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How to trade broken support?

Complete Cryptocurrency Trading Course

No matter how many times the support was tested and proved its power, there is no tool nor strategy to predict if that is going to hold out next time or not.

What is most important, you do not need to predict what will happen.

By following the market, you will sooner or later get confirmation of the next move the market is going to make. 

Trading support is very simple and straightforward.

Once you spot the support in the market, the next thing you want to see is the test of that support.

Once the price comes closer to that area, you should open your third eye and monitor the price action carefully being open-minded for any outcome. 

The bullish signs would be impulsive rejection in the form of bullish pinbar, bullish engulfing candlestick or any similar price action.

Once it happens, you have an opportunity for opening a trade.

What if support gets broken? 

Most traders are emotionally attached to certain coins, and once those coins broke the support, they are taking it personally.

They would go so deep that they will try to convince everyone that they are right and the whole market is wrong.

There is no space for ego in the market.

Trade what you see not what you feel.

If support gets broken it is a clear sign that buyers are running out of steam and that selling pressure is taking control over the market.

As the market is turning bearish and the downtrend is about to start, you don’t want to trade against the market trend.

Because of that, you want to trade the broken support by looking at the bearish sign on the retest and if you get it, you have an opportunity to short or sell the coin.

Let us show you an example of broken support.

It acted as a support for some time.

Once it is broken, it is clear that is not a support anymore but it is still the area of interest that may act as a support or even resistance in the future.

What we are waiting is a retest of that support area after breakdown.

On that retest, we want to see confirmation that the market is not able to regain that level so we can open short trade or sell a coin. 

On the example above, you can see the kind of retest we want to see.

The retest that will offer us bearish sign such as bearish pin bar or bearish engulfing is what our eye wants to see.

The reason we are looking for short entry is quite simple.

The well-known formation lower high – lower low is something you should always look at.

In that situation, shorting or selling is the only thing that makes sense.

Also, after a critical price level is broken, it is considered as an earthquake, and after some relief, the aftershocks are expected and we all know the danger they bring.

If the price doesn’t give us bearish sign on the retest of broken support and enters back above the support area, we have invalidated breakdown that we like to call fakeout.

Once it forms, the entire move down is invalidated together with the setup we were looking at and we should look for new trade opportunity.

Usually reclaimed level is a bullish sign and in that case, looking for buy setup is suggested.