Where will the trend go: where should you open and close positions? Building a market map.
How to find out where the trend can turn, where it will slow down and follow the sideways trend, where other market participants start to fix profits, at what point the probability of the prediction increases, and when does it fall.
We all traveled, and we know that feeling when we need to reach a place: a hotel, a museum, a shop.
If we don’t know the area, all the ways to learn more about this place can be divided into 3 global ones: to ask for directions, wander along the streets in order to find familiar landmarks or open your map, that smart travelers have downloaded for their smartphones before the trip, in order not to depend on the Internet and roaming.
Trading works the same.
Someone seriously hopes to find a source of reliable signals, monitoring chats, and there start discussions like “where does Beethoven go”.
Others make transactions emotionally and randomly, according to the principle “I see money, I feel that I am right”. They know that feeling “oh, hell”. Despite regular losses, they still have an adrenaline optimism “once I’ll succeed.”
Others make a trading plan, correct it using statistics, which they carefully collect during their practice, analyze mistakes and learn to follow strictly the basic principles of the plan, even under the pressure of the strongest emotions.
The 1st group sees the graph as an uncertainty threatening set of lines. The second group sees what it wants to see. For the third one, the graph is a map with points, the achievement and non-achievement speak about the next step. Something like the ordinary navigator algorithm, but without a voice🙂.
Today we will tell you how to act as Mike: to be able to calculate the entry points, the exit of different risky levels, assume further market movement if it is possible, and use a similar forecast to create an action plan for each trading case. Also, according to market map, you can see where the major part of traders put Take Profit.
The way “market maps” works
“Market Map” is a markup made via building the nearest support and resistance levels on all timeframes which can significantly effect your open positions.
What timeframes can affect, and how to build a market map:
- Apply the next support and resistance levels on the monthly and weekly timeframes.
These are strategic timeframes. They are rarely used for trading, but they’re taken into account while opening positions. As a rule, all market participants are guided by them, and that is why the market reacts to the levels of weekly and monthly timeframes.
So, we have 4 lines on your chart, let’s go ahead.
- Build the nearest levels on the daily timeframe.
D1 — the most important, a coin, and on which timeframe you are trading — it doesn’t matter. On the daily timeframe, most market participants are guided. Its levels are taken into account by large and small traders: people and robots. This makes the levels of D1 the most important. Even during the trade on short timeframes, the daytime will be the key one.
So, you add 3 more lines.
“But why three?” — the most attentive may ask. We have only two levels.
In addition, it is necessary to build a third one on the daily timeframe near the two nearest support and resistance levels. Support or resistance level that was pierced as the last one.
— * For those who trade not on the daily timeframe:
It is important to build support and resistance levels on all timeframes, up to the one you’ll use to determine market entry points.
For example, you are trading on the hourly timeframe. Your aim is to see support and resistance levels on the monthly, weekly, daily, four-hour, and hourly timeframes. And so on.
— While trading on short timeframes such as M5, monthly and weekly have a smaller impact, but they are still important. You must take into consideration the day, 4 hours, an hour, preferably 30 minutes, 15 minutes, 5 minutes. Rebuild them more often.
The level on the daily time frame can be rebuilt at least once in 6 working days. Working on the M15, you have to rebuild levels several times a day or at least once a day. Therefore, the analysis of the situation for making decisions on entry and exit on small timeframes is traditionally considered to be more complex and accessible mainly to professional traders.
It may seem that preparing a map of the market takes a lot of time. But this is an illusion: monthly levels are formed for at least six months, weekly one 1,5–2 months. By making the markup once, you will rebuild support and resistance levels every few months. You’ll receive valuable information: the most possible points of trend reverse, the market goes to sideways trends, Plan A, Plan B, and so on.
In order to put a “market map” on the price chart, we need to build the nearest support and resistance levels on the monthly and weekly timeframes. Two levels on the monthly, and two levels on the weekly. Then put the 2 closest levels on the daily timeframe, plus the last level pierced on it. If you are trading on smaller timeframes, then you need to build levels on all timeframes from major to minor, including yours.
How to build a market map (in pictures):
- Build support and resistance levels on the monthly timeframe:
Why the levels are exactly there, we hope, you understand.
You see two bearish and two bullish candlesticks in a row, which form a support line, and then a pair of white and black candlesticks, they show the resistance level.
- Visit the weekly timeframe. Let’s suppose that on the weekly timeframe you see this situation:
- Then visit the daily timeframe. As we remember, it is the key one, if you want to make a number of important decisions: about entering and exiting the market, defining the direction of the trend:
Why should we build support and resistance levels on large timeframes? In order to see the zones of these levels, where they pass on the daily timeframe. You need to know this in order to determine the entry points correctly and plans to exit the market.
Before making trading decisions, it is necessary to build support and resistance levels on the daily timeframe:
Sometimes the daily support level coincides with the support level of a longer timeframe. Then the line of the shorter timeframe you can delete.
A larger scale is more important as the market can take it into account.
We remove the line of a smaller scale.
We build two resistance levels on the daily timeframe: current at the current time and the previous one.
What do we have:
Resistance level 2 is the goal. In its direction, the market can follow if it pierces the current resistance line
Congratulations, your market map is ready.
Let’s find the targets by map
Let’s suppose the coin continues to grow. Here is a great chance that the price movement will slow down or stop near the nearest resistance level:
According to the second property of support and resistance levels, the market beats off the level rather than pierces it.
At this point, it is possible to guess that the closest target will be near the closest resistance level.
What if the level is pierced?
If the first property works, and the market pierces the level like this:
Then the new target will be the resistance level №2.
What does coming close to higher order levels mean?
As you come close to them, the price starts to behave unpredictably. Often, flat, triangles and other situations are formed. This is a signal to take action.
Let’s suppose that from the current point the price goes down and reaches the level of support of the weekly timeframe:
According to the second property, the price is more likely to beat off the level than break through it.
How do we need to react, following this market movement, if it happens, it’s the second question.
It is important that if we decide to open positions in a current position for a reason, then the goa, TakeProfit, will be the level of support of the weekly timeframe. Most traders put Take Profit ahead of the level.
If we look for a purchase entry, then one of the best opportunities for opening for a raise will form near the weekly support level. According to the second property, the price will break off the line than pierce it, especially in situations if the market is in an upward trend.
Near levels of the greater order, the market is slowing down
Very often, if the market comes close to the support and resistance levels of long timeframes, weekly and monthly, flats and triangles are formed:
The market is losing a focus
Sideways trend does not serve as a signal of the direction of further market movement. It is not necessary at all that after the sideways trend the market will turn or continue the trend. Following the sideways trend near the support, the line shows the work of the second property of the lines, the market reaction. The sideways trend suggests that traders are closing their positions because they do not want to trade as actively as they used to, at least until the fact of the breakthrough of the line.
On the daily timeframe, coming close to the resistance level W1 works like this:
The classic situation is if a part of sellers in this zone chose to close positions. Next two weeks the market fluctuates near this level before it break through it. The price does not just fluctuate, a small triangle is forming:
If we had not built the level of support on the weekly timeframe, we could painfully wonder why the price had stopped:
You can build complex hypotheses and look for reasons, while it’s really just something that is observed during the second property that the market has a great chance to beat off the level than pierce it.
If you trade on a daily timeframe, the market will come close to the weekly or monthly timeframe, and you will not be notified in advance, you can at least lose some profit, also, you can close the position with a loss.
With linear movement, during the vertical growth or fall, the market slows down near support and resistance levels. So, having reached the line of the monthly timeframe, the market can fluctuate for several weeks:
Some see here colored candles, while others, the closing of the transaction due to the uncertainty.
Penultimate punched level as a goal
At any moment it is important to understand which level was pierced last:
- The levels can change their roles.
Let’s say that the market has pierced the level. If you know the third property, then assume that the market can return to the line and beat off it. Then the resistance, in front of us, turns into support level.
Here the second reason to control the last pierced levels:
- Profitable market entry points
If the market pierced the level and has not returned to it yet, this level can be a platform for interesting market entry, in the direction of the trend.
- A dangerous entry point
If the market returns to the level, piercing it again, from top to bottom, then the level loses its relevance:
The third level property did not work.
Today we’ve found out:
- Market map — 7 levels of support and resistance.
- What gives the map of the market:
- the most possible direction of the market,
- the points where the signals most favorable for entry can form,
- price zones around which it is worth closing all or part of positions.
- You need to build a market map from the longest to the shortest timeframe, including your working one. If you trade daily, then D1 is the last timeframe for building levels. If you define the entry point on shorter timeframes, then you need to build it on all timeframes, including yours.
- Support and resistance levels on long timeframes show us how the price will behave: at what point it may slow down and even turn around. Based on this, you can set TP, and re-open positions in the least risky zones.
- A larger scale is more important as the market take it into account.
The market map is an integral part of the trading plan. The next step is to determine the price pattern, sometimes referred as a trend. It is very important to be able to decide whether there is a trend in the market or not and use the appropriate opportunities. More about that you’ll find out in the next series.
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