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Compression Into a Levelwhen the pullbacks stop reaching back

Evidence: ModerateIntermediatePrice action · Continuation

Price approaches a level and, instead of bouncing away, each pullback from it becomes shallower. The lows step up, the level holds flat, and the space between them runs out.

The reading is straightforward and it is about supply rather than about a pattern: the sellers at the level are being absorbed while the buyers keep raising their bid. When the space closes, one side has to give, and the direction of the compression says which.

The level is the edge. The candle is the timing and the stop placement — useful, and a far smaller claim than the one usually made for it.

Category
Price action · Continuation
Timeframe
H1 or H4
Suitable pairs
Majors · indices · gold
Session
The break should land in London or New York
Indicators / tools
A horizontal level · a rising trendline through the lows · ATR(14)

Valid setup

PA-08 · COMPRESSION INTO A LEVEL — VALID SETUP GBPUSD · H1 · three rising lows against one flat level, and the space between them running out LONG 1.2617 1.2654 1.2692 1.2729 1.2767 1.2805 1.2842 TP1 = 2R 1R — small, because the compression brought the low up three rising lows — drawn from them, not fitted TP1 = 2R, then the measured move ENTRY = close above the level THE LEVEL — flat, tested three times STOP = last rising low − 0.3 × ATR(14) 1 2 3 4 1.2818 1.2752 1.2740 1.2719 ① First pullback — deep ② Second — shallower ③ Third — shallower again. Sellers being absorbed ④ Close above the level — enter there ⑤ Stop under the last low, which is now close by ⑥ A break of the rising line first ends the setup

Exact rules

Entry

  • A flat level that has been tested at least three times, with each pullback from it shallower than the last.
  • At least three rising lows. Two lows is a line drawn through two points, which is not information.
  • Trigger: a close above the level. Enter at that close.
  • If a pullback breaks the rising line before the level gives way, the setup is over. Do not redraw the line flatter.

Stop loss

  • Below the last rising low, minus 0.3 × ATR(14).
  • The compression is what makes the stop small — by the third pullback the last low is close to the level, which is the practical benefit of waiting.
  • Risk 0.5%–1%.

Take profit / exit

  • TP1 at 2R, half off.
  • TP2: the height of the compression measured from the level upward — a measured move.
  • Out if price closes back below the level. The absorption story was wrong.

Build Compression Into a Level

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Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.