With price action you analyze the price itself rather than watching indicators and fibonacci levels. This provides traders first hand data, rather than second hand, calculated data such as what indicators provide.
In financial markets, high and low points formed over quarterly and annual periods typically form significant levels for future movements. These levels are typically used by institutions as areas of interest for significant dealing, whether it be buying or selling. We will walk you through how to find these levels, and show you how the levels are respected in future trading.
Yearly levels are significant levels formed throughout the year, being the highest and the lowest point that an instrument trades in the space of a year, and where the instrument opens and closes within that period. Traders typically place their yearly levels either by the calendar year (1st January - 31st December) or by the financial year (1st July - 30 June).
In order to find the levels, select the daily chart and place vertical lines at the start and end of the desired period.
For example, in the EURUSD chart below, we have selected the 2018 calendar year, and determined the open of the first candle, and the close of the last candle. Within this period we then identified the highest and lowest price points and placed horizontal lines at these levels.
Now that we have identified the EURUSD key levels for the 2018 calendar year, we can see how price respects those levels in 2019. As you can see, the highlighted spots show where the 2018 levels have been respected as support and resistance in 2019.
As you can see, yearly levels are quite significant dealing areas, and frequently respected as support/resistance. Now let's dive into how to find quarterly levels!
Financial markets institutions typically operate and measure their performance in quarterly periods. A quarter is a three month period on a financial calendar. The levels formed on an instrument in these periods are significant as they mark areas that key parties may deem as a “good price” to buy, or to take profits. Quarters are divided as follows:
Q1 - January, February, March
Q2 - April, May, June
Q3 - July, August, September
Q4 - October, November, December
The process for placing these levels is the same as yearly levels. As you can see on the EURUSD chart below, the significant levels formed during Q1 were respected during the next quarter as areas of support and resistance.