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MODULE 2: Lesson 4

  1. Key Levels

What are the most crucial chart trading levels?

Significant technical levels at which a financial instrument may face increased buying or selling pressure are known as key chart levels.

When the price reaches those levels, traders look for key chart levels to place their buy and sell orders around, which accelerates price moves and increases volatility. Support and resistance lines, which act as price barriers when reached from the upside or downside, are commonly used to identify key chart levels.

Support levels are price lines that the market has struggled to break below, indicating that buyers may return to the market if the price falls to a key support level.

Resistance levels are similar to support levels, with the exception that they form on the upside and indicate price levels that the market has struggled to break above.

When price generally reaches a key resistance level, sellers may rush in and drive the price lower.

Types of Resistance and Support Levels

There are many different types of key chart levels that act as important support and resistance levels in the chart. In the following lines, we’ve listed the most common ones.

  1. Horizontal key chart levels: These are horizontal levels placed at the top of a previous swing high or bottom of a previous swing low, as the name implies. The price levels at which the market may retrace are then projected into the future using horizontal key chart levels.
  2. Non-Horizontal Key Chart Levels: In addition to horizontal key levels, traders can draw non-horizontal trendlines and channels to act as key support and resistance levels.

In Forex trading, trendlines and channels are commonly used to identify uptrends and downtrends and ride them out.

  1. Round-Number Key Chart Levels: These levels are based on round-number exchange rates like 1.00, 1.50, 0.50, 1.25, and so on. According to market psychology, traders tend to place their market orders around round numbers, increasing the buying or selling pressure around those levels.

Optional Assignment

Homework assignment:
Please create a screenshot of possible setups with an explanation of why this would
have been a good setup for this lesson’s homework. Remember to include your stop
loss in the image as well.