Master Tang has it down fine. You can use that process to practice identifying likely contact zones going forward.
Your initial priority levels will always be prior day & week highs & lows. After that simply widen your field of view to take in the next couple of likely contact zones, because that’s where the market will be focusing on as price begins moving towards them. As we’ve said many times before, [B]price has to negotiate & consolidate the initial levels first before tackling the next hurdle.[/B]
If you think logically about where the differing orders (option barriers, limits, trailing stops, exit stops etc) will be starting to congregate, you only need to dial out to the next obvious swing zones & identify where price reacted & encountered either support or resistance. Those are the area’s that are most likely to bear some degree of influence on a revisit.
In other words, they’re your [B]first & initial[/B] focus points.
If you take Carll’s identified levels on eur/usd as an example & toggle thru your daily, 240m & 60m charts you can see that area was quite busy the last time price moved around it.
On the 60 & 240m bars especially you’ll see a whole bunch of spinning tops, doji’s, hammer type rejection bars indicating decent support & demand inside that zone.
There’s a pocket of support ahead of it at 4250-4300, but the meat of the activity played out down at that 4050-4100 zone ahead of the aggressive move back up off 1.3850 - another level that will undoubtedly attract close scrutiny next time around.
Initially, that’s as far out as you need to go for the time being. Just work from your immediate surroundings first (prior day & week h-l) & identify the next couple of obvious zones next. When price begins threatening those next contact zones, that’s the time to dial out another step & identify the next tier. Master Tang has already plotted his area’s on the gbp/usd so he’s adequately prepared.
By toggling thru & observing these area’s via different timeframes you get a clearer & sharper view of the price zones, which is why once you’ve identified them they can be traded & managed from whatever timeframe you prefer.