The horizontal levels trading strategy is perhaps one of the simplest in Forex trading. It is a great strategy that works in many situations and is easy enough for a novice trader to use in a comprehensive way. Here are some of the ways in which a knowledge of horizontal levels can lead a Forex trader to a better overall strategy.
What Exactly Are Levels?
Horizontal levels are a fundamental part of any chart analysis. The actual horizontal level is found by drawing the price changes as a wave onto a chart. From these levels, Forex traders can find trends and hopefully predict the movement of the security from that point on.
Many of the best traders and investors in the world have confirmed that they use the horizontal level as the basis for many of their investment and trading strategies. Warren Buffett, Jesse Livermore and George Soros are among the top investors who have publicly stated that the horizontal level is a successful trading strategy.
How Important Are These Levels?
To most traders, levels are the second most important aspect of a chart right under price action. Levels can be used in many comprehensive strategies as well as by themselves. They are so fundamental to chart analysis that they are usually the first thing taught to professional Forex investors.
The Swing Point
The horizontal level can tell you where the changes in a Forex trade will possibly occur. Some Forex trading strategy relies on very precise timing. One of the most important aspects of the horizontal level is the swing point.
The swing point is the point at which a security changes its trend. A proper study of the horizontal level will tell you where a swing point is likely to occur. These points are the volatility that make for the easiest trades in the market. A good trader can make money off of any change in direction of a trend whether up or down.
Swing points in many instances will often repeat themselves. Studying the horizontal level of a security means finding the trends in the swing points. This allows an investor to make many trades on a single security that might make money.
Learning about the horizontal level can also lead to a mastery of support levels. The support level for a security is another tool that can tell an investor where a future swing point might be. Support levels will also tell you where resistance levels are, and these statistics will help you to locate entry and exit points when you make your trades.
Entry And Exit Points
There is no such thing as a good security or a bad security. There is such a thing as good or bad timing! The way to make money in a Forex trade is to time the entry and exit points so that you sell at a higher price than you buy. This is the main purpose of trading strategy – timing your trades.
When you find your support and resistance levels so that you can identify your swing points, you will understand where to enter and exit your trade. You will have the ability to predict future turning points and make money in a precise way, not through haphazard picks.
Range Bound Markets
One of the more effective Forex trading strategies that can be extrapolated from the horizontal level is the strategy of a range bound market. Set a range for your preferred security that you expect to continue for a while. Buy during the low points of that range and sell during the high points of that range. As long as there is no kind of change in the support levels of your range, you can look forward to a similar range for future trades.
As a horizontal level changes in the future, you can adjust your range in order to create a more effective trading strategy in the future. A horizontal level that breaks a support level, for instance, likely signifies a new range. This is one of the most important concepts to understand in Forex trading – a certain range will not continue forever ad infinitum.