Magic Levels.

Price levels in most of the trading systems are the starting point for any trades to be made.

Traders are searching for levels, to enter the market depending on the approach, bounce or breakout,
to follow the trend, or against it, with a hope for a trend reversal.



And each trader is using tons of instruments to find this levels, like Fibonacci levels, peaks
and troughs during the specified price cycles, time cycles, Fibonacci cycles, levels confirmed by momentum
indicator, like RSI divergences for example etc...




So basically, there are a lot of ways to search for a levels to trade.

But a lot of traders are leaving aside one of the easiest applicable approaches,
which is giving most fundamentally, psychologically and historically based levels.

I call this approach "The magic levels".



Some traders would recognise it as a round price levels, or sometimes it called "Trading
round numbers". But there is a difference, which makes this approach more significant.
So with a hope that the article will be interesting for everyone, for a professional and for a
newbie, I have decided to write about it.

No matter what your trading approach is, you will use "levels" to enter the trade.
A.J.


What is “Magic level”
Let’s look at the graph, and try to search for a price behaviour to a certain price levels.



As we can see, price is reacting mostly to the aliquot price levels.

This is a recent 1 Day EUR/GBP chart. We have to be able to spot how many pips
are in between these levels, in this case it’s 50. We can see that price is reacting to a
“Magic level every 50 pips, on a 1d Chart.

As only we have spotted such level, we can be 80% sure regarding the future price behaviour.
What it exactly mean is, that price is more likely to react to this levels in the future, again and again.

How to spot the levels?
Firstly place horizontal lines on the higher time frame peaks and troughs, and “tune” them
to the closest price levels that are multiples of 5. I personally start with multiples of 50 on a
daily chart.

Here’s what we got on a EUR/USD Daily chart:


As you have noticed, not all of the peaks and troughs are marked with an ellipse, but,
I’m sure you can spot them.

Then let’s go to the lower time frames. In this case I will Use 6Hrs TF, the same currency pair.



Then we have to do the same, as we did before, the only difference is, that on the lower TF’s
we can spot much more peaks and troughs.

Place the horisontal lines and “tune” them lo the smaller multiplies of price.
In this case I have shown you the levels, that are multiples of 25, and marked them with a rectangles,
for you, to be able to see them, but I’m sure, you would be able to spot them without any visual help.



How to use “Magic Levels”.


Here is the interesting part, with Ideas (not rules) of how to use it.

1. When the market is going up or down, we know what our first target is
We can Use the Idea of “Magic Levels” on different time frames with different multiples.
We just have to be aware, that the “starting point” to place the first price level, is not always a “round”
number, as each instrument got different behaviour and multiples will be different as well.

So you have to make your own research on each instrument, that you’re going to trade separately
and “play around” with it. It will take time, but the knowledge you’ll get regarding the price behaviour
of the Instrument, and it’s Magic levels, will be your guide to place your limit orders, and you can be 80%
sure that, if the price confirmed the breakout of the level, the next “Magic Level” will be your first target.

2. When we're expecting the price reverse, we know levels where to expect it mostly.

For example if we have a Spinning top price pattern, and the price failed to break the level, we can take it as a signal to reverse






3. Adding“Magic levels” to your system,

If You’re Fibo trader, you can see, which levels are more significant.For example here you can see the 38.2% fibo Level, has worked out quite well.



Of course, knowing and understanding, that TA is not a science, it’s an Art, and we always have to remember
about small magnitude of error, and have it in our mind, while placing an orders.

4. Money management

Do we know where to place a stop loss now? Yes, “Magic Levels” can be your guide, to place your stop losses,
knowing that without stop losses, it’s impossible to earn on the market.

Ok Folks, that’s about it, and if you're interested in this kind of approach, always happy to write about it in The future articles.

But to make my article easier to write for me, and to read for you, please send me some questions in comments and I will post a new article shortly.

Good luck with your trading!

Sincerely

Marenno
Arturs Jermolickis
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