This DOSR trading system is purely based on price action and doesn’t use any technical indicators. You need the knowledge of support and resistance. Support and Resistance is the most used terms in market analysis and it is important too. They are often regarded as the complex subject by those who are just learning to trade in the market. Support and resistance simply refers to the price levels on charts that tend to act as barriers from preventing the price of an asset from getting pushed in a certain direction.
In a simple sense supports are the pointed bottoms you can see on the charts. In an up trending market when the price retraces down and again continues to move up, that turning point or the pointed bottom is called support and it is the same with the down trending condition. Support prevents the price from falling further down. Support is the level where a lot of traders are looking to buy because they assume that the price will not fall further down because of the previous support level. Support might be found around psychological levels, Fibonacci retracements and extension levels, Pivot levels, etc. It is not necessary that the support levels will always hold the price from falling further down, if that would happen then price would never fall isn’t it? When such support levels are broken down, price tends to fall down more aggressively to find another support level. In the above picture you can see the perfect example of support. Notice how price tested the support level and it rejected to fall further down. But at the extreme right of the chart you can see that the support is broken and the price began to fall aggressively.
Resistance is the opposite of the Support. They are the pointed tops you can see on the price chart.
Traders believe that the resistance levels prevent the price from trending higher. So it is normal to find lots of sellers at the resistance level. In the above chart the upper horizontal red line represents the resistance level. Notice how the price reacted to that simple red horizontal resistance level. Price was unable to close above that resistance level and later it did the opposite; fell plunged aggressively.
Applying DOSR Trading System
- If the previous day’s candle is Bullish
This DOSR Trading System uses the data of previous day’s candle. If there is a bullish candle on the previous day you should draw a horizontal line on the opening price and the high price level. Now that will be your support and Resistance level. Now go to the 5 minutes chart. If the price breaks higher and closes above the high price of previous day’s candle you should long the pair. Conversely if the price breaks lower you should short.
- If the previous day’s candle is Bearish
If the previous day’s candle is bearish you should draw horizontal line across the opening price and the low price that two lines becomes your support and resistance level.
Risk to reward ratio (RRR): 1:1
Target: 20 pips.
Stop Loss: 20 pips.
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