Amanda sent me a post the other day about how to trade support bounces. I don't recall designating a specific post on the topic, so let's start one today.

I think one of the best trading signals one could use is a support or resistance bounce. If you can see a stock consistently retracing to a certain point, or moving higher to another specific point, and this has been a repeatable process, this is the first and foremost indicator I use when placing or exiting trades.

Think about it. S&R is a leading indicator. You can use it to predict many outcomes. Same thing with trend and volume. These are all leading indicators so make sure these are the first things you focus on. In fact as many of you know these are the only indicators I use to trade.

Back to the support bounce techniques, let's look at a chart of AAPL...

Keep in mind that support represents a stocks "floor" right? And resistance is termed the stocks "ceiling." One of the easiest methods of trading is to buy a stock at a floor, and sell it at a ceiling. With all the hundreds of indicators and other tools we tend to forget that simple logic. I have drawn a support line connecting the dots (lows) on Apple over the last few months. Lets strategize on how to trade this and consult our indicators.

1. Trend- trend is obviously in favor and thus we like the stock and continue to look for additional signals.

2. S&R- As soon as the stock TOUCHES support I try to buy. Please note that this is mildly aggressive (for a confirmed entry), but at the same time it is extremely low risk. Why is this? If my stock closes at support and I enter the trade, as soon as it closes below support, I exit. This results in a small loss for the potential of getting into the trade at the bottom!

3. Volume- To be honest, volume is only an important element when I am trading a breakout. In a bounce play, typically I don't check it. Volume is normally in a contraction as the stock pulls back anyway.

What about confirmation. Perhaps you don't like to pick bottoms and would prefer to wait and see if the stock reacts to this support level. If I can see this level of support has only been tested two times or less, I might feel better to wait for confirmation. Here are a few you might consider.

1. A move higher- Simple, yet effective. The stock has spent time moving lower to this support level, and when it finally hits this level, and happens to start moving higher, great confirmation.

2.Confirmed candle patterns- We talked about these a while ago but hammers, inverted hammers, engulfing, harami, morning star patterns, etc would all be useful confirmation tools at support.

3. Use an indicator- After all, this is what they are for. I know many complain of the indicators being too slow. Make them faster! Last night I presented on how to modify a stochastic to make it give signals a lot faster. We changed it to a 7-3 rather than a 14-5. This might require backtesting, but are great tools for confirmation.

Hopefully this post was helpful. It is a simple, low risk, and high reward strategy to trading trends.