As known, the price has a memory.
Past clashes between bulls and bears leave their mark on the graphic landscape, much later than the end of the market battles. Price bars should literally break through them, when moving up or down past these levels, even weeks and months later. In its turn, they become centers of attraction, which manifest themselves through many forms of support and resistance.
These traces of market battles give swing traders a valuable card., which identifies hidden areas, offering low risk trading opportunities. Actually, i used this «trend reflection» in its market analysis for nearly two decades. The process is simple enough: as the market rises or falls, look at past models, to predict, where these price shocks should bounce up or down. Occasionally, current price bars will even mimic the slope and duration of old patterns. In the diagram 1 we see an example, when bars reverse or gap open at certain price levels, to which they. probably, will react in a similar way during subsequent recoveries, no matter, how much time has passed. Such «memorable levels» can act as a classic support resistance, or identify the pivot center, where the price swings back and forth. Each type of movement offers unique trading opportunities.
These intricacies of price and time require certain deciphering skills.. Trend reflections determine the levels of trade execution over the entire range from the old low to the new high. Current forces can reverse or reverse the natural price trend, unfolding it at exactly the same level, as in the past. These forces can even lead to gaps., which pass through the characteristic points «trend reflections».
When planning to enter the market, pay attention to trend reflection levels, which are manifested, when the current price action moves in their direction. They include old highs or lows, formed over the past few years. If a certain level caught your attention, then watch for convergence with moving averages in the short term. Bollinger Bands and Fibonacci retracements.
Components «trend reflections» have their own validity period. Over time, individual characteristics of previous trends are strengthened or weakened by subsequent price actions. For example, common sense tells us. that support is increasing. when it withstands repeated tests. In this way, When she. finally, violated, the chances of future breakouts also increase.
This testing process gives us a simple procedure for assessing the relative strength of previous support or resistance levels.. In other words, we can make higher rates, when price levels hold for longer periods of time, and act more cautiously on individual events or overly «noisy» models.
Gaps, spikes and bursts of volatility can cancel out analysis «trend reflections». But, behind this challenging landscape lies a considerable amount of detail and structure. Trailers can reduce the level «market noise» and capture the main frame with a carefully designed template, placed on top of the price model.
For example, build a grid of Fibonacci levels on previous trends, to highlight the features of the market landscape according to their recovery levels. Then add moving averages, to gauge activity within known support and resistance. Draw trend lines and channels, to confirm expected turning points. The best setups occur at the convergence points of these layers of analysis..
Volatile movement may develop, when trends move across price levels, where there has been a multiple wobble in the past. Actually, odds tilt in favor of a new range of the same duration, that previous passages through these volatile zones. In this way, these «trend reflections» represent good levels for traders, to exit the market and take profit.
One way to estimate the current extent of a range is to. to count the number of distinct swings in the previous range at the same price level. In other words, the more hesitation we have seen in the past, the longer it will take for the current price, to break out of the congestion zone.
Lines «trend reflection» can appear at different angles. Notable trends often arise from many small trending movements of divergent price activity. In this scenario, both upward and downward impulses contribute to price movement at the same time. Regular trend lines or parallel channels cannot fully capture these strange impulses. Actually, smaller trending moves may not notice support or resistance levels for weeks or months, and then confirm yourself without any warning.
Past market action has a powerful effect on current price action. But, don't assume, that every impulse right to the point will stop at the same place, as a week or a month ago. The development of a trend combines many complex forces into each price bar. Traders can still isolate past influences on current price dynamics and make expert judgments about whether, where major trading opportunities arise.
A source: Forex Magazine.
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