How to Read Zone Levels Charts

How to Read Zone Levels Charts

What are Zone Levels Charts?

We use Zone Levels Charts for our patent pending Price Mapping Process. To learn more about Price Mapping watch 'Understanding Price Mapping'. As we track price conditions we see patterns in price behavior and since we track this behavior relative to the moves that are expected by the options markets we are able to view those patterns graphically on a price chart.

The expected move for each week is depicted with the upper and lower bounds of the expected move shown as Zones 1 & Zone 7. In between these bounds we have Zone 2 (the area above Zone 1 and Zone 3). Zone 3 the area beginning at the midpoint between Zone 1 & Zone 4 and up to Zone 4. Zone 4 is always equal to the closing price of the prior Friday. Zone 5 is the area between Zone 4 and Zone 6. Zone 6 is the area beginning at the midpoint between Zone 4 & Zone 7 and up to Zone 7.

There are two ways to access Zone Levels Charts:

From your Dashboard

Select the Tools & Analytics widget 'Expected Moves & Price Zones'

From your Trade Alert Details

Understanding Zone Levels

Each price condition represents a unique price move relative to specific Zone Levels. For example: If price opens above Zone 4 on Mon it will close above Zone 7 on Fri. We give this price condition a unique price condition number and each symbol we track includes this price condition number. As such the probabilities are derived from the correlation coefficient of the data sample for each symbol for each price condition number. Those price conditions which have correlation coefficients in the .35-.65 are typically random (with .50 being completely random). We tend to see the price conditions which are resisting or accelerating off of Price Zone Levels to have the highest correlation coefficents.

There are good theories to why this is the case and these subjects are topics for several QuantDirection Blogs. We do not base probabilities however on any subjective factors. The probabilities are derived purely from the Correlation Coefficients from the dataset.

When you view any price condition description that is not in an alert it will be described in terms of the zone levels. Once we alert on this condition we substitute zone levels for the actual price levels to make interpreting the Alert Signal faster & easier. When deciding on which price conditions you may wish to set alerts for it's helpful to see the zone descriptions and view the price zone charts to see behavior in the past.

It's also helpful to view the real time price zone charts when entering and exiting trades. Since these price zone levels tend to act as points of resistance and if broken (especially on market close), points of price acceleration, it can be useful to take this into consideration when trying to optimize your entry or exit point.

The price zone charts show historical weeks so you can view price action relative to weeks past to see the interaction of price with price zones.