Cause and effect.
That's all that you really need to know.
Always ask yourself, 'which area started the move that caused a long term key level to break?'
What is this important? Because it shows a clear supply and demand imbalance at that price.
It shows that there is interest at this specific zone, at which, there is likely to be unfilled pending orders, as well as a desire to initiate market orders on a return to the zone.
This is why you might notice that sometimes when you trade a breakout, the market may have a deeper retrace into the level, rather than simply using the broken level as support or resistance (and then stopping you out).
You have to interpret price alongside technical analysis, since the market doesn't care about what YOU think, but where it can find the best liquidity to initiate orders.
In the Cable example shown, you can see that the $1.70 level played a key part in knowing where price support was on the move up to $2.00+.
Using the weekly chart, we can then see where our 'key zone' to sell into is.
This is denoted as a supply zone - where you see a bullish candle in a down move just before the key support is broken (or the first bullish candle just before the support is broken).
The opposite is true for a demand zone - this is where you see a bearish candle just before the key resistance is broken (or the first bearish candle before a level is broken).
This method is very easy in terms of risk management - your stop goes above the supply zone and below the demand zone.
I then have a take profit at the next key level - you're just trading between zones.
When you become used to this, you can then go down in your timeframes and have more intraday positions, or intrahour if you so wish.
A few things - it's easier to manage risk on a longer term trade. It's also easier to increase position sizing on longer term trades, as well as higher timeframes having more overall significance and a higher win rate, although the opportunity cost of this is the fact that you have less frequent opportunities and it requires a hell of a lot more patience.
That's all that you really need to know.
Always ask yourself, 'which area started the move that caused a long term key level to break?'
What is this important? Because it shows a clear supply and demand imbalance at that price.
It shows that there is interest at this specific zone, at which, there is likely to be unfilled pending orders, as well as a desire to initiate market orders on a return to the zone.
This is why you might notice that sometimes when you trade a breakout, the market may have a deeper retrace into the level, rather than simply using the broken level as support or resistance (and then stopping you out).
You have to interpret price alongside technical analysis, since the market doesn't care about what YOU think, but where it can find the best liquidity to initiate orders.
In the Cable example shown, you can see that the $1.70 level played a key part in knowing where price support was on the move up to $2.00+.
Using the weekly chart, we can then see where our 'key zone' to sell into is.
This is denoted as a supply zone - where you see a bullish candle in a down move just before the key support is broken (or the first bullish candle just before the support is broken).
The opposite is true for a demand zone - this is where you see a bearish candle just before the key resistance is broken (or the first bearish candle before a level is broken).
This method is very easy in terms of risk management - your stop goes above the supply zone and below the demand zone.
I then have a take profit at the next key level - you're just trading between zones.
When you become used to this, you can then go down in your timeframes and have more intraday positions, or intrahour if you so wish.
A few things - it's easier to manage risk on a longer term trade. It's also easier to increase position sizing on longer term trades, as well as higher timeframes having more overall significance and a higher win rate, although the opportunity cost of this is the fact that you have less frequent opportunities and it requires a hell of a lot more patience.
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