Have you come across a situation where you enter a trade and as soon as you enter just within some time the market reverses without any reason and hits your stop loss. You’re not the only one facing this issue. This is how a lot of retail traders are losing their money in the stock market. Main reason for this is we are not marking important levels on a chart before market opens. In this post we will try to share all you need to do to avoid such mistakes by marking the level correctly. This will help you avoid falling in the trap set by the big players in the market.
Step 1: Mark the previous day low (PDL) and previous day high (PDH) on the chart. Take 5 mins time frame here.
As you can see in this chart the previous day high and previous day low are marked. These two levels now act as strong resistance and support levels for the next day.
Step 2: Mark virgin CPR formed in last 5 days. Note this level is valid only for next 5 days only. Its power is valid for these many days only and not above it. Keep 5 mins time frame here,
These are the level untouched by the market in the recent trend. If they are crossed or cut by the market you need to remove them from you chart as they no longer remain valid cpr levels for the upcoming market trades.
Step 3: Mark any remarkable supply and demand zone from the previous few sessions. Check 15 minutes to 30 minutes time frame here.
By changing the time frame we will now try to find out supply and demand zone. In the 5 mins setting we only get maximum idea for 2 days period. It is therefore recommended to change the setting to higher time when it comes to getting clarity on the supply-demand zones.
Step 4: Mark important previous swing high and swing low using daily time frame.
We set these swings at higher time frame because will not get enough information at other time frames. Also the market has the habit of remembering its history and tend to respect its previous swing high. Therefore you will notice in most charts it stop that swing level. In stock market there is a saying – the history repeats itself.
Step 5: Mark gaps if any as it acts as strong support or resistance – using daily time frame.
Market don’t like gap but you will notice this type of openings when there is some change in the market trend due to some good or bad news. You will often see market trying to filling those gaps later on. Therefore it is very much important to mark these gaps as they will behave have support or resistance in the market.
Step 6: This is precaution point – it is recommended not to trade whenever there is a news or event which has impact on the economy.
Once you are done with all these setups you will be easily able to understand live market behavior and plan your market entry and exits correctly without taking too much risks.
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