Friends, good afternoon, today I want to talk to you about levels.
A level is a special place on the chart, when approaching which the price begins to react and can change the direction of its movement.
There are two types of levels - horizontal and vertical.
A horizontal level is a level that targets some price points on the chart, such as $100, $1000, $2400. When approaching this level, the price will react to it. If the level is very strong, then even after 5 years it can still work.
There is also such a thing as a dynamic level - this is a level that changes in price over time. Let’s say initially the price was 100 dollars, then after some movement the price stopped at 70 dollars, and then again after some short movement the price stopped at 50 dollars.
Dynamic levels set a trend, and they only work within the current trend.
Unlike horizontal levels, they will no longer work in a couple of years. The following is a point regarding all levels.
If the price is below the level, then this level is called resistance.
If the price is above the level, then this level is called support.
Now let's talk about how to draw levels correctly:
If the price moves up, we draw a line from below, as if it were standing on this line.
When the price falls, we draw above it as if this line is pressing.
Many traders argue about how to draw lines, through the body or through the shadows. In fact, there is a simple answer - if on one timeframe it is a shadow, then on another it will be a body. From my own experience I can say that all lines need to be drawn through the absolute maximum. Through the body or through the shadow - it is not so important, the main thing is that it is the maximum point.
I advise you to draw levels through three or more points. An exception may be if you initially see some important and key place and the price has already touched it twice - then this is also a potentially good place for a future level.
I will explain the logic of the levels using the example of an upward movement. A very large number of people independently plotted this level on their charts. And when the price approaches this level in the future, these people will exit their positions and will also open shorts, with short stops above the level. This is why the levels are not so easy to break through.
The level is a psychologically important place for market participants, and specifically for the crowd. I want you to understand the following. Levels are important mainly for the crowd. For large participants, levels are not particularly important, or rather they are needed in order to understand how the top will behave in one place or another. So why are levels important? Why do they work?
Here's an example: when you bought lemons for one dollar, for you this was already some kind of basis. If the price drops below one dollar, then you will already understand that it is cheaper than usual.
That is, for you, one dollar is a standard, and accordingly, a price that is below $1 is a price that is lower than the standard, which means it is cheaper. If the price for lemons in all stores was $1, then this would be important for all lemon buyers in the country. If 1 dollar were for a small number of participants, for example, in one store for one dollar, in another for 1.2, and in a third store for 0.8 dollars.
Accordingly, what should I take as a level?
One may say that it is $1, another that it is 0.8, a third that it is $1.2, and a fourth may say that you need to take the average price. How to draw the line correctly is not clear, but we can definitely say that the price range from 0.8 to 1.2 $ dollars is a normal price. Instead of drawing many lines, in this case, you can draw a kind of zone, with a range that includes the maximum, minimum and normal prices.
We will study zones in the following lessons.
So what is a level in trading?
The level in trading is the place where the market reversal occurred.
We draw almost all levels in places of either consolidation, that is, in places where the price has stood for a long time. Or in a place where there was a strong battle between buyers and sellers. The people who suffered remembered this place as important. And people who managed to leave the market also remembered this place as important. In addition, a place that is some kind of extreme is also a painful point or an important point for many market participants. Let me give you a simple example from life.
Imagine that a bus was driving along a serpentine road and fell off a cliff. Many people there were broken and even died. Regular observers drove by in cars, news channels came and filmed it. People across the country read and watched videos of the accident. In general, a year has passed since the accident, but people who drive past this place will still remember this place as the place where there was a very terrible accident last year.
The same thing happens in the market when someone gets hurt. Those who participated in the turning point, where the outcome was extreme, will remember this place, and most importantly, when prices approach this level, they will remember this place as the place where they lost or earned a lot of money. And in the future they will be cautious when the price approaches this place. Not everyone will remember, but only those who participated and saw this situation. And those who did not participate and did not see this situation, accordingly, will not have any idea about it.
This is an example of typical hamsters who, not understanding trading, go to place bets without taking into account levels, zones, etc. There is also such a term in trading as a set of factors. Looking at one of the factors is most often stupid. For example, in a certain place a bus crashed, a plane crashed there, a house burned down there, plus there was an earthquake, it tore up the ground and devils came out. Under different circumstances, for different participants, under different pretexts, things happened, roughly speaking, at the same price, if this is translated into the market.
And this place becomes important not only for a large number of participants, but also for a large number of observers of certain events. In any case, the trader’s task is to find factors that intersect in one place. For example, a number is the birthday of one person, for another it is the day of the storming of the bastille, and for a third, for example, the day of the paratrooper. All the events of this day overlap each other, and then on this day you go out into the street and see that everyone is drunk, but everyone is drunk for completely different reasons. I think my example is clear.
In addition to the fact that there are levels, we also need to take into account the factor of how volume actually behaves at these levels. There are two states.
The first is that when approaching a certain level, the volume increases sharply. This suggests that this level exists and is seen by a large number of people. That is, work is underway. Someone is actively buying, someone is selling. That is, people react to the level with some actions.
The second state is when approaching the level, the volume decreases greatly. This suggests that people see the level, but they behave indecisively, that is, if in the first state there was such a moment that some were buying and others were selling, then here everything is the other way around - some do not buy, and others do not sell.
There is also such a thing as a reverse level. This is a level that was at first resistance, then, for example, became support, and then again, for example, became resistance.
This is absolutely normal. This happens very often if the level is very important. For example, pay attention to the level of $20k in Bitcoin. How price changes level from support to resistance...
The same level at different times can be both a resistance level and a support level.
Thank you for your attention, I will be grateful for your likes and subscriptions! More lessons to come!