If the price level is headed down, entering the foreign exchange market may be inviting for a trader who wants to set long positions. As it appears, the odds are in his favor; he simply has to anticipate the time when selling prices go up to exit the position. Then again, if forex trading were that easy, why do unsuccessful traders exist? The answer lies in the fact that trading in the forex market is not limited to a trader’s involvement. His trades matter, but so do the other market components such as market behavior, trading volume, recent currency exchange rates, and recent economic conditions; and, of course, the price level with regard to all these factors.
Definition of Price Levels
Price levels are set currency prices; they define points with regard to the worth of a currency for a buyer and a seller. They are beneficial to various traders, but retail traders are the ones who can use them the most for higher profit potential. By nature, their employment can determine order and regularity in the forex market. Since market movement is considerably random, better forecasts can be made by relying on pre-set price levels.
Moreover, in forex trading, there is a strategy referred to as price level trading (price action trading, to some). It requires proficient knowledge of price levels and the method of using them to increase profitability; alongside, price action analyzers such as candlesticks, charts, and bars are part of the deal. Granted that he has sharp analytical skills, a trader holds the clues to virtually every action (including the slightest market movement) of prices.
Elements of Price Levels
Although it can be said that they are merely descriptive of price changes, price levels should be subject to further analysis; particularly, price levels’ market liquidity, as well as market volatility, should be examined. The analysis process may be categorized under technical analysis, but it includes an aspect that does not require technicalities; it involves the behavioral analysis of the general market.
Upon closer inspection, price levels are determinant of various market actions. This is why meticulous reviews should be done; an analyst can discover that it comes with different elements.
Common elements of price levels analyzed by Fibo Group:
The Rule
As observed, the profit potential of price levels lies in the occurrence of repeated price levels; price levels are revisited usually at consolidation and reversion points. It follows that since price levels are known to re-appear, raising a trader’s forex profitability involves waiting for (at least) one previous level to be reached.
In this regard, it is important for a forex market participant to abandon his expectations (that a pre-set price level will be revisited) at the right time. If the price action seems too unpredictable, the pursuit of another price trend seems practical.
