The use of support and resistance is valuable to those who want to project possible future reversals in the market. Last week we looked at connecting two points on a chart to project a possible reversal point to enter into a trade. But you can also duplicate a trendline to form a channel which could give you an exit point for your trade.
In the chart below, we connected the two points below the market and drew the line out to the end of the chart. Since the market is in an uptrend, we could look to buy on the third test of that support line. By copying or duplicating that trendline and placing at the highest point above the market, we also see potential resistance which could provide a good exit on our buying opportunity. There are many ways to play this with one being to buy two lots at support and then to exit one of those lots at resistance and hold onto the other on a possible breakout up through resistance. If the market then moves back down to support instead of moving up through resistance, you could always buy another lot and continue to exit one at resistance and continue to hold the second lot to be in on a possible breakout. Even if the market does not break out up through resistance, by placing your protective stop below support, which is rising with the channel, you also are protecting any gains you may have on the second lot. By simply duplicating a trendline, we can frame the market movement in a way which makes it easier to identify trading opportunities which could mean better trading results.
