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How to trade broken resistance?

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As you already know, the resistance is the area that represents the obstacle for the price to move further up.

No matter how many times it was tested, how many times it acted as the resistance, you can’t predict what will happen on the next test.

You don’t even have to predict since it is not essential.

You do not need a crystal ball.

All you need to do is to spot it and open your third eye when the price starts to climb to that area and monitor the price action.

The confirmation you are waiting is either bearish engulfing or bearish pinbar.

If the price makes one of these two or any other bearish structure, you got confirmation and you can take a short position or sell the coin.

What to do if resistance gets broken?

While the breaking support is followed by fear and anxiety, breaking resistance creates market sentiment full of joy for those who bought and fear of missing out for those that are still waiting to buy.

Technical traders but all other traders as well, should not care about emotions.

What we see is the chart and the story it says to us.

Once it gives us a sign, we trade following that sign until it reaches its potential target or until the sign gets invalidated. 

The area we expected to hold was broken, what to do now?

Back to our golden rule, trade with the trend.

Once the new trend is established, we have to adapt as fast as we can.

It doesn’t mean blindly opening a trade without observing the risk but it means waiting for a sign of continuation and open a trade after that sign appears.

Once the resistance is broken, the higher high is formed.

The price establishes a bullish market structure.

You do not want to trade against the trend.

The only thing you can do and you should consider doing is to look for a long entry or to buy a coin.

How to trade broken resistance?

The buying is a wise move if the price gives you the sign for that.

The best area to look for that sign is the area of previous resistance or a little bit above that area.

If we see the bullish setup in that area, we have an opportunity to open a trade.

The bullish setup could either be some candlestick such as bullish pinbar and bullish engulfing or some other combination of bullish signs.

Once it happens, you have a trend continuation sign and everything you need to consider opening a trade.

If the price doesn’t offer bullish sign on the retest of broken resistance and enters back below the area of resistance, we consider that move as a fakeout and mark the breakout as invalid.

After that, we are looking for new trade setup since the one we were looking at was invalidated.