SR Flip in forex means the change of support and resistance levels. When the resistance turns into support or support turns into resistance at a specific price level, then it becomes SR Flip level in forex trading.
Retail traders use the SR flip in technical analysis to find the key levels most important for traders to buy or sell. From the resistance level, retail traders tend to sell, while retail traders buy a specific financial asset from the support level.
SR Flip is essential in technical forex analysis because it helps retail traders find potential price trend reversal or continuation levels.
I will explain SR flip in detail with a trading strategy, so read the article thoroughly.
How to identify the SR Flip level in forex trading?
SR Flip is a price level where many price rejections occur, and the market respects that price level. The candlestick’s shadows/wicks are used for finding the SR flip level.
For example, when you see a lot of shadows at a certain price level, it means something important is present at that level. after finding this, draw a horizontal line on the tip of the shadows and adjust the line accordingly. Then zoom out the candlestick chart, scroll to the left, and verify that price has also respected that line in history.
You should check at least 3 to 5 good rejections from this price level. If the history of the price level is not good, then you should look for another SR Flip level. Look at the image below for a better understanding of the SR flip level.
Resistance Flip level
If the price is below the SR flip level, then that price level will act as a resistance. You should prefer to sell from that SR flip level as a trader. On the breakout of resistance, this price level will turn into support.
Support Flip level
If the price is above the SR Flip level, then that price level will act as support. You should prefer to open buy trade from this support level. When the price breaks the support level, then it will become resistance.
Psychology of SR Flip in technical analysis
In technical analysis, certain price levels on the candlestick chart are repellent to the price, and these are SR Flip levels. They always reject the price. Price in the form of candlesticks spends very little time on these levels. Either price will break the SR line, or the price will bounce from this line.
So what’s the psychology behind this tool in technical analysis?
When there’s a lot of trading activity on a specific price, the price will move with huge momentum. For example, if, at a certain level, there are a lot of buy orders from institutions and banks, then the price will make a big green candlestick (during trend continuation). On the other hand, if there are a lot of sell orders at a certain price level, then a trend reversal will occur with huge momentum.
That’s why if you know the reason behind the formation of the SR Flip level, you can use it in many ways in technical analysis.
How to trade the SR Flip level?
There are many methods to trade the SR flip level in technical analysis. It depends on your trading strategy.
Here are a few rules to trade it with supply and demand:
- If a supply zone forms at the SR flip level, open a sell trade and place stop loss above the supply zone.
- If a demand zone forms at the SR flip level, open a buy trade from the demand zone and place a stop loss below the zone.
Here it can also be used as a key level.
Trading SR Flip using multi-timeframe analysis
In this trading strategy, we’ll analyse multiple timeframes to find a trade setup. We will find the SR flip level on the higher timeframe and then trade it in the lower timeframe to get a high-risk reward ratio.
We will also use the candlestick patterns on the lower timeframe as a trade confirmation.
Open a buy trade
- Identify a good SR level on the higher timeframe like H1, H4 and Daily timeframe.
- Now switch to the lower timeframe (5M, 15M & 30M)
- Look for a bullish candlestick pattern on the SR level on the lower timeframe and then open a buy trade. Place stop loss a few pips below the low of the candlestick pattern.
- Take profit level is adjusted on higher timeframes to get maximum risk-reward ratio. Make sure to break even the trade after obtaining a 1:1 RR.
Open a sell trade
- The first and second steps are similar to the buy trade explained above.
- Look for a bearish candlestick pattern on the SR level on LTF and then open a sell trade with a stop loss a few pips above the high of the candlestick.
- Breakeven the trade after achieving 1:1 risk-reward in profit.
- Switch to the higher timeframe and adjust the take-profit levels to get ultra-high-risk rewards.
These are the two methods. However, you can use SR flip in your technical analysis in many ways.
The bottom line
SR Flip is one of the most important supply and demand trading tools. Supply and demand traders widely use this concept in technical analysis.
I will recommend backtesting the second method properly. This method gives a very high risk-reward ratio. If you win a 1:10 risk-reward trade, you’ll still be a profitable trader after losing 9 trades.