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| Level-to-level trading by WEALTHZON |
Trading- Level to Level.
By the end of this tutorial, you will be able to identify what levels are and how
to trade them. I will repeat the following over and over again.
1. Levels trading is the most important AND LOGICAL system in the
traditional trading system. 100X more important than chart patterns,
classical divergences, etc.
2. If you do not understand a concept, simply slow down, read it again, or
read the references. It is okay to not understand things in one go, but
stick around and you WILL understand. Remember this. Reading it a few
times and slowly will remove all doubts.
Almost every profitable trading strategy factors in using Support & Resistance
(S/R) Or simply, horizontal levels correctly. Levels help us make a roadmap of
the market. Levels combined with other indicators give an entry, but levels are
the trigger.
What are levels? These are not simply the lines on a chart but a representation
of the areas where the market would like to enter or has already decided to
enter. Support and resistance are formed since the market decides to sell/buy
at those levels and create a S/R pressure.
If we had to represent Levels on a chart, we could assume that the below heat map, which
shows the Limit orders, shows the levels of interest or the S/R of the chart. The lines
below the current price show the buy orders, and the lines above show the sell orders.
P.S. This is for illustration only ,and heatmaps don’t necessarily form S/R, as Market
Makers place spoofing orders to deceive the market very often. 90% of orders on the most
shitcoins is all fake orders.
One thing to understand before we get to charting is that each level must be
thought of as a zone and not a single line.
Therefore, you can use HTF charts like the monthly/ weekly to form a bias and
trading plans, but it’s difficult to take a D AY TRADE off a weekly level as it is not
an exact horizontal line, but a zone, a small zone on the weekly TF, might be aA
large zone on the 4-hour TF.
What exactly is support and resistance?
In the next few pages, I have given a tip on how to arrange your lines.
Most people draw horizontal levels on a chart and think support and resistance
are just actual lines that provide support and resistance.
Support/Resistance is made up of bids /asks (long/short positions) and contrary
to popular belief, they do not get stronger with time. In fact, they get weaker
with time as orders lying at those levels get filled with multiple touches over
time.
Longing support and shorting resistance every time, as you don’t have exact
entries and exact invalidation for stop loss placement, won’t work all the time.
What does this mean? Before entering a trade, you need to calculate position
size and exactly where to place the stop loss. If you follow the above strategy,
you’ll not be able to do that.
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| Support& Rrsistance |
Never blindly long support and short resistance. Below, you’ll learn everything
There are two trading levels, for now, understand what goes on behind the scenes
and how a level becomes significant.
We will rather focus on playing the support/resistance flip on our levels.
THIS is where your discipline as a trader will get tested. One thing deeply
rooted in trading should be to never blindly place limit orders when trading
on the same side. What this means is we should never blindly long a level
that has acted as support previously or vice versa.
Drawing levels based on Footprint data will be learnt later (P.S. it’s not
necessary)
For now, remember that they are created due to passive liquidity (limit orders
that you can see on the order book and market orders that are executed
Instantly, most used by retail )
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| Buy Orders& Sell Orders |
For now, we’ll use price action to draw out our horizontal levels, but it is
important that you always think of our levels as areas of interest where bids
are placed rather than simple lines.
Tip 1- Colour code your lines.
Try to colour code your lines and use a different thickness for the same.
You can use Red for weekly. Blue for Daily and Green for Hourly, etc and
remember it as RBG. OR if you don’t like the colours, simply right click and
label your lines as such.
REMEMBER each level must be visible on TFs lower and equal to.
For example,a daily level must be visible on the hourly time frame, 4 hourly and daily charts but not on the weekly chart
Let’s say you are trading the weekly charts, then there is no point in having the
millions of hourly levels visible on it.
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| How to use Horizental lines |
Before we move further, you need to have a decent understanding of
support/resistance
How to decide the importance of a level?
The importance of a horizontal level is decided by. Dante explained it as
Number of touches
Duration of time since the level has been in play
Nature of reaction: If price reacts violently to a level (large percentage
swings in price caused at that level.
Recency: Pro traders look at their levels from right to left and not in a
left-to-right manner. The levels where price has reacted recently is much
more important that wha t price did at a level years ago.
First , zoom out t o see the individual candles and wicks clearly but include as
many candles as possible on the chart.
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EUR USD pair 1W time frame Chart
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An illustration of how I would draw the levels on a weekly chart, arrows show
you my reasons of marking it. Before you start to get overwhelmed with all the
levels, just mark all of them out first . Note the 4 points which make a level
important.
Which levels to keep on your chart after this process? The ones which you
want to trade off .
Which levels do you mark out?
Just look for simple support and resistance points on the chart using the
importance roadmap.
Daily levels marked out on the same chart as above . Daily chart also seems to
respect the weekly levels we marked out in the first chart (this is a sign that
you’re doing this right). Always keep in mind to look right to left while marking
your levels.
There can be 100 levels drawn on this chart. Here’s how to further reason the
drawing and importance of your l evels:
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*DASHUSDT 1H chart* |
How to refine your levels for trading?
Many traders are very profitable trading level to level but it’s not as simple as
throwing your lines on a chart to buy support and sell resistance .
Level tuning: It’s as simple as one important saying, “Recent price action is the
best price action.”
Example:
A zoomed out 4 hour chart with levels marked out, Let’s assume you’re looking
for a trade in the blue box. When you’re confused about where to place your
level. Don’t end up with “analysis- paralysis” and place your level in the middle
of the zone you’re looking at, with the most touches.
Ex ample of tweaking levels using this middle of the zone concept is:
t is obvious you want a level between the 2 dashed lines. These scenarios are
slightly tricky.
You m ust pick a final level (non -d ashed line) close to the middle of the zone.
Just go for any one with most touches.
You still get 4 clean touches with the final pick. The exact middle is n ot
important, don’t let the imperfection of it upset you .
Remember how you we discussed orderflow earlier? S/R flips are just orders
being placed and mitigated. When we get to trading these levels, you’ll learn to
think of S/R as zones and not pitch perfect lines.
When should you not use the mean of the “zone” that we discussed? When
price breaks out violently from a range.In case there’s a violent break of a range high level, price is more likely to diponly slightly to retest the highs and fly off from the highs rather than the mean.Same concept for the range breakdowns.
Example:
One final tweak example of how
to use slight adjustments to fix u
p your levels.
A level such as this screams liquidity grab on the retest. Why? Simply because
there’s a lot of sell orders (stop losses on longs + breakout traders looking to
short price losing this level).
This means a Swing Failure Pattern will probably form here to trap them, how
and why do you tweak this level then?
As with any strategy, drawing levels is a skill but also an art . It needs to be
refined with time and practice. The more you trade , you automatically
understand certain tweaks needed to refine your levels .
No one can teach you how to EXACTLY tweak your levels. You will get front
ran; you will get scam wicked but keep following this system and keep
reviewing your trades and you will definitely be a master.
Takeaways:
Before we dive deeper into using strategies based on levels drawn. You want
to practice your levels first as areas of interest, areas where price reacts and
nail them down first.
Your best judge is always the market, best feedback is always price action,
remember this.You should be able to:
Identify zones
Mark level at mean of zone/tweak it as discussed for most touches
Recent price action is the best price action. Look right to left and fix your levels
as per what you expect price to do upon reaching them. Cannot stress this enough.
Taking trades once your levels are refined:
Any kind of knowledge about price action is not enough to make you
consistently profitable.To be able to achieve that, you need to form a strategy, a system that you stick to regardless of what your feelings are. Then you need to backtest it and track your success rate over time. Taking 2:1 R setups with a 50% success rate is
enough to be a trading legend, remember that.
Using the knowledge of levels we now have , we will trade the following scenarios.
3 touch levels can automatically be assumed to provide us with at least a short -term S/R flip to mitigate orders.These are very effective if traded properly; enter on the first touch of the level from the other side. Place limit orders for entries.
You always hear that you need to have multiple plans for every single pair.
We’ll learn about another strategy on the same chart with a different plan.
2) 2 touch level or a level already flipped and tested as resistance/support:
When trading levels such as L1, you want to have multiple confluence factors:
Daily bias (Most of what we do is against trend, but you want to fade LTF
trend and follow the HTF trend)
Fib levels, I draw my fibs between the Daily swing highs and lows(extremes). You want your levels to align with the 0.382, 0.5 and 0.618
to add confluence to setups.
3) One touch, you normally don’t want to trade levels like these unless there’s very high confluence. You can even use the RSI & MACD for confluence here.
Important clarification:
Targets and stop/trade management:
One thing to keep in mind is that you want to look at different TFs and draw
out your levels as described. Your fibs should be drawn from daily swing highs
to lows (and vice- versa), n ot the smaller TFs. But your execution TF where you
take your trade must be pre- defined (1 hour for me) and should give you a clear
trade idea.
Once you get good at drawing levels, EVERY LEVEL you draw, price will have a
reaction there. Don’t trade them all, in trading, patience makes perfect. Trade
levels where you think you can catch a decent swing as the charts will show you.
Trade entry can be at any level. I’ve categorized those entries into 3 sections
Each with their own requirements to actually enter a position.
Stop placement can be at any level above the weekly level. Here, if the 4-hour
level above if flipped to support, it means our idea for an SFP/Rejection at the
weekly level is completely wrong. Thus, you exit the trade when your idea for
entering is invalid.
Target is always the first trouble area (FTA), which could be the lower 4-hour level,
but the final target was at a blue daily level. If price had found support at
that level, we would have gotten out while in profit. Normally, you want to
scale out from trades at different areas where the price could bounce and keep
some part of the position running (on shorts, of course).
Price goes much lower than the blue daily level as a target, we get out regardless
For a great 4.8R trade, once you’re at target, get out, take profits, no emotions.
Note: There’s no specific way for the price to “reach” your level. If price rallies into
a level where you want to short, just short, violent price rally into your level means more people are trapped in the process.
This style of trading is very profitable, but you need to practice drawing those
levels and have conviction. Don’t be scared if the price slams into your level,
“Trading the trend” on LTFs means nothing.
We mark out all the levels, even if the chart gets crowded.
You need to know all the trouble spots beforehand and manage your trade
carefully if you want to trade at levels like this.
Note: Once a price moves over an important level, you can move your stop loss up to below that. If we form a new support, I want the price to hold it before
Reaching the target, that is how you manage longs.
The most important factor when trading levels:
Place limit orders when trading levels change roles. Wait for an SFP
when trading levels are where you expect a similar role as before.
Reasoning is simple: if a level has already behaved as support once, then
everyone is expecting it to do the same again. Market makers will exploit that
to run stops, and you want to be on their side as always.
Now that is cleared, in ranging environments, sometimes a support/resistance
will be held multiple times. A 3-touch level in the same role is the only time I
use an indicator, the MACD. For a level tested for the 3r d time, we first look for another SFP (it is fine if we don’t get it). Regardless of that, we need a MACD divergence, even better if you have an RSI divergence as well.
Obvious target at important 4H level. Stop below SFP wicks on a lowe r time
frame level.
Note: If a market is constantly moving to a level, it obviously wants to get
through there. Some traders say that if a price “holds” a level multiple times,
then it’s a great sign to bid the level, which makes zero sense.
Levels flipping, as we discussed, are areas to bid as they become stronger with
touches. Levels with the same role on multiple touches get weaker and weaker.
Weaker level = Requires more confidence to take trades
This brings us to the end of level trading. I hope you
understand levels a bit better now and will read the
References to get better at understanding levels
Thank you for your time
See you soon with further tutorials.
Remember, trade more, go slow, manage risk.
All the best. Don't forget to share.
