Trading Strategy on tests of Resistance(Same logic inverted applies to tests of Support).
The correct trading strategy therefore includes alternatives based on what happens next:
First, place a sell-stop below the next low which, if hit, will exit any existing long position and enter a small short position (small because the initial stop on the new position would be above the recent high - ie a significant distance away from the entry price). This initial stop protects against serious loss in the event that the market continues straight down, and turns a profit if it goes far enough.Then watch which of the following occurs and act accordingly:
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