Getting to know how to utilise trading levels
Levels must be the most universal elements of graphic analysis, applicable to virtually any kind of trading systems. You can trade by Price Action, or candlestick analysis, or Moving Average crossing, or a whole range of indicators - levels are always in the game. But the best part here is that a trader can be acquainted with no types of analysis or indicators at all - and still trade support/resistance levels successfully. So, this article is devoted to such trading signals. Note that this strategy suits timeframes from M1 to MN, Forex, stock, and futures markets.
A signal to buy in trading levels
For such a signal to appear, the chart needs a support level. If it used to be a resistance level, it would be even better. In my experience, mirroring levels work better than any others. Also, trading from such support levels, you can skip separate trend analysis because the direction of the price in case a mirroring support level forms, speaks about trend direction.
The following scenario would be perfect. Imagine you are working on H1. You rise two TFs up and see that there is a local high on D1. On H1, this mark is likely to work as a resistance level. Then wait for the price to break through this mark and necessarily bounce off it as off a support level. It would be even better if near such a level there were some activity as, firstly, a bounce and then a breakaway and a repeated testing, but from above.
If you are, indeed, going to track local highs on D1 for working with them on H1, the following pre-cooked pattern might be useful. To avoid constant switching from chart to chart, just look for lonely local highs on H1 that formed at least 48 hours ago. Its peak will be the resistance level from the TF two times larger than yours. An example of a signal to buy in trading support/resistance levels:
Mind that such signals are quite rare to appear, usually because the time that passes from one bounce off a S/R level to another are much shorter than mentioned above. Hence, to avoid dying of dullness waiting for perfect signals, use more ordinary mirroring S/R levels:
A signal to sell in trading levels
For such a signal, you need the same but vice versa conditions:
- a local low must appear;
- then the price must break through its low;
- then the price must test it from below, bouncing off it, thus creating a mirroring level;
- then a bounce off this level must follow, ending in the formation of a bouncing local high.
An example of a signal to sell in trading levels:
As you can see in this example, I have specified an aggressive way of trading as well. Anyways, the price does not only bounce off a complete mirroring level, especially when the movement is quite strong. Hence, try trading a complete mirroring level right after it becomes mirroring.
Stop Loss and Take Profit for Forex, futures, and stocks
Limit your losses several ticks away from those local lows (when buying) or local highs (when selling) that bounce off S/R levels.
Trail your position in a classical way, by replacing the SL to the new extremes that form while the price keeps approaching the goal. However, do not transfer the position to a parity because you just want to. First hand, wait for a local extreme that will guard your SL safely.
A Take Profit will be rather efficient before the S/R levels that could hinder the price generating profit for you. Hence, you need to calculate the attractiveness of each trading signal as soon as it appears. If the potential profit-to-risk ratio is less than 3 to 1, I advise you against using such a situation.
I find such a way of trailing your position rather efficient. Split the lot in two parts: for the first one, set the Take Profit price that will be slightly smaller than the first ever strong S/R level. For the second part, set a TP that equals your risk. With such an approach, your position will be in the breakeven as soon as the price reaches the first goal, and you will not have to worry about the risk, just trail the position calmly, avoiding market pressure. Moreover, this will increase the number of positive trades in your statement, smoothing out the balance curve. Which is, in its term, an important index for PAMM managers. This, of course, decreases your potential profit that you could get by trading the whole lot, but you never know how far the price will go and whether you will remain in control.
Money management in trading levels
I think that for this strategy it is more efficient to risk a certain percentage of your deposit. As long as you trade with a TP/SL ratio of no more than 3-5 to 1, trading lots might be unprofitable. Though to some entering the market with a set lot might seem easier because they will trade a set price then. As for me, I always enter by the market but trade a set percentage of the deposit: just calculate it in Excel and enter the market it on time. Sharp movements that will prevent me from doing this might appear after certain news but anyway, I avoid entering the market on news.
An example of trading levels:
This strategy is good because it is simple, and the element at its base is reliable and time-proven. The only problem that you might face is a lack of patience. It comes with time, if you are serious about what you are doing and analyze your every trade and decision before making a new one.
By Dmitriy Gurkovskiy, Chief Analyst at RoboForex
DisclaimerAny forecasts contained herein are based on the author's particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.
