The use of horizontal levels in Forex trading can be very effective, particularly when analyzing price charts. This concept can be used together with other trading strategies or as a strategy on its own. The simplest of price charts can be observed, and the horizontal levels of these charts can be drawn to track trends in the markets and price action.
The benefits of horizontal levels
Horizontal levels can be as vital to Forex trading as price action is. They allow traders to understand current market trends and predict future trends through the combination of price change analysis and horizontal levels. This concept can be used as a key part of successful strategies, as demonstrated by established traders like Warren Buffett.
The use of horizontal levels allows traders to note potential changes in a trend and make wiser trade decisions. Because trading is all about timing, the information revealed through horizontal levels is also valuable when making decisions like when to place a trade or a stop. As with many key tools and techniques used to learn how to trade CFDs, Forex or any other market, this method can prove to be highly advantageous with the correct understanding and analysis.
Swing points
By analyzing swing points with horizontal levels, a trader can gain a deeper understanding of changes in trends. These swing points mark the change in direction of a trend. By drawing horizontal levels of these points, potential trend changes become clearer to recognize and predict. It is vital to note that swing points often repeat a certain trend.
Throughout a chart, support levels and resistance levels can take each other’s places and repeat a pattern. When the horizontal levels of this pattern are marked, it becomes clearer when the next swing point is likely to occur. Through this prediction, an educated decision can be made on when and where to enter or exit a trade. This method makes it easy to notice entry and exit points, benefitting any trade strategy.
Ranging markets
When a market has clear boundaries that the price does not cross, it is called a range-bound market. Horizontal levels can be used to analyze these markets by monitoring how the price gets closer to one of its boundaries. This method usually allows for highly accurate movement predictions as the price is highly likely to stay within its boundaries.
These boundaries can be used as horizontal levels to track price movements and make trades accordingly. The trend can be expected to reverse once it reaches the horizontal level, and trades can therefore be placed just before it reaches the boundary. If the price is heading toward the upper boundary, a bearish trend can occur and the price will go down after reaching the boundary. In contrast, a downward trend in the price will indicate bullish conditions and the price will go up after reaching the boundary. A range-bound market also allows for clear risk and reward levels. The boundary at which the trade was entered will mark the risk level, while the opposite boundary will mark the reward level.
Beyond these few strategies are multiple other strategies that are used to analyze price charts in the Forex market. Within these strategies are those aimed at the long term and the short term, with either high risk or low risk, and they might require advanced knowledge and skills or a basic understanding. Although many of these strategies are useful on their own, it is always wise to combine several techniques into one personal strategy with a range of approaches and benefits. This will allow for greater advantages and a higher chance of successful trading.