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We have a quick question here from Asanka, asking how we can go about finding high probability price levels that the market could likely react from, and this is in reference to the more recent price moves that we’ve seen in the PA like the Pound/US dollar from last week and this week with the PA as very well respected the mid-level psychological levels, like the 1.2550 and the 1.2450, 1.2650 et cetera.
Now I think the first thing to say is that we obviously never know in advance where the price will react from, right? But what you would have noticed by now by watching our videos, as well as the boss videos that we’ve done is that the levels that we usually market on the charts have a very high probability of providing either support and resistance. So we usually see the price reacting quite well or quite strongly from most of those levels.
Now this isn’t because we have some secret weapon, or something like that it’s just because we’re always trying to look for confluence on the charts or evidence. And to your question one of them, of course, is psychological price levels.
Now, the way to know when price is more or less likely to react from a psychological price level or whether you have a higher or lower probability for any particular level for that matter is by looking at confluence or evidence on the chart. So that means looking for other things that might mean that price might act as a magnet towards that particular level.
Now, one of these elements as we said and to your question is psychological price levels. So that’ll be your 1.26 flat or your 1.27 flat or 1.28 flat or that could be the 1.2750, 1.2650, 1.2550 etc.
But the other elements are also just as important like normal support and resistance structures, trend lines, the average daily range, pivot points, whether that’s the regular daily pivot or the AS1 or the R1 all of these things are very helpful to find very high confluence area. So looking at the Pound/US dollar, over the last couple of days, it has been a good example of respecting the psychological price levels, but also acting in terms of confluence with most of these levels.
So, on Friday, we, of course, had the almost perfect rejection from that 1.2650 level. Now, the psychological price level itself wasn’t important by itself, but what other factors we hadn’t played was important.
So at the time, we also had the daily pivot. That was almost I think, right on top of that level, if I’m correct, and we also had this overall area that acted as both support and resistance prior. So a very important level on the chart from a support and resistance point of view. And I think at the time we’re also had the ADR not too far away on the ADR high not too far away from that chart. Let’s quickly go to that Friday video.
So let’s just open up this one, we went up to play the video. So there we go, so we can see that, from that 1.2650, we almost had the daily pivot point right on top of that level. We of course had that overall support and resistance structure. So there was confluence not only from the 1.2650 but from all the other elements on the chart as well that told us this is a high probability area to expect some resistance for the pay to come in.
Now, of course, even to the downside, we dreaded this to the downside. So what we looked for in terms of support, yes, we did mark out that 1.2550 but apart from just marking it out as an arbitrary psychological price level we know that this was important firstly, because that is where the price rejected from earlier in that session. So that was our most recent fav value low.
But apart from that we also had other things like the S1 pivot was right and below that level. We also had the ADR low. So this entire area gave us lots of confluence that the market will most likely react in terms of support from that level. Now, of course, playing out later the chart actually moved here. It broke through let’s go back to the actual chart. And what happened is we did reach that level but we broke through and came back and see exactly where we retested it. It exactly that zone again.
So these levels are great to have on the chart, the psychological price levels. It’s a real useful tool to have in your charts in terms of analysis, but they are always going to be more useful when we incorporate them alongside the other many tools that we have like the pivot points ,like the ADR, like support and resistance and then of course, the higher the timeframe goes, even more important these levels become. And because we often see them react from the strong psychological price level.
So I hope that helps Asanka with knowing when and how these levels are more or less likely to see reaction from in the markets. Any other questions, don’t hesitate to let us know