Decision Points

Decision points are price levels where  day traders are expected to act. Most of the time these are levels where a demand and supply imbalance existed.My trading revolves around these points and I expect the traders to act forcefully at these areas These are reference points  to navigate the chart space.Day traders are creatures of habit and I assume,they use these levels as way points

In fact these levels are implied support and resistances. I don't call these levels support or resistance  because these words give a wrong impression that a support is a level to buy and resistance , a place to sell ( Read Mind your words).I always let other traders to fight it out at these levels and try to join the winning team.

The core concept behind my method is the acceptance and rejection of price at these levels.I assume the market to move within a frame work of decision points and use just three patterns to trade the levels.Major decision points are previous day  high,low and close. After the open, market will create levels like DO,Range Highs/Lows,LOD, HOD,MSP and breakout point Flips.

We need to monitor the price action at these levels closely and take appropriate action .This is purely a discretionary method and we need to rely on our judgement a lot.This require a lot of experience.We will never know for sure what is going to happen at these levels before hand, but still we can have some anticipation.

While waiting for the price to hit a DP, pay attention to what happened when the market visited this level earlier to assess the strength of DP

a) Number of earlier attempts to break the level. Fresh levels are likely to hold. Levels become weak after many attempts.

b) How long price stayed at the level. Price will run away if the demand and supply imbalance is significant.Otherwise it will hang around

c) How the rejection took place. Price will behave as if it touched an energized fencing, if the level is very strong

d) How far the price moved away on previous attempt . More the better. Rejection could to be of lesser magnitude on subsequent attempts

e) Presence of Layer over Layer. If LOL exists first level may yield and second will hold.

f) Confluence of levels. For example if IR High is also PDH , this level may  hold well.

There are other factors like strength of trend, origin of the move, how far the price has moved to reach the DP etc. We will discuss these factors in a later post.( Read it here )