Horizontal Levels
Horizontal levels are one of the simplest strategies to make money in trading. It is one of the most use strategies in Forex trading. In this section you will know what Horizontal Levels are, how to draw them and how to use them.
What are Horizontal Levels?
A horizontal level is a horizontal line. This horizontal line can either be seen as a support line or a resistance line.
Most traders consider horizontal levels to be just as important as the price action, which is the core to trading. Analyzing the combination of the price change and the horizontal levels can easily lead us to understanding the trend and predicting where the market will go next. Horizontal levels is a very basic trading strategy, many famous and experienced traders such as Jesse Livermore, Warren Buffett, and George Soros have confirmed that they use it as a basis to many of their strategies.
Horizontal levels help us to identify key areas on a chart where a change in trend is likely to occur. This can be helpful for us when we are deciding where we want to exit a trade. Or when we want to enter a trade but don’t know the right time to do it. Timing precisely can be vital sometimes for some trading strategies. With a careful analysis of the horizontal levels it can help us to find the correct timing so that we can do a good trade. Keep in mind though that horizontal levels may be the foundation of many strategies but on its own it is usually not enough and therefore must be used in combination with other indicators.
Difference between a Horizontal Levels and a Trend line
The difference between a Horizontal line and a Trend line is the angel. Look at the two pictures to understand that fully.
An example of a Trend Line
An example of a Horizontal line
How to make a profitable trade with Horizontal Levels
Usually before I enter a trade, I always draw a horizontal line and a trend line. After that I look at the price action bars. With those three element (horizontal level, trend line and price action bars) combined I pick a price point to enter the trade or to exit the trade.
For example if I see a stock price is about to go near the support level then I wait till it bounce back off the support level. Usually you can identify the bounce back by looking at the reversal price action bar. If there is no reversal bar to spot then most likely it will break through the support level. If that happens then most of time I stay away until I can clearly identify what the new trend is going to be. And if the price will go up near the resistance level then I will do the exactly the same thing what I do for when the price is going the support level.
Now what if you already own a security (stocks or currencies pairs and so on) what would you do?
When I already a security then I would draw a horizontal level and a Trend line. And look at the price action bars to pick a price point of where I should sell the security.
For example if I see a stock that I own goes down then I would sell it if it exceed my minimum lost ratio. I wouldn’t wait till it bounces back from the support line because you never know if it will bounce back.
And if I see a stock that I own is about too hit the resistance level then I would keep it. If it bounces back from the resistance level then I would sell the stock. However if I was in a CFD trading or option trading then I would sell before it hits the resistance level.
What have you learned?
After reading this section you have learned that you should use the strategy of three elements. And that strategy can be very profitable.
You have also learned what Horizontal levels are and how to use them for your trading strategies. And you know also now that horizontal levels are used in many strategies and that great Investors like Warren Buffet, George Soros, Jesse Livermore and so on are making use the horizontal levels. With this valuable information you now have increased the chance of making profits with your trades.
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