How I Use Key Levels in my Trading
My Trading System pt. 2
There’s Levels to this Shit
Key levels are technical levels where prices tend to face buying or selling pressure, often acting as support or resistance on varying timeframes. Support levels are areas where price action has a difficult time breaking below, whereas resistance levels are areas where price action has a difficult time breaking above. There’s usually large buy/sell orders placed at said levels, which produce larger price movements/volatility.
Key levels can be large psychological numbers ($400, $450, $390, etc… on $SPY). Psychological levels tend to be large whole numbers where we’ve ranged in the past. Levels can also come from price levels where we’ve experienced rejections or bounces in the past, especially on larger time frames.
How Do I use Key Levels?
Key levels play a large part in my trading system. I use them to spot potential rejections, bounces, or momentum. The majority of my key level plays recently have been rejections that line up with EMAs (shoutout @CoachDipka and his ridiculous names for these plays) for added levels of conviction; these can also be upside plays, but we just haven’t had too many of those recently.
In order to provide clear explanations, I’ve included charts to show exactly how I execute my plays with levels.
In this example from this morning’s face ripper upward, I use two different levels to execute my plan. I’m including the 5 minute chart to break it down on a smaller time frame to show more detail!
After the initial move up on the opening candle, we got a pullback to the 382.30 level I had marked from areas of resistance on 6/13 and 6/15. Once that candle closed on that level, I entered calls because we got a pullback to a key level and the 8EMA (two levels of conviction)
We got continuation to the next level in the same fashion and I trimmed as the next candle pulled back to it to the penny! I secured profit and let the rest of the trade to work itself out.
I fully exited as I hit over 300%, because I will always take profit if I’m up a few baggers. I don’t try to hit 1000% trades because a move against you will wipe out a ton of profit.
This example comes from a key level/EMA rejection play I’d made on 6/9 (nice). Here, I’ll tie in volume along with the rejection. However, I’ll be covering how I use volume in a completely different newsletter post in the future.
After the opening candle play, we showed weakness above the 410 level (big psychological level) so I kept an eye out for making a play to the downside. Second candle of the day also rejected the 410 level, and had less volume than the first.
Third candle of the day made a $2 move up to the 412 level with even less volume, and lined up with the 50EMA (yellow line). I entered on the next candle to play the rejection of the 412 level/50EMA, with decreasing volume as another layer of conviction.
Trimmed at that 410 level and was completely out as we approached the LOD.
Recreating These Setups
These two examples highlight the methodology behind how I use key levels in my trading. The general idea can be applied in a variety of ways, whether I’m playing rejections or bounces.
I’m always extremely patient and prepared in having my levels drawn before each trading day and letting each setup come to me. If the setup isn’t there, I won’t force a trade just to trade. If you find yourself taking trades just to feel something, here’s the gambling addiction hotline number 1-800-522-4700.
Next week’s post will be how I incorporate macro level and intraday fibonacci retracements as price targets or key levels. These are my absolute favorite tool.
Disclaimer:
None of this is financial advice. I am not a financial advisor and any content put out on this newsletter should not be considered financial advice in any way. None of this information will guarantee any sort of profit. Always do your own due diligence.