A Brief Introduction to Key Levels

Key levels are specialised forms of horizontal support and resistance where price points align with psychological barriers, appearing as either peaks or troughs on a price graph. Unlike dynamic support or resistance, which adjusts over time, key levels remain constant. These levels emerge as significant due to various factors:

1. Psychological Pricing: Traders often gravitate towards rounded numbers, viewing these as significant due to their simplicity. For instance, historical resistance at EUR/USD at 1.5 or support when USD and CAD reached parity.
2. Economic Feasibility: Certain price points might mark the threshold for the economic viability of large-scale projects, altering supply dynamics. For example, the price of oil might reach a level where more costly extraction methods become profitable.
3. Historical Significance: Prices approaching historical highs or lows can create hesitation among traders, establishing resistance or support.
4. Political and Economic Influences: Government interventions, such as currency stabilisation measures, can also establish key levels.

Key levels are identified by at least three price touches within a narrow range, with significance increasing with more touchpoints. They present two primary trading opportunities: breakouts, where the price moves beyond the key level, and bounces, where the price rebounds. These levels are critical for setting strategic stop-loss and take-profit points and can help validate other trading patterns, enhancing their reliability. While key levels are a robust tool, traders are advised to combine them with comprehensive market analysis for the best results.