Mirror Levels: Identifying Support and Resistance Points Based on Previous Price Action
Mirror levels represent a unique class of graphical lines, where a broken support level transforms into resistance, and vice versa. These levels operate on the principles of crowd psychology and concentrated order activity—after a breakout and subsequent retest, the market often bounces away from the same price point where a key reaction previously formed.
Core Principles of Mirror Levels
The Mechanics of the Mirror Effect
When the price breaks through a support level with volume and then returns to it from below, that level begins to act as resistance; the reverse effect occurs with a breakout of resistance. This phenomenon is based on market memory: market participants remember price zones where they previously incurred losses or gains, and they re-enter orders at the same points.
Conditions for Formation
To accurately identify a mirror level, it is essential to ensure:
- A clear breakout of the level on increased volume or with strong momentum.
- A retest of the zone: a return of the price to the broken line and a bounce off it.
- Candlestick confirmation patterns, such as a "pin bar" or "bearish/bullish engulfing" during the retest.
Distinction from Standard Levels
Standard support and resistance levels can be tested multiple times without changing status. Only a retest after a clear breakout alters their role, converting them into mirror levels, which helps in more accurately determining entry and exit points.
Methods for Identifying and Constructing Levels
Identification of Swing Highs and Swing Lows
The first step is to find local extremes on the chart: swing highs (local maxima) and swing lows (local minima). On higher timeframes (D1–W1), such points are more reliable as they reflect the decisions of institutional participants.
Visual Tools and Zones
Horizontal lines drawn from swing extremes can be replaced with wide zones considering the average range of the true range (ATR). It is advisable to account for the spread and extend zones by ±0.2–0.5% from the level. For convenience, color coding is utilized: one color before the retest and another after confirmation.
Filtering Noise Fluctuations
To avoid false levels, extremes that are situated closer than 1.5×ATR over N periods are filtered out. Extremes within range-bound consolidations with low volumes are better ignored, as they often yield false breakouts and retests.
Graphic Patterns and False Breakouts
Price Action Patterns
Graphic patterns enhance the signals of mirror levels:
- Double Top/Double Bottom near a mirror level indicates a strong market reaction.
- Head and Shoulders Pattern following a breakout of the trendline creates conditions for the activation of a mirror level.
False Breakouts (Fakeouts)
A quick breakout of a level without a volume increase upon retest is often a fakeout. Reliable signals should be accompanied by increased volume and confirmed on an hourly or daily timeframe.
Psychological Traps of Stop-Loss Hunting
Algorithmic strategies often use a dip below support to trigger the stop-losses of retail traders, quickly returning to the level and reinforcing the mirror effect.
Volume and Algorithmic Confirmations
Delta and Cluster Analysis
Analyzing the difference between buying and selling volumes (delta) during the retest indicates which side is stronger—buyers or sellers. Cluster analysis identifies zones of increased activity where large market participants place orders.
Algorithmic Trading
Many trading algorithms track mirror levels and generate signals upon reaching them. However, automatic detection requires manual verification of context and confirmation via candlestick patterns.
Multi-timeframe Analysis
Synchronization of Timeframes
The higher timeframe (D1–W1) defines key mirror levels, the medium (H4–H1) confirms retests, and the lower (M15–M5) allows for precise execution of trades and position management.
Optimal Timeframes
For swing trading, D1 and H4 are the most effective. For day trading—H1 and M15, where retests of mirror levels occur more predictably.
Trading Strategies and Risk Management
Integration into the Trading System
Steps:
- Identification of the level on a higher timeframe.
- Filtering by volume and swing extremes.
- Waiting for a retest on a medium timeframe.
- Confirmation by a candlestick pattern.
- Execution of trade and position management.
Stop Losses and Take Profits
Place the stop loss beyond the mirror level, considering the width of the zone. Set the take profit at subsequent support/resistance levels or Fibonacci targets (38.2% and 61.8%) for partial and complete exits.
Position Sizing
Formula: allowable risk (%) × capital / distance to stop loss (points). It is recommended not to risk more than 2% of the deposit per trade, increasing to 3% with multiple confirmations.
Psychology and Self-Fulfilling Prophecies
Mass Psychology of Levels
When thousands of traders place orders at a mirror level, a real supply/demand zone is created. This self-fulfilling effect is amplified by algorithmic strategies.
Emotional Traps
FOMO during retests and greed during profit taking lead to premature entries and exits.
Conclusion
Mirror levels combine technical aspects and market psychology. Identifying extremes, filtering noise fluctuations, multi-timeframe analysis, volume confirmations, and disciplined risk management create a powerful tool for effective trading.
