How to Identify Major Key Levels on Any Forex Pair (complete guide)
Today I will teach you how to identify major key levels on any Forex pair.
Learn why key levels exist, how they move, and when they become invalid.
Take notes and learn the essential basics of technical analysis.
What is a Key Level
Let's start with a short but important theory.
A key level is a historically validated horizontal price level where the balance of power between bulls (buyers) and bears (sellers) aggressively shifted in the past and is highly likely to do so again.
Key levels that are above current prices are called resistances.
Key levels that are below current prices are called supports.
A key level concept is based on 2 major pillars:
history and mass psychology, or market memory.
If something happened in the past, it will likely happen in the future.
From a key support, a bullish reaction is expected.
From a key resistance, a bearish reaction is expected.
Must Know Rules
Before we do key level analysis on a real forex chart, I also need to introduce 2 important events that you should know about.
Invalidation
The first event is called key level invalidation.
Key levels are not permanent, and they tend to lose their significance over time.
A key resistance level that is not respected by the buyers and then by the sellers becomes invalid.
A key support level that is not respected by the sellers and then by the buyers becomes invalid.
Shift
The second event is called a key level shift.
Because of traps and manipulations, key levels may move with time.
You should always check the most recent price action to adjust the positioning of a key level.
Key Levels Analysis Example
Now, let me show you how to use these rules in practice.
Remember that key levels are strictly based on candle wicks, not the bodies.
Long wicks often accurately indicate significant key levels.
You can use these rules to identify key levels on any time frame, but the rule is that the higher the time frame, the stronger the key level.
Using the rules that I shared, I spotted 6 important key levels on GBPUSD on a daily time frame.
From key support levels, a bullish reaction is expected.
From key resistance levels, a bearish reaction is expected.
Alternatively, after a breakout, these key levels will flip.
Key level identification is the number 1 step in technical analysis.
The rules that I shared will help you accurately spot them on any Forex pair.
