TradingLevels
The TradingLevels are a great analysis tool and also perfect for making trading decisions, they have simplicity to them and work very well on most markets globally. They are best suited for position and trend trading, but can be used in any time frame as they can operate in a macro micro environment. Once traders understand the basics of the TradingLevels, there trading will simply improve, in fact you will be able to look back at where you made and lost money and you will understand why, you will refer to a TradingLevel and ask a few simple questions such as, is this level a major, medium or minor level? Is the market above or below the level – meaning support or resistance? These and other simple questions will assist the trader in making decisions on entries, stops, and exits. Of course the TradingLevels offer much more than this as you will see. This article offers the basics; the TradingLevels Analysis Service offers an education in the TradingLevels, along with volume and a touch of Elliott when understanding corrections. The service also offers what when and how to trade, offering both these aspects, which is education, and trading helps complete a fuller and more robust understanding.
The Tradinglevels are based off phi also known as .618 or the golden mean or golden ratio. The mathematician Fibonacci recognized this number in nature, he wasn’t actually the first Archimedes was also aware of this. The sequence runs like this 618 + 382 = 1 together they =2 all together they =3 all together they =5 on so. Looks like this 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144… the sequence is based on the 618 as a growth ratio. These numbers are found in nature as large as the unfolding universe and also in nano nature. Most traders have come across them in the market as Fibonacci retracements or extensions normally used with Elliott Wave theory, they are also used in time, not as successfully as used in price. I have found a new way to use them in the market, which is very simple to use, I say simple because traders that use Fibonacci retracements need a very strong understanding of Elliott wave, I have been using Elliott Wave since 1984 and can see the weakness in all the computer Elliott wave software and have watched traders apply retracements without connecting the retracements to the right wave structure, so I understand without a good few years of dedication of Elliott wave then using the Fibonacci retracement and extension is going to be a hit and miss affair.
The TradingLevels simply use this sequence to chart the growth of a company via the charts, this is simply done by converting the sequence into price, the price then becomes a growth ratio $1, $2, $3, $5… I have also expanded on the ratio, but still using the sequence, that is by using the power of 10, using the power of 10 is how space is measured and essentially that’s what I’m doing, it’s the space on the chart. So this is how the new sequence looks;
1 2 3 5 8 10 13 20 21 30 34 50 55 80 89 100
The orange numbers are the power of 10, as you can notice they are still running in the sequence of 1 2 3 5 8… Just with a zero added. On closer inspection we can see that the numbers are just reoccurring except the 13. Because, we start at 1, then 2, 3, 5, 8 then 10 again, the 10 to 100. Generally speaking the 1 and the 5 are the strongest numbers. The power of 10 numbers are stronger than the others such as 20 is stronger than 21, 30 is stronger than 34. In fact 10 20 30 50 80 100 or 1 2 3 5 8 are all Major TradingLevels 21 34 55 are part of the Minor TradingLevels, we will come back to this later.
In labeling the TradingLevels all the numbers that start with 1 are TradingLevel 1 (TL1) such as 1, 10, 100, 1000, 10000. The once could be 1 cent or $1, the Dow Jones and sectors have traded up at 10,000 which is labeled as TL1, this is only for the simplicity. This is the same for the other Major TradingLevels as follows;
TradingLevel TL1: 1 10 100 1,000 10,000
TradingLevel TL2: 2 20 200 2,000 20,000
TradingLevel TL3: 3 30 300 3,000 30,000
TradingLevel TL5: 5 50 500 5,000 50,000
TradingLevel TL8: 8 80 800 8,000 80,000
TradingLevel TL3: 13
As mentioned the TradingLevels can be 1 cent or $100 or indices and commodities in US per ton start to reach high numbers
I don’t won’t to confuse the issue at hand, but I would like to mention another number, it’s not in the sequence, but quite important all the same that is the number 72 (TradingLevel TL72) This number can also be viewed as 0.072, .72 cents or $72, 720, 7200 ( look at our finance sector XFJ – draw a horizontal line at 7200) or look at RIO or MQG at $72, it is important that you draw the horizontal line at these numbers as you need to train the eye to see it. .72 cents is great for penny stocks, this number acts as a support and resistance level. This also goes for all the TradingLevels, there is a TradingLevels Template designed for Metastock that can be downloaded, free for clients of the TradingLevels Analysis Service only.