Key levels and why, then how to spot them
I've written several articles around various educational topics here on TradingView all of which have their individual application and use case.
This latest post will go into how you can identify key value areas, or what I like to call "Auction areas".
In essence these are areas or zones where Dumb money becomes active, often at highs or lows & usually in the wrong general direction. You only have to look as far as this guy and nearly 2 million followers - buying the ATH's of Bitcoin last year.
In December 2020 I wrote an article on Bitcoin here & why it was starting to show signs of becoming institutionalised.
And slowly set the path as to why we are then likely to see "Value areas" being formed.
In Feb 2021 I followed this up with the identification of a value area.
As you can see; this is how powerful these levels become
These levels are only part of the bigger picture - but you will see how and why they are relevant, how they can be used to find both highs and lows - as well as giving a larger picture bias on the general direction of the move.
==================================================================================
Now you have a little context.
To understand why they work, you need to appreciate, what they are - As I mentioned above, these are zones where Dumb money get excited! It's as simple as that.
Many indicators are designed and shared to mask true market cycles; people will spend years trying to find the secret sauce. However, things like Bollinger Bands, MACD's are only fuelling the dumb money machine. Take Moving averages for an example - if we have an aggressive uptrend, you should expect a sloping moving average. With a few buttons and presses in the settings, you can edit a moving average to fit the chart.
So strip it all back.
What you are looking for is, areas of consolidation - these areas are indecision zones where buyers and sellers are actively seeking value. These levels create the foundation of the value area range. This can then be used alongside liquidity pockets and used to enter or exit trades. Click this image below and see the levels get tagged, this is due to the collection of Dumb money stops & entries, followed by a reversal into the lower liquidity area.
Ok so how are they identified? Well, first of all you have consolidations; these tightening ranges of price will highlight the auction has began, we now have both buyers and sellers active.
As you can see in this chart above; we have two large areas to the upside of untapped liquidity...
Zoom in and you will see heavier zones whereby volume was heavy, but price hardly moved - this is a hint towards liquidity sitting there.
If you apply a simple tool like "Fixed range volume" you will see the profiles are concentrated around these levels; hence acting like a magnet to price.
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A great example of this was to use the levels created, in conjunction with Fibonacci extension levels to spot a potential zone for the upside (into unchartered territory) of Bitcoin's new ATH.
This was clear as early as August, we would tag the old liquidity levels and plummet back below 40k very quickly.
The levels are useful, especially when combing with other techniques such as Elliott, but when you apply Fib's and can spot key extension levels; it's a lot more likely to be pulled towards such levels if there is a consolidation cluster. This is merely "Dumb Money" value areas being bought and sold. Optimal for institutional players, or as Richard Wyckoff called them "Composite Man".
Looking at COT data and knowing the levels - meant we were 100% less likely to see $135,000 in December last year; CM was selling into the retail crowd.
============================================
So now you can see areas of interest, these levels are permanently set - although they become weaker over time, they still represent value for both buyers and sellers and are likely to become support and resistance at later points in time.
There are several strategies and methods to use this knowledge, some of which I will post in later posts. But I would advise you go away and try and spot some of these levels on other charts.
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
This latest post will go into how you can identify key value areas, or what I like to call "Auction areas".
In essence these are areas or zones where Dumb money becomes active, often at highs or lows & usually in the wrong general direction. You only have to look as far as this guy and nearly 2 million followers - buying the ATH's of Bitcoin last year.
In December 2020 I wrote an article on Bitcoin here & why it was starting to show signs of becoming institutionalised.
And slowly set the path as to why we are then likely to see "Value areas" being formed.
In Feb 2021 I followed this up with the identification of a value area.
As you can see; this is how powerful these levels become
These levels are only part of the bigger picture - but you will see how and why they are relevant, how they can be used to find both highs and lows - as well as giving a larger picture bias on the general direction of the move.
==================================================================================
Now you have a little context.
To understand why they work, you need to appreciate, what they are - As I mentioned above, these are zones where Dumb money get excited! It's as simple as that.
Many indicators are designed and shared to mask true market cycles; people will spend years trying to find the secret sauce. However, things like Bollinger Bands, MACD's are only fuelling the dumb money machine. Take Moving averages for an example - if we have an aggressive uptrend, you should expect a sloping moving average. With a few buttons and presses in the settings, you can edit a moving average to fit the chart.
So strip it all back.
What you are looking for is, areas of consolidation - these areas are indecision zones where buyers and sellers are actively seeking value. These levels create the foundation of the value area range. This can then be used alongside liquidity pockets and used to enter or exit trades. Click this image below and see the levels get tagged, this is due to the collection of Dumb money stops & entries, followed by a reversal into the lower liquidity area.
Ok so how are they identified? Well, first of all you have consolidations; these tightening ranges of price will highlight the auction has began, we now have both buyers and sellers active.
As you can see in this chart above; we have two large areas to the upside of untapped liquidity...
Zoom in and you will see heavier zones whereby volume was heavy, but price hardly moved - this is a hint towards liquidity sitting there.
If you apply a simple tool like "Fixed range volume" you will see the profiles are concentrated around these levels; hence acting like a magnet to price.
-----------------------------------------------------------------
A great example of this was to use the levels created, in conjunction with Fibonacci extension levels to spot a potential zone for the upside (into unchartered territory) of Bitcoin's new ATH.
This was clear as early as August, we would tag the old liquidity levels and plummet back below 40k very quickly.
The levels are useful, especially when combing with other techniques such as Elliott, but when you apply Fib's and can spot key extension levels; it's a lot more likely to be pulled towards such levels if there is a consolidation cluster. This is merely "Dumb Money" value areas being bought and sold. Optimal for institutional players, or as Richard Wyckoff called them "Composite Man".
Looking at COT data and knowing the levels - meant we were 100% less likely to see $135,000 in December last year; CM was selling into the retail crowd.
============================================
So now you can see areas of interest, these levels are permanently set - although they become weaker over time, they still represent value for both buyers and sellers and are likely to become support and resistance at later points in time.
There are several strategies and methods to use this knowledge, some of which I will post in later posts. But I would advise you go away and try and spot some of these levels on other charts.
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
Feragatname
Bilgiler ve yayınlar, TradingView tarafından sağlanan veya onaylanan finansal, yatırım, işlem veya diğer türden tavsiye veya tavsiyeler anlamına gelmez ve teşkil etmez. Kullanım Şartları'nda daha fazlasını okuyun.