Value areas on a chart represent the great “deals” of the market. Like in any store, great deals do not usually present themselves often, and when they do, the shelves get cleared up quickly!
This can also be true in the Forex market. At key value areas, price action typically does not stay for long. Agents quickly sell or buyer at these areas with massive orders that makes it difficult for anybody else to get in at these areas. Nevertheless, these levels are important indicators as to what the market is communicating to us.
Another way to put it, it is a level in the market where there are many unfilled orders waiting to be executed.
One way on how to tell where there is value in a particular market level is if there are several confirmations of price rejection. (The price level is being held by the Agents.)
At the end it is all about price. Since the price is on the y-axis on the charts, horizontal bars are used to indicate major price rejection zones to spot values where there could potentially be a heavy seller or buyer safeguarding their investments.
When price action pin bars are seen with confirmation of horizontal bars at key support levels, it reveals a high probability that the market does not want to go higher.
The chart below shows a possible scenario of where an agent is selling and protecting the level, indicated by the red horizontal line.
This is basically how you spot a possible Agent of the Fed. By reading the chart for clues and the “letters” that are being printed, you can get a grasp of the market psychology.
**One important note regarding levels is that care should be taken in to account when price has reverted into that zone several times. Unfilled orders will surely already have been executed and will present smaller strength in the level.
Breakouts and Price Flips
Breakouts at major support/resistance levels usually result in a “price flip” scenario where old resistance/support levels become the new support/resistance levels.
Breakouts should be used in connection with price action setups; I do not trade breakouts alone. Much like observing for impulsive and corrective moves, trading breakouts alone are not high probable trades. Breakouts can lead to false breaks (x’s), and they present too much risk if trading this setup alone.
I always use price action to confirm if breakouts are confirmed and a price flip has occurred. Once a breakout has been printed, wait for a pullback and pay close attention to how price action is reacting at the breakout level. Typically you would like to see a lot of price rejection on a pullback at the new resistance/support levels.
A pin bar is the ideal price action signal you would like to see, as you will receive confluence from several signals.