FRESH levels versus ORIGINAL levels

27th September 2013, 05:51 PM

Supply and demand Imbalances can be defined by their freshness:

1. Fresh / untested. New imbalance created but price has not yet pulled back

2. Not fresh / tested. Price has retested the imbalance at least once. For a zone to be considered
tested we need to have at least 1 full OHCL candle consolidating away from the base before
returning

3. Original. Level has been created out of the blue and is not a reaction to any previous level

4. Original and fresh. Same as original but the level is also untested

5. Used up. Price has pulled back to the level several times (2 or more retests at least). These levels
are not good for trading; confirmation with a new trend on your entry timeframe is needed

A potential imbalance will be considered a level once it scores high as described in the scoring lesson.

FRESH LEVELS
How do we know if we have an fresh level of supply? Vice versa for fresh levels of demand

1. Look right to find fresh levels

2. Draw a "virtual" horizontal line at the proximal line of the imbalance you want to check for
freshness

3. Look right and see if price has retested the imbalance

4. If price has not tested the proximal line then the level will be considered fresh

5. Nesting of multiple levels is irrelevant to the freshness or originality of a level. Just look right
and see if level was retested after it consolidated away

If price consolidates away from a level and closes with a full OHCL candle, the new imbalance will be
considered as a fresh level (check the scoring lesson for other variables to validate the level)
ORIGINAL LEVELS
How do we know if we have an original level of demand? Vice versa for original levels of supply

1. Look left to find original levels

2. Draw a "virtual" horizontal line at the distal line, and move back in time as far as you need to
until price hits a new candle

3. If the candle it touches is not part of a valid imbalance, then the level will be considered original

4. You are not allowed to cut through candles. Once price meets a candlestick to the left, stop and
check if that candlestick is a reaction to a previous level

5. If a previous level was overshot but there was no candle close above/below it, and a new
potential imbalance is created, we won't consider the new imbalance an original one, we must
remove the previous level solidly, not just overshoot it

If price consolidates away from a level and closes with a full OHCL candle, and then retests the
imbalance, the level will be considered as non-fresh (check the scoring lesson for other variables to
validate the level)
WHEN TO USE FRESH AND TO USE ORIGINAL LEVELS?

• Only fresh levels will be used to place our entries, confirmation is needed if level has already
been tested

• Fresh AND original levels can be used to trade counter-trend. Good for location setups. Check
counter-trend lesson here to see what you should be looking for

• Trend trading and momentum setups need only fresh levels, if level is also original, the better

IS A LEVEL TESTED ON DEPARTURE CONSIDERED AS NON-FRESH/TESTED?

• No. Price first needs to consolidate away for at least one OHCL candle, then the potential
imbalance will need to be retested in order to consider it a tested zone. What usually happens in
these cases is that these imbalances are usually penetrated deeper into the tested on departure
imbalance

• We need a correct base for a valley/peak or CP, price must move and consolidate away from its
base, then revisit the imbalance after consolidating away
PRICE REACTED TO THE WICKS OF AN IMBALANCE NOT THE BODIES AT THE BASE, IS IT CONSIDERED
FRESH?
Due to the nature of Forex the biggest unregulated market in the world there are many different
brokers offering different price feeds. Bid prices are being manipulated all the time. In Futures there is
just one price feed so a level will look the same on all brokers since the price feed is the same.

However in Forex, for example price reacts to the wicks on Broker A but not on Broker B. If the trend is
super clear and there is lots of room to opposing level then we might want to keep our orders on that
kind of wick tested level, if price is starting to consolidate and hits an opposing area we might consider it
as touched for the reasons explained above.

This is a tricky scenario so we need to be prepared for this since it will happen many times. The
unregulated nature of the Forex markets allows for many of these annoying nuances to be taken into
account before making a simple trading decision.

HOW FAR BACK IN HISTORY DO I LOOK TO LOCATE SUPPLY AND DEMAND IMBALANCES?

• Go back as far as you need to, weeks, months or even years

• The number of candles is irrelevant, we just have to look back as much as we need

WHEN IS A ZONE NO LONGER VALID?

1. The zone is no longer valid when it's been taken out by as little as 1 pip / 1 tick

2. We don't wait for a close above or below the zone in order to consider a zone broken, a close is
a must on counter-trend trades
 3. We don't wait for a full OHLC candle above/below the zone

Sometimes, we'll have zones overshot by a few pips, others by quite a bunch of pips and we'll see it
dropping/rallying after that, most likely after our SL has been hit. If that is the case a brand new level
might have formed confirming willing buyers and sellers which could be good for a trade once it pulls
back to retest it by using the confirmation type of entry.

SETTING AND FORGETTING YOUR TRADES. PROS AND CONS

Sometimes levels will be overshot by a few pips or ticks, this is why having a decent wiggle room added
to your SL is key. Market makers and professionals are lurking like hyenas, they love using baits, they
have a wide selection of tricks up their sleeves to catch you out. On other occasions your SL on a short
will be hit and then price will drop like a rock. You will not want to short that pair any more because you
had a loss the first time but what will most likely happen then? The next entry will be the good one and
you won't have taken it because you were scared after the first loss!

Does it ring a bell to you? We need to add more wiggle room to the trades at the extremes, we should
not be scared to take a second trade if the first one happened to be a loss. That's the logic and idea
behind it. Trading is all about statistics and odds so play your odds and trade like a robot.