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Price action Flips – Support and Resistance trading strategy

The best trades usually happen around support and resistance, no matter how you see the chart, it will be obvious. Most traders love to use support and resistance as a trading strategy but they often lack a clear method for taking advantage of Price action support and resistance. This article will help you to build a systematic trading approach using support and resistance. Practically, there are multiple types of support and resistance levels such as swing points, Decision points, Breakout zones, Price action flips etc. Here let’s take a look at Price action flips. Price action flips works best as a trend trading and swing trading strategy because in a trending market – flipping of Support into resistance and Resistance into support is a common occurrence.

I have already covered the dynamics of support and resistance in this article. For Hypothetical examples I’ll use the Price action charts of Nifty, Bank Nifty, Futures and options.

Picture of Price action flips - Support and resistance trading strategy

Trading Techniques and Rules

Long Positions – When broken Resistance becomes support

1. If the market sentiment is bullish, take the recent high as resistance and observe price action precisely at the resistance, Market should break the resistance with clear momentum and force. We can assume the broken resistance as potential support level.

2. Wait for the price action to fall and test the potential support level, if the support holds up with clear momentum, enter long with any preceding price action patterns.

Short Positions – When broken Support becomes resistance

1. If the market sentiment is bearish, take the recent low as support and observe price action precisely at the support, Market should break the support level with clear momentum and force. We can assume the broken support as potential resistance level.

2. Wait for the price action to fall and test the potential resistance level, if the resistance holds down with clear momentum, enter short with any preceding price action patterns.

Winning trades Example of Price action flips

Picture of Winning price action flips - Support and Resistance Trading strategy
This is the chart of Bank Nifty Futures which shows an example of winning trade setup

1. Market paused at resistance level, but the selling pressure is not strong enough

2. In terms of sentiment, Look at the 25 period EMA which indicates the context of bullish sentiment, Price action stood above the 25 period EMA even in the period of consolidation and absence of strong bearish candlesticks indicate the weakness of sellers

3. Nifty broke resistance with strong momentum and force

4. Market retested the key level, offered an excellent entry for traders. Formation of 3 orb pattern provided good risk – reward setup.

Wrong entries example of Price action flips

Picture of losing Price action flips - Support and Resistance trading strategy
This is the chart of MCX Gold, which shows an example of wrong entry.

1. Market paused at resistance level, and the selling pressure is very strong. Look at the size of bearish candlesticks.

2. Price action did stayed above 25 period EMA, but the movements were choppy and volatile – didn’t have a clear imbalance or sentiment. In such cases market sentiment is likely to be neutral (neither bullish nor bearish).

3. Break of resistance level didn’t had good momentum or follow through. The movement after breakout was very weak and shallow. Close observations show the sign of Breakout failures, which is another price action pattern.

4. Strong rejection indicates the force of selling pressure to defend the level; it’s the last sign of trade failure.

This is the reason traders should focus to understand the buying and selling pressure of market structure. Remember Price action trading is not just trading patterns; it’s about understanding the buying and selling pressure behind those patterns.

A few notes on Trading Price action flips

Strong setups show a clear break of support or resistance levels, and a weak test over the broken level. If you get the context and market structure right, then strategy has a high chance of success. One of the key advantages of this trading strategy is that we avoid low probabilistic trend trades. We are looking to trade flipping levels, so we wait for clear decisive break of these levels. Trading with clear break helps us to focus on High probabilistic trend trading setups.

This is just one of the multiple ways to trade support and resistance in Indian markets. I cover more concepts and highly successful methods in my trading course.

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About the Author:

Balaji is a Speculator, Investor and Trader (All in All!!!) and self published author. Trading in the Markets since decade, have seen more ups and downs along with institutional trader's lifestyle. He usually trades Nifty, Bank Nifty, Commodities, Futures cum Options around both Indian and global Markets. Balaji applies highly analytical and systematic Price Action strategies He blogs passionately about Trading strategies, Price Action Trading, Technical analysis, Macro events, Market setups, Financial and Economical topics. Apart from Trading and Blogging, Balaji also mentors aspiring Traders and Investors on becoming successful in highly competitive financial Markets.

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