Zones

Introduction

The key when managing risk for a position is to be aware of the profit or loss of the position when the asset reaches different price levels. Most traders struggle to know exactly which levels to use for this, as well as when to take profit on a trade or when to cut their losses.

The price levels at which users should take action on their position should be determined by the strength of the trend, the volatility, and the current position of price.

Managing risk in this way helps users to leave less profit on the table and to quickly recognize and cut losing trades in order to ensure their portfolios grow over time.

Levels

There are 9 total levels on the zones tool:

• 6 levels show multiples of the selected Average True Range value above and below the current price or custom price

• 2 levels show the selected high and low of the Levels tool to gauge price position

  • The high is indicated by a green gradient on the level

  • The low is indicated by a red gradient on the level

• 1 level (the middle level) displays the current or custom price

Note: if the user uses a custom price and the high and low are both above or below the entered price, the four levels on the opposite side will all be multiples of Range, while two levels on the same side will be multiples of Range.

Users can toggle long and short trade types and input a custom desired p/l or position size from the Zones menu bar, configuring the output to match their approach.

Position Size

When Position Size is selected from the dropdown, users can view the profit and loss for the specified position size at the Zones' levels. Users can base these outputs on current price, or input a custom entry price for an existing or theoretical position.

Desired P/L

When Desired P/L is selected from the dropdown, users can input how much they desire to make or lose at the levels of expected volatility. The Position Size column outputs the necessary position size to make the Desired P/L true at the Zones' levels.

Additional Insights

The key of multi-timeframe trend analysis trading is:

"In trending markets when price reaches levels blocking continuation, a retest or breakthrough is more likely than a complete reversal."

The likelihood of continuation is gauged by the magnitude of the rejection from the levels preventing it. This magnitude is measured by how many Range multiples price stays within its extreme levels.

In a strong trend with significant continuation, price will remain within three Range multiples of its high or low as it bounces before dropping lower or sinks before pushing higher. Once price leaves this Range from its high or low, the likelihood of immediate continuation decreases substantially.

When price is within three Range multiples of its high or low, the highlighted red or green box respectively will not be the top or bottom levels.

In this image, the Low is within 3 Range multiples of the current price, so it is not the bottom level. This shows that a retest of the low is probable.

When price is within three Range multiples of both its high and low, users can quickly recognize that price is choppy, there is no trend, or that the selected Range timeframe is too large for the selected high and low levels. If the latter is true, volatility may not need the user’s expectations and there may be insufficient price movement to achieve the desired profit.

Both the high and the low are not outside three Range multiples of current price. This shows that it is more likely to range between these two levels.