Trading on Price Levels and its effect on small traders:



Trading on Price Levels and its effect on small traders:


Trading on Price Levels is a very popular strategy among various traders around the world. Nevertheless, for many people, this subject still remains an unsolved problem, which does not allow them to successfully trade in the currency and commodity markets.

Some beginner traders face the problem after breaking up the resistance and support lines on the chart, which they learned from the books written by various authors concerning technical analysis. All the authors of these books indicate us that our main task is to find a high “price levels" and to work on the price levels from the toss. Accordingly, the question arises is what level can be considered a strong level and therefore how to draw a diagram level.

The strong level is the place where the large player opens his position, which is also termed as “smart money”. Consequently, when the price reaches at a level to the "smart money" zone, the value of price is supposed to drop and the major player should defend their position.

The reason why the "smart money" is a strong level of protection lies in the fact that the big player has his position open and if he allows the price to move upward or downward it would appear to be losing the match in which the big player won’t be interested.


Therefore, our goal as a small retail trader is to find such levels to overwrite the big player, in order to open a position in the same direction that it has an open position and our stop-loss order to stop behind the big player's order. This will enable us to make our stop-loss order to be smaller, while the expected profit of 3 or more times greater than the possible loss.


Pic. 1 - The Big player levels

Key moments identifying strong price levels


1. Large players have big goals, big capital, and big ambitions to win the market. But in order to say that if they buy 15 billion dollars’ worth of assets, there is no need for liquidity in the market. Therefore they are forced to collect this position for a period of time and to repurchase it from small retailers.  Hence, we can conclude that the longer it takes the position of "smart money" is the more it is his position. As larger the position, the more we are dealing with the strong players. Hence, the accumulated position on a  4-hour chart is more powerful than the 1-hour chart of the consolidation, and the accumulation on a 1-week chart is stronger than the 1-day graphical chart of the accumulation zone.

2. The larger the "smart money" accumulated by the position and the big players in the market, the more strongly he defends his position and level of compliance.

3. The more aggressive the defensive player plays his position, the stronger the price level and the less likely the chance that our public order will be closed for stop-loss.


4. Based on the above information, the strongest level is on the graph: the POC (Point of Control), VAL and VAH levels of consolidation, and thereafter the Mirror level.

Pic. 2 - The protection of POC level by a large Player

What does the level of protection by a large player mean? The level is considered to be safe when the price level refers to the above level, at the same time the price increases from this level or the level of becoming a false break, and only then the price will be reduced from the given level.

Pic. 3 – Protection of the Mirror level by the big players 
 

The reason why the mirror level works is due to the following reasons: 

 
When a powerful buyer/seller create his position through the limitations, it is valued for a particular level that he is trying to protect. But in many cases, the player loses a positive fight with another bigger player and the price breaks its price level and goes against it. But in contrast to the small retail traders, the big players are not using stop-loss orders. It typically hedges his position through the options and therefore does not go through the stop-loss warrant from the market. The big players wait for the correction of the price and when the price reaches the value of the price in which he is in the position, the player closes his position. which is nothing more than the opening of a large anti-position. At the expense of this, the price goes down further from the given level and continues to move in a new direction.

Conclusion:


The strong level is the price level, which trades on the major players and is the place where lies its vital interests. The level of the price level is confirmed when a large player keeps this level of protection. Accordingly, the actual levels of trade transactions can significantly increase your positive transactions. Most importantly, your risk will be small and the profit potential is tremendously great because, after this level of reset, the price will go with great impulses for you in the desired direction.





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