What are the Trading Setups?
Chart Type
All types of charts work with MADLevels. However, we realize volume charts work particularly well with MADLevels.
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If you are unfamiliar with volume charts, below is a brief explanation.
For regular time-based charts, a price bar is completed when a certain period of time has elapsed, e.g. a 5-minute chart will complete a bar every 5 minutes. Volume charts complete a price bar when a certain amount of volume has been transacted, e.g. a 2000 volume chart will complete a bar when 2000 orders have been transacted.
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5 minute chart:
2000 volume chart:
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​The beginning part of the 5-minute chart above corresponds to the Asian and London sessions, where the volume is low. The 2000 volume chart is able to compress such periods of low volume into just a few bars. It is also able to filter out noise from low volume transactions.
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Back to the battle field analogy, each bar in the volume chart reflects a fixed number of attacks at the front line.
Therefore, by looking at the price action of volume bars around MADLevels, we can have a feel of the tape at the absorption level, or a feel of the situation at the “battlefield front line”. It allows us to spot which side is winning and whether the price is likely to rebound at the MADLevel or pass through it.
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Examples of Setups using Volume Charts:
Wicks of bullish candlesticks touch absorption level and price rebounds:
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A new absorption level shows up very near an existing one and forms a zone. The wicks of bearish candlesticks touch these zone and price rebounds:
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Aggressive sellers push price pass the absorption line, but are quickly pushed back by reloading passive buyers. These show up as higher lows beyond the absorption lines. Price rebounds as a result:
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Price rebounds downwards off absorption line 1. It then passes easily through absorption lines 2 and 3. Failure of absorption lines 2 and 3 to defend their levels resulted in the fast drop in price. If the trader is already in a short position using absorption line 1, he could use the absorption lines 2 and 3 to place his trailing stops:
An Important Note
​​The above trading setups are only based on the experiences of the MADLevel team. They are in no way exhaustive and definitely do not represent the "correct" way of using MADLevels.
Therefore, users are encouraged to explore setups that suit their own strategies and trading styles.
If you are already having some level of success using your current chart and strategy, you also can consider using MADLevels for extra confluence before entering a position. In addition, MADLevels can also help you with setting stop losses and trailing stops.​
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Number of Absorptions Tell a Big Story
You can use the number of absorptions to have a sense of what the big money is doing.
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Once you start using MADLevels, you will have a feel of the average number of absorptions per day.
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Sometimes, there are days when there are very few absorptions, with the market stuck in a range. This means the big money is sitting on the sidelines. Algos usually take over during such times and whip retail investors. You may want to be extra careful during these times.
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Once in a while, there will be too many absorptions, with the market stuck in a range. This means that both big buyers are big sellers are present and they are more or less equally matched, so price direction is undecided. You may also want to be extra careful during such times.
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