Key chart levels are important technical levels at which a financial instrument could face increased buying or selling pressure.
Traders look out for key chart levels to place their buy and sell orders around those lines, which accelerates price-moves and increases volatility when the price reaches those levels. Typically, key chart levels are identified by support and resistance lines, which act as barriers for the price when reached from the upside or downside, respectively.
Support levels are price-lines at which the market had difficulties to break below, signalling that buyers may join the market again if the price falls to a key support level. Resistance levels are quite similar to support levels, only that they form to the upside and signal price-levels at which the market had difficulties to break above.
When the price reaches a key resistance level, sellers may jump into the market and send the price lower again.
There are many types of key chart levels which act as important support and resistance levels in the chart. We’ve outlined the most common ones in the following lines.
1. Horizontal key chart levels: As their name suggests, these are horizontal levels which are placed at the top of a previous swing high, or at the bottom of a previous swing low. Horizontal key chart levels are then projected into the future to mark price-levels at which the market may retrace.
2. Non-Horizontal Key Chart Levels: Besides horizontal key levels, traders can also draw trendlines and channels which don’t have to be horizontal in order to act as key support and resistance levels. Trendlines and channels are commonly used in Forex trading to spot uptrend and downtrends and ride the trend.
3. Round-Number Key Chart Levels: These levels form around round-number exchange rates, such as 1.00, 1.50, 0.50, 1.25 etc. The psychology of market participants shows that traders tend to place their market orders around round numbers, increasing the buying or selling pressure around those levels.