The levels worth marking
Start with levels everybody can see: the previous day high and low (PDH and PDL), the Asia session high and low, and the London high and low once London has finished. Add clear confirmed swing highs and lows, equal highs or equal lows, and any major reaction zone you have marked yourself. The previous New York session high and low can be added as optional references.
- PDH / PDL: the previous trading day high and low.
- Asia high / low: the range built in the Asia session.
- Swing highs / lows: confirmed pivots on the setup timeframe.
- Equal highs / lows: two or more swings within a small tolerance of each other.
Common liquidity reference levels
Why they are called liquidity levels
Stop-loss orders from traders on the wrong side, and breakout orders from traders waiting for a break, are often placed just beyond obvious levels. That is why price frequently speeds up when it gets there. But candle data does not show where orders really sit. A "liquidity level" is a place worth watching, not proof that stops are resting there.
Asia, London and New York on one gold day
Counting tests objectively
A test is price entering a small tolerance zone around the level. To avoid counting every candle inside the zone, a new test only counts after price has left the zone or a minimum number of bars have passed. A level that has been tested several times may be more likely to break, but that is a tendency to watch, not a rule. Three or four tests do not mean it must break.
Each level should carry its type and price, the session and date it came from, its number of distinct tests, and its state: untouched, tested, swept, or broken and accepted. A level stops being drawn, or changes style, once it is invalidated or replaced by a newer one.
Bullish example
- 1Before London, mark the Asia low, PDL and any equal lows below price.
- 2Note how many distinct times each has been tested.
- 3When price trades below one of them, watch for a close back above within a few candles.
- 4If that happens with bullish displacement, the level becomes the reference for a possible long setup.
Bearish example
- 1Mark the Asia high, PDH and any equal highs above price.
- 2Count distinct tests and note which level is closest.
- 3When price trades above one of them, watch for a close back below.
- 4With bearish displacement, the level becomes the reference for a possible short setup.
What confirms it?
- The level is visible and unambiguous: a clear prior high or low, not a guess.
- Price reacts there: a sweep and reclaim, or a clean break and hold.
- The level is recent enough to matter (today or the previous session).
What invalidates it?
- A close beyond the level that holds: it has been broken and accepted, so the old reaction idea is gone.
- A newer, more relevant level replaces it.
- The level only exists on one chart setting or depends on where you drew it.
Common mistakes
- Claiming to know where stop orders are from candles alone.
- Counting every candle that touches a level as a new test.
- Assuming that a level tested three times must break.
- Keeping old levels on the chart indefinitely until the chart is unreadable.
- Marking so many levels that every price is "near a level".
Replay exercise
- Pick a past weekday in replay and stop the chart at the London open.
- Mark PDH, PDL, Asia high and Asia low, plus any equal highs or lows.
- Step forward through London and New York AM and record what happened at each level: untouched, tested, swept or broken.
Quick quiz
Pick an answer to see the explanation. Nothing is saved.