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The document discusses the importance of identifying strong and weak swing points when setting trading levels, emphasizing that strong rejections indicate aggressive market participants who can support price movements. It explains that weak highs and lows attract price testing, which can lead to unsuccessful trades. Additionally, the concept of failed auctions is introduced, likening trading to an auction process where a lack of a decisive last buyer or seller can lead to price reversals.

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9 views3 pages

A 1

The document discusses the importance of identifying strong and weak swing points when setting trading levels, emphasizing that strong rejections indicate aggressive market participants who can support price movements. It explains that weak highs and lows attract price testing, which can lead to unsuccessful trades. Additionally, the concept of failed auctions is introduced, likening trading to an auction process where a lack of a decisive last buyer or seller can lead to price reversals.

Uploaded by

b.ates.353535
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Usually, I look for strong/weak swing points when I am creating my trading levels.

I really like
to place my levels in areas where there was a strong rejection (strong high/low) apparent. The
strong rejection marks aggressive market participants that will "help" protect my position and
drive the price in the direction I want. Here is an example:

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On the other hand, if I see a weak low below my long level or a weak high above my short
level, then I don’t take the trade. The reason being is that a weak low below a long level would
attract the price to test below this weak low. The same scenario is a weak high above a short
level. This attracts the price to test above the weak high.

Here is an example of a short level that is not so good because there is a weak high above it.
You can see how the weak high attracts the price which shoots past it later.

The reason market tends to test those weak swing points is that there really wasn’t any strong
rejection at the swing point, so the market participants want to try and test if there isn’t
somebody willing to trade above the weak highs (or below weak lows). Why the market does
that? The reason is that the more trades and volumes executed, the better for big institutions
who need to enter their positions and for market makers to make more money for pairing the
buying with the selling orders.

Failed auction

Price movement and trading have a lot in common with an auction process. Price movement
basically is an auction that has no end. A failed auction is an incomplete auction. It is an
imperfection that will sooner or later be disposed of.

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Imagine being at an ordinary auction for example of a painting. Let's say that the initial price
is $1000. There are 10 buyers willing to buy for this price. For $1500 there are 5 buyers willing
to pay. Then the price goes higher and higher until there is only one person left – the person
who offered the most. This is an example of a complete and successful auction.

A failed auction would be if there were two people willing to pay, say $2000, and at this point,
the auction would end. This would be a failed auction because successful auction has only one
winner who gets the prize (for example the painting).

It is the same with trading. I will make it a bit simpler than it is, but still, the principle is the
same. In trading there always needs to be the “one last guy“ at the top (or bottom) of the
swing high/low. The last one to make the deal before the price turns and heads the other
way (and new auction in the other direction begins). See a picture below:

In the picture above there is a successful auction.

If the auction fails, however, then there are more people trading at the top (or bottom) of the
swing high/low. From this place, a new auction process starts in the other direction even
though the previous auction hasn't ended (it wasn't successful). This is a bit weird because
there wasn't the "one last guy" to make the last deal (the "winner" of the auction = the one

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