MADLevels - How To Use

How to use MADLevels?

An Analogy

To start using MADLevels, we need to present an analogy.

Let’s assume aggressive sellers are selling at the bid prices and pushing down the price. We can view these aggressive sellers as attackers in a battle field.

At a certain price below, there are passive buyers. These can be viewed as the defenders. As the price comes down to the defenders’ price, it stops moving as there is absorption. We can view the absorption level as the front line.

Reloading Orders

In a perfect scenario, the aggressive sellers get absorbed totally and the price rebounds upwards. But in real life, most of the time, both the aggressive sellers and the passive buyers reload their orders. This is equivalent to both sides sending reinforcements to the front line.

Reloading of passive buyers can appear in the following form:

Aggressive sellers breach below the absorption level a little, but get repelled upwards back to the absorption line and price rebounds upwards from there.

Multiple absorptions are detected back-to-back at the same level as passive buyers reload. Aggressive sellers can hardly breach below the absorption level and price rebounds upwards.

Multiple absorption levels are detected very close to each other as passive buyers reload. Aggressive sellers can hardly breach below absorption level and price rebounds upwards.

Reloading of aggressive sellers can be spotted by price easily breaching below an absorption level and then continues to go down.

The above example covers the scenario whereby the sellers are aggressive and buyers are passive. The same logic can be applied to the scenario whereby the buyers are aggressive and the sellers are passive.

Applicable Financial Instruments

MADLevels detect absorptions on:

S&P futures (/ES), and
Nasdaq futures (/NQ)

As the futures market and the equities move in sync, MADLevels can therefore also be used to trade :

SPY, SPX and options, etc.
QQQ and options, etc.

Various Applications

Other than using MADLevels to spot entry opportunities, they can also be used to:

Set stop losses upon entries
Set trailing stops in winning trades
Set profit targets