Failing Day Trading Levels

Admittedly, sometimes we all misread the market from time to time and ‘look’ for entry signals at certain prices when we should not. But what about levels which are entirely valid and yet fail? You might suggest that if a level fails to hold then it’s probable that you won’t get a signal if your system is correctly designed and calibrated. Well sometimes this is true and sometimes it isn’t.

Because the markets are made up of different all sorts of different players who trade for a variety of different reasons, levels are constantly failing on different timeframes all the time while also exhibiting favorable behavior. This is clearly a good reason for having a strong risk management plan in place.

But if levels are constantly failing, why pay attention to them at all let alone use them to trade? All markets are pock-marked with literally thousands of minor and major levels of interest. From daily/weekly/monthly highs/lows and session gaps yet to be closed to pivot points, Fibonacci retracements and even moving averages at times, the market is constantly testing and breaking some levels while rebounding off others. Some act as areas to test for market strength and others are where the market more directly tests prior supply or demand where there is resting inventory built up.

So if you’re going to trade at a certain level, what can you do to make it more likely to be profitable? Well it’s back to that lil’ ol’ thing called context. You must look at where the market is relative to recent trading. You have to identify which players are currently in the market. Is the market trending or bracketing? How does the market approach the level and what does it do when it gets there? What is the level based on and does it correspond to any other point of reference?

But what about when you’ve taken all of that into account, traded the level and then it still breaks? Well, sometimes that just happens I’m afraid. It’s impossible to know what everyone is going to do all the time or to predict unscheduled market moving news releases. But when important levels do break, it means change of some kind is potentially happening and that can lead to opportunity in itself for a trader who is flexible.

Don’t disregard levels just because they don’t hold. Levels not holding isn’t the same as levels not working. Valuable information is there for the taking if you look carefully enough.

Trade well.