How To Identify Key Levels

Swing Highs and Swing Lows, Created by EMA9 Rejections

Price action comprises of balance and imbalance, also known as contraction and expansion.

• A trend is an imbalance, fewer sellers than buyers or fewer buyers than sellers, driving price in the direction of the largest group;

• Bounces during downtrends or pullbacks during uptrends are temporary imbalances against the trend, that cause a pause in that trend.

Bounces and pullbacks are swing attempts against the trend, and have a high probability of failing. After the pause in trend, the trend resumes and continues, leaving the bounce or pullback behind as a ‘failed swing’. This is essentially where my system starts. Every bounce or pullback is a potential reversal. All price has to do out of a bounce, is hold the low and make a higher high to market a successful swing. More about this further down.

Exhaustion Candles

To spot key levels, all you need is to understand where a break out or break down candle exhausts. From my experience, this concept is just about the simplest thing you will learn, and also the most repeatable. Here is an example on D1, but the concept works the same on all timeframes. It is just that daily and weekly levels are stronger than hourly levels, and thus become “key levels”.