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Good Trading Guide

Support and Resistance Bounce Strategy

At a glance
Status Education only. Hypothetical example, not a recommendation.
Difficulty Beginner
Markets Any liquid market – major forex pairs, major indices, gold
Timeframes Daily or 4-hour chart for levels; 1-hour chart for entries
Time needed 15–30 minutes a day to update levels and check for setups
Trades per week Typically few – patience is part of the strategy
Main risk Levels breaking instead of holding; drawing too many levels
Course module Module 5: Support and Resistance
All strategies
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Support and resistance are the foundation of most chart-based trading. Support is a price area where falling prices have repeatedly stopped and turned up. Resistance is an area where rising prices have repeatedly stalled and turned down. The “bounce” strategy aims to buy near support and sell near resistance, with a stop just beyond the level in case it breaks.

Many beginners find it a useful first strategy to study because it teaches you to read price, wait for good locations and define your risk clearly.

The idea behind the strategy

Why would price react at the same areas again and again? There’s no guarantee it will, but a few common explanations are:

  • Memory and orders: traders remember where price turned before and place orders there.
  • Regret: people who missed the last bounce want in if price returns.
  • Round numbers and obvious highs and lows attract attention and orders.

When price returns to a clear level, you have a natural place to enter (at the level) and a natural place to admit you’re wrong (just beyond it). That gives you a small, defined risk compared with the potential move back to the next level.

The catch: every level eventually breaks. The more often a level is tested, the more likely some traders think it will eventually give way. This strategy needs a confirmation signal and a strict stop.

Step 1: Draw levels properly

Most beginners draw far too many lines. Keep it simple:

  1. Start on the daily chart (or 4-hour for faster trading). Higher-timeframe levels are watched by more traders.
  2. Look for areas where price has turned clearly at least twice. Mark the obvious swing highs and swing lows.
  3. Draw zones, not thin lines. Use the area that covers the candle bodies and wicks around the turning points. A zone might be 10–20 pips on GBP/USD or 15–30 points on the FTSE 100 – it depends on the market’s volatility.
  4. Keep no more than 2–3 zones above and below current price. If your chart is covered in lines, delete the weakest.
  5. Note round numbers (e.g. 1.3000, 8,000) near your zones – they often reinforce them.

See How to draw levels without cluttering your chart for a step-by-step walkthrough.

The rules (a complete beginner version)

These are example rules for learning and backtesting.

1. Location

  • Price must reach a marked daily or 4-hour zone. No zone, no trade.
  • There must be room to the next opposing zone of at least 2× your risk. If the next resistance is too close to support, skip.

2. Context filter

  • Avoid fading a level when price is arriving with a series of large, strong candles in one direction (strong momentum often breaks levels). You want price to slow down as it reaches the zone.
  • Avoid the hour before and after major scheduled news for that market.

3. Confirmation (entry trigger) on the 1-hour chart

Wait for a rejection candle that closes back away from the zone: – At support: a bullish candle (e.g. a hammer or bullish engulfing) that closes above the zone after dipping into it. – At resistance: a bearish candle (e.g. a shooting star or bearish engulfing) that closes below the zone after pushing into it.

See Single-candle patterns and Two- and three-candle patterns.

4. Entry

  • Enter at the close of the confirmation candle (market order), or with a limit order a little back towards the zone if you prefer a better price (you’ll miss some trades).

5. Stop-loss

  • Beyond the zone, plus a buffer: below the low of the rejection candle or the bottom of the zone (whichever is lower) for a long trade, minus a buffer such as 10% of the 1-hour ATR. Mirror this for shorts.

6. Take-profit

  • Target 1: just before the next opposing zone (don’t aim for the exact level – price often turns slightly before it).
  • Minimum reward: 2R. If the next zone is closer than 2R, skip the trade.
  • Optional: close half at 1R and move the stop to break-even. Test this separately – it changes your results.

7. Invalidation

  • If price closes beyond the zone on the 1-hour chart before your entry triggers, the level has likely broken. Cancel the idea. (A broken level may become a break-and-retest setup instead.)

Worked example (hypothetical)

All prices are made up for teaching.

Setup: Demo account £10,000, risk 1% (£100). FTSE 100 spread bet.

  1. Daily zones: support 8,010–8,040 (price turned up here twice in recent months); resistance 8,250–8,280.
  2. Price action: the index drifts lower over three days with smaller candles and reaches 8,035.
  3. Confirmation: a 1-hour hammer dips to 8,018 and closes at 8,052, back above the zone.
  4. Entry: 8,052 at the candle close.
  5. Stop: below the hammer’s low and the zone bottom (8,010) with a 7-point buffer = 8,003. Risk = 8,052 − 8,003 = 49 points.
  6. Target: just before resistance – 8,245. Reward = 193 points ≈ 3.9R. That’s more than 2R, so the trade is valid.
  7. Position size: £100 ÷ 49 points = £2.04 per point. Round down to £2 per point. Actual risk = £98.

Outcome A: price rallies to 8,245 over the next week. Profit = 193 × £2 = +£386 (+3.9R). Outcome B: two days later, price breaks down through the zone and hits 8,003. Loss = 49 × £2 = −£98 (−1R).

Both outcomes are normal. The point is that the loss is small and planned, and the winners are allowed to reach the next level.

Risk management

Stake per point = (account × risk %) ÷ stop distance in points

  • Risk 0.5–1% per trade. See The 1% rule.
  • Only one position per level. Don’t add to a losing trade because price is “even cheaper” now – that’s how small losses become big ones.
  • Watch correlation. Buying support on the FTSE 100, DAX and S&P 500 at the same time is effectively one big bet on stock markets (Correlation risk).
  • Overnight and weekend gaps: this strategy can hold trades for days. Gaps can jump past your stop. Consider a guaranteed stop (paying the premium) or a smaller position on trades held over weekends. See Gaps and overnight risk.
  • Overnight financing: holding leveraged positions for days costs money. Include it in your backtest estimates.

Using it in a prop firm challenge

What fits well: – Clear, small risk per trade fits daily loss and maximum drawdown rules. – High reward-to-risk setups mean you don’t need a high win rate to make progress. – Few trades reduces the temptation to overtrade.

What to watch: – Overnight and weekend holding rules: some firms restrict holding positions at weekends or over news. Daily-chart trades may break these rules – check before you start. – Time pressure: if a challenge has a time limit, patient strategies can feel slow. Don’t lower your standards to force trades. – Trailing drawdown: if the firm’s drawdown trails your open profit, giving back profit on a long swing trade can tighten your limit. Read Trailing vs static drawdown.

Compare firms’ holding rules and drawdown types on our prop firm comparison, and check what repeated attempts would cost with the True Cost Calculator.

Common mistakes

  1. Too many lines. If every price is near a level, no level means anything.
  2. Thin lines instead of zones. Price rarely turns at the exact same price twice.
  3. Buying support in a strong downtrend. Strong momentum often breaks levels. Wait for price to slow down, or trade with the trend instead.
  4. Entering without confirmation. “It’s at support, so it must bounce” is hope, not a plan.
  5. Stops placed exactly at the level. Put them beyond the zone with a buffer, or normal noise will stop you out.
  6. Ignoring the next level. A bounce from support straight into resistance 20 points away isn’t worth the risk.
  7. Moving the stop when the level “nearly holds”. Once your stop is hit, the idea is wrong. Accept it.

How to backtest it

Support and resistance involves judgement, which makes honest backtesting more important – and harder.

  1. Draw levels using only data available at the time. In bar replay, draw zones as you go. Don’t use levels you can only see with hindsight.
  2. Write your zone rules down first (e.g. “at least two clear turns on the daily chart”). Apply them consistently.
  3. Record every touch of a zone, whether or not it gave a valid trade. That helps you see whether your filters are adding value.
  4. Log: date, market, zone, timeframe, confirmation type, entry, stop, target, R result, held overnight (Y/N), notes.
  5. Collect 100+ trades, across different market conditions (trending and ranging periods).
  6. Get a second opinion: ask a friend to mark levels on the same chart. If your levels are very different, your rules are too vague.

Then forward test for at least 60 days on demo (Demo trading) and journal every trade (Trading journal).

FAQ

How many times should a level be tested to count? A common starting rule is at least two clear turns. More touches can mean the level is widely watched, but they can also mean it’s being worn down. Test what works on your market.

Which timeframe is best for support and resistance? Higher timeframes (daily, 4-hour) usually give more significant levels. Many traders mark levels on the daily chart and look for entries on the 1-hour chart.

What happens when support breaks? It often becomes resistance – the “role reversal” idea. See Role reversal and the Break and retest strategy.

Is support and resistance trading profitable? We don’t make performance claims. It depends on your rules, market, costs and discipline, and most retail traders lose money. Backtest and demo-test it yourself.

Do I need indicators? No. This strategy uses price alone. An ATR indicator can help set buffers, but it isn’t required.

Related pages

  • Course: What support and resistance are · Drawing levels · Candlestick patterns · Position sizing
  • Strategies: Break and retest · Range trading · Pin bar strategy
  • Prop firms: Compare prop firm rules · True Cost Calculator · Prop firm risk management

Disclaimer: This page is general education, not financial or investment advice or a personal recommendation, and it doesn’t take your circumstances into account. Examples are hypothetical, for illustration only, and not an invitation to buy or sell. No strategy works all the time, and every strategy has losing runs. Learning a strategy doesn’t guarantee profits. Past performance is not a reliable guide to future results. Futures, spread bets and CFDs are complex and carry a high risk of losing money quickly because of leverage, and most retail traders lose money. With a real futures account, losses can exceed your deposit. Only trade with money you can afford to lose, and speak to an independent FCA-authorised adviser if you’re unsure. The rules are an example for learning and testing, and the worked example is hypothetical. No performance is implied or promised. Read our full risk warning.