The following article aims to provide:
- Information about properly looking left on your charts, i.e. when looking for "fresh" levels, or when doing your evaluation
- What you should know about how far to take it when looking back in time
As Supply and Demand traders we are always looking to identify and trade "fresh" levels, which is the main topic of Enhancer #4. The simple reason for this is that we are trying to achieve the best probabilities possible for our trade (i.e. to stack the probabilities on our side), and the most statistically meaningful way to achieve this is during the first return of price to an untouched level (if you need more information regarding fresh levels and the first return of price, please see the Enhancer #4 article). But before even looking for fresh levels, knowing which areas are valid can save us a lot of time (and possible confusion for those that are new to the concept).
Excluding irrelevant areas is actually extremely easy, intuitive, and happens almost automatically once you understand the concept. This article aims to help you further visualize the process. Please have in mind that you will need some very simple (but proper) charting if you want to look further back than what your screen can fit. If your platform forces auto-resizing of your chart every time you scroll, or if it cannot share simple annotations (like horizontal lines) between timeframes, then it might be quite hard and frustrating to do your analysis correctly. Proper charting is the topic of another article, please make sure to read that one too in order to fully utilize your trading potential. Everything described here and elsewhere on the website feels completely natural to view and navigate when your charting is appropriate. Any possible initial difficulties in relation to identifying, evaluating, or trading valid levels and/or mastering the concept should NOT arise as a consequence of bad charting, that would be a waste of your trading potential.
Any possible initial difficulties in relation to identifying, evaluating, or trading valid levels and/or mastering the concept should NOT arise as a consequence of bad charting, that would be a waste of your trading potential
Going back to the main subject of this article, imagine that for a level to be considered "fresh" price must have NOT returned to it after the level was created. This means that as you are looking to the left on your chart, anything "hidden" behind newer price activity by definition cannot be "fresh". This is much simpler than it sounds. If you are looking for a level on a chart, any "fresh" level can only be located at the latest activity at any given price (no matter how long ago). Any area that has been covered by newer price activity is no longer "fresh" because it has been overwritten, and now only the newer price activity is relevant in any future trading. Anything that could have happened has already happened when price returned, and any Supply and Demand clues for your future trading can only be found at the latest "fresh" activity at any given price. Any overwritten (covered) areas are no longer applicable simply because there is newer, updated information about that price.
In the above example we can see three areas that could possibly contain valid Demand levels, and two that have been overwritten by newer price activity and are no longer relevant. This is applicable to all timeframes, so if newer price activity has overwritten previous price activity then the newer version is the one revealing what has possibly been left behind as far as Supply/Demand imbalances are concerned. Despite being hard to get this wrong if you are using proper charting, we have to mention the obvious: Demand levels can only be below current price, and Supply levels can only be above current price. The opposite is simply not possible by definition because if there was a Demand level somewhere above current price and price has now reached lower, then the level has now been broken (whether it worked and produced a reaction first or simply failed). Price might have left behind a valid Supply level on its way down, but no Demand level could possibly be there above current price.
If there is anything that looks like a level that you want to evaluate further but seems to be on the wrong side of price (like a Demand level above current price, or a Supply level below current price), then you are either looking at e.g. a Supply level instead of Demand level (i.e. price produced a strong move lower after leaving the level, not higher as expected for a Demand level), or you are looking at an area that has now been overwritten by newer price action and is no longer relevant. If unsure, then switch to a higher timeframe and look at the same area again, it should help clarify things by showing you that newer price activity has overwritten (covered) the previous price activity. Keep in mind that small insignificant moves might not be visible on the higher timeframe because different candles will be merged into one, but all significant moves will normally be there.
As seen above, the same applies to areas that could possibly contain candidate Supply levels. Any Supply level can only be above current price, and the area must have not been overwritten by newer price activity. If in the above example price now starts going up, it will have to go through any possible Supply levels first. After it does that, no valid Supply level can remain in any area that has now been covered by the rising price (only possible new Demand levels could have been left behind, below the new rising price).
Please keep in mind that all candidate levels have to be evaluated by using the Enhancers. Finding a possible level on the correct side of price and in an area that has not been overwritten by newer activity, does not automatically make it a valid level appropriate for trading. By evaluating the possible level using the Enhancers you will get a good idea of whether the possible level carries the stacked probabilities that we aim to achieve. The above article is merely intended to help clarify things for traders that are new to the concept, and in no way has to do with the proper evaluation of a level (i.e. it only helps you make sure that you are not looking at the wrong area). For the proper evaluation of candidate levels please refer to the Enhancer articles, they are available to you for free.
One final thing to remember is that depending on the natural timeframe of your level (i.e. the one on which it looks most clearly), a level can be quite old. This is absolutely fine, expected, and has nothing to do with how "fresh" a level is. Valid (fresh/untouched) levels do NOT have expiry dates, and any new Supply/Demand imbalance they generate as well as any market reaction they produce (when price returns to the level) is mostly due to new institutional/professional orders, not the original ones. If the level is valid and remains untouched (fresh), then it can be as old you like.
Although you can go as far back as you like when you are looking for a valid level to evaluate, you have to keep it relevant to the applicable timeframe
Having said that though, we have to make a very important clarification: Although you can go as far back as you like when you are looking for a valid level to evaluate, you have to keep it relevant to the applicable timeframe. For example, it would be fine (and actually expected occasionally) to look a few months back (and even further) while viewing the 1H or 4H charts, but do NOT try to go 6 months back while viewing and scrolling a 5Min chart. Yes, there might be a level there that could possibly be "valid", but do you really expect anyone else (especially banks, institutions, or other professionals) to spend their time looking back 6 months on the 5Min timeframe chart, especially for a level that even if it exists it will simply go unnoticed by everyone else?
If you want to look much further back than you would normally consider relevant to your timeframe, then make sure to switch to a higher timeframe. If you identify an old level that is visible on that higher timeframe, then you can also view it on both the lower and the even higher timeframes, which is part of the usual evaluation anyway. But your level's natural timeframe should make the area relatively easy to find, i.e. by scrolling up to a few "screens" worth of distance to the left. You do not need to start counting "screens" (which is very subjective and depends on many factors anyway), you simply need to avoid "unusual" situations that will be ignored by others (especially professionals), like scrolling back 6 months on a 5min timeframe chart.
So keep your searches in perspective and try to anticipate whether the majority of professionals will spent the required time to find the same level as you. If there are better opportunities around and they are easier to find, you can be sure they are going to prefer those ones. Also remember that not everyone is limited to trading just Forex (or Forex/CFDs), some professionals choose to trade many markets simultaneously and so they routinely scan dozens of charts of different instruments. We could say that in the same way a level has to be worth the expected risk in relation to the anticipated reward, it also has to be worth the time required to find it.