Butterfly Effect 2 - Lesson 4: Combination Levels

Introduction

• Focus: New type of level - Combination Level
• Previous Lessons: Heavy in theory
• Today's Lesson: Practical application

Combination Level Basics

• Definition: Testing multiple levels at the same time within a larger time frame (e.g., 4-hour candle)
• Examples:
  • Four-hour level contains an hourly level
  • Hourly level contains a 15-minute level
  • 15-minute level contains a 5-minute level

Practical Example

• Chart Examination: Start with 4-hour time frame
• Color Coding: Different Levels
  • Four-hour level: Yellow
  • Hourly level: Blue
  • 15-minute level: Gray

Steps to Identify Combination Levels

1. Identify large time frame (e.g., 4-hour candle)
2. Drill down into smaller time frames
   • Inside 4-hour: Find hourly level
   • Inside hourly: Find 15-minute level
   • Inside 15-minute: Find 5-minute level
3. Mark and Color-code levels appropriately

Importance of Combination Levels

• Accuracy in entry points
• Helps avoid incorrect assumptions about candle bodies holding the move
• Allows testing deeper within moves without immediate rejection

Detailed Combination Level Example

• Marking Levels:
  • On a 4-hour candle, locate and mark lower time frames
  • Use color codes to differentiate each level
• Entry Strategy:
  • Do not hard close under identified levels (e.g., hourly, four-hour)
  • Look for the touches and rejections within these smaller levels as potential entries

Analytical Approach

• Forward Time Analysis: Always move forward, not backward, in time
• Combination Level Decisions: Choose which minor levels to buy, considering if they are tested or not
• Practice: Regularly examine different points in a chart to identify accurate combination levels

Practical Tips

• Entry Point Examination:
  • Find the ‘greediest’ entry spot
  • Use 4-hour, hourly, and smaller time frames to refine entry
• Anticipate Reversals: Identify areas that could become reverse levels in the future
• Avoid Tested Levels: Skip levels if they’re already tested

Conclusion

• Summary: Practice identifying and marking combination levels
• Application: Use these levels for more accurate entries in trading, especially for knife catches
• Future: Combination levels will be further explored in subsequent lessons

Additional Notes

• Establish Criteria: Understanding entry and exit points through combination levels
• Trends: How combination levels help create and understand market trends and reversal points