Scalping Strategy | Level building. How to trade levels in scalping

The correct building of levels is one of the fundamental rules for successful trading. You should not build too many levels on the chart. It is important to detect and point out only strong levels that are significant for market participants as areas where positions are fixed or loaded.
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What are the levels?

Levels are the lines that display the minimum and maximum of the instruments` price on a certain timeframe. Levels are places of mass decision-making. All signals and patterns of technical analysis take place from levels. For example, a false breakout is a breakout of the current level with a price bounce back. A true breakout is a breakout of the resistance level and further growth.
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Identifying strong level

To identify a strong level on a chart, you should remember that strong level is always of a huge timeframe (1H—1Mnth) and clearly visible for majority of market participants (even not very experienced ones).

Thus, you will find the place of the greatest concentration of interests of traders. Strong levels always attract traders, as there are places for setting stop losses and limit orders around the levels. There is no clear classification of traders in the market, but nevertheless, traders look at different timeframes. Thus, each participant will have their own levels marked. If they are added together, interest zones will form significant areas, which will affect the price.
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Moreover, the level is not a concrete price value. Almost every second trader, analyzing support and resistance levels, makes the same mistake, marking the level as some kind of absolutely insuperable price level. In most cases, strong level represents a short diapason, as shown on the screenshot above. The participants see this level and make decisions on it to buy/sell or fix profit/loss. Thus, levels are not physical barriers for price movement, but psychological zones where increased volume of orders are executed.

Signs of a strong level

There are some very important signs warning you that the price is approaching a significant level.

First, when the price approaches a strong level, trading volumes noticeably increase (old positions are fixed, new ones are opened, which increases the total volume of executed transactions).

Second, candles leave noticeable shadows when reaching a strong level. This is due to the fact that the price bounces from this level, executing opposite limit orders that are placed by market participants at this level.

Third, strong level is called strong when the price failed to break it several times. In other words, the more touches of the level made a price, the stronger the level is.
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Conclusion

While trading, we should remember that the price is driven by market participants or supply and demand. Taking strong level in consideration is a cornerstone of trading. You should not build too many levels on your chart, as it will confuse you. Pay attention to strong ones and use such rules to properly identify them:

  • The level should be visible for every market participant
  • Trading volume around strong level is always increased
  • Candles leave significant shadows on the levels
  • The more the price attempted to break the level, the stronger it is

We hope this article will help you in building levels in scalping more effectively. Be careful and follow your risk management!

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