What is a leg start? Leg starts are significant levels of support or resistance. It is generally near the tops or bottoms of a move up or down. They are the level where you will find your consolidations forming their base whether it be a peak or valley. It is the initial level of support and always the last level of support to be tested on the leg. Understanding how to identify levels of support/resistance and differentiating them as leg starts and understanding why they are key levels is a skill that a trader has to gain.
I wont go over the entire blog entry on peaks and valleys, but what is key is what the key level of supports are from those peaks and valleys. Peaks and valleys are the start of legs. Their tips are the result of testing of previous support or current support. And they are key in the progression of accumulation and distribution as a collection they are the top part of head and shoulders and double top or their inverse chart pattern counterparts for accumulation patterns. And they are also produced as juts up/down on any move up or down which are more prevalent in lower time frames. So far, all I've told you is obvious stuff.
So lets talk about something not as obvious.
When retracing back up/down a leg, one way to find a key level at the peaks or valleys is to find the candle that closed above(for the move up) or below(for the move down) the key level of support. In order to do this, for the retrace up the leg down, you must understand the move up from the leg before your move down. Generally both these levels for the move up or down is the same level.
Off this weekly chart, in order to understand why this level here is significant, you can first get your first clue from the immediate leg to the left. From here, you are interested in the 12/20 candle. This candle closed above a significant level of resistance in order to gain a level of support. And the 12/13 candle demarcates the level of interest as the level that it could not close above of, by wicking there.
Now sometimes the candles are not so straight forward. That is why I suggest that you look to the leg to the left of the current leg.
When you zoom out, you get a better sense of how important a level is. The logic of understanding the mechanics is simply: what is the level that a candle such as the 12/20 candle had to close above in order to gain a level of support. The qualification is gained by looking at the price action where the level acted as resistance: first by wicking there as resistance or support and second by doji's. How do you localize these areas? Look for peaks and valleys. Look at the level where they congest. Look at the base of their congestion. And then look for the relationship as described above.
As you can see from this example, the support found in 3/14/11, was a support they tried to hold from 7-9/08 and 5-7/06, was a level of resistance in 7-9/05, support in 5/01, 10/99 and then finally the level of support gained in 12/28/98 that was the level of resistance in 12/21/98.
So how does it look in a daily perspective or a lower time frame? Much like the weekly as you can see the expected relationship or mechanics is observed. An area of consolidation before the move up is also, a leg start. It is all just rocket science.
How To Weee'd A Chart -- Part 4 by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com