price Action Strategy – A Powerful Approach to Trading

Bykyshucasino

 

 

The support and resistance (S/R) price action strategy is a popular trading method that focuses on price behavior at key levels. These levels are primarily the main horizontal and diagonal S/R zones on a price chart. Horizontal S/R zones are confirmed by areas of accumulation or tight ranging, indicating a balance between buyers and sellers. Diagonal zones are determined by trendlines. Additionally, Fibonacci retracement and extension levels can define another set of horizontal S/R zones.

 

Traders employing this strategy analyze specific candle patterns around these key levels and observe the cycles of accumulation, distribution, and trending. Accumulation occurs when price moves within a tight range after a break, followed by distribution in a wider range above the previous break, with strong moves in the direction of the main trend.

 

The strength of S/R levels increases as the price fails to break them repeatedly. Stronger S/R levels are typically tested on both sides, and price tends to respect them. Combining Fibonacci levels, daily pivots, and trendlines with these S/R zones creates even stronger zones with higher probability trades.

 

Traders use various indicators in this strategy, such as S/R levels, daily pivots, price action (chart and candle patterns), Fibonacci levels, and trendlines. They can adapt the strategy to different time frames, from day trading to medium-term trading, using 4-hour and daily charts to set global S/R levels.

 

Instruments like the major currency pairs (EUR/USD, GBP/USD, EUR/GBP, USD/CHF, AUD/USD) and yen pairs (EUR/JPY, USD/JPY) are preferred, but the strategy can be applied to any currency instrument. The risk-to-reward ratio should ideally be 1:3 or higher, with risk parameters set at a maximum of 2 percent of the equity for high-probability trades and 1 percent for lower risk-to-reward ratio transactions.

 

The strategy has been thoroughly back-tested and forward-tested on various currency pairs, demonstrating an average win/loss ratio of 60:40. Traders can find approximately two to three good trade setups per currency pair in a month.