Is there a zone?

The first question is the one that throws out most trades, which is why it comes first. A zone is an area on the chart where price has reacted before: it stalled there, turned there, or left there in a hurry. Support, resistance, supply, demand. The names matter less than the idea. Price has a memory in these places because other traders have orders in these places, and you want to be trading where the market has already shown its hand.

What a zone actually is

A zone is an area, not a line. If you draw a single line at 150.00 you will get faked out by every wick that reaches 149.60. Draw a box that covers the wicks and the closes of the reaction, and think of the whole box as the level. On a daily chart of a mid-priced stock that box might be one to two percent tall. That width is not sloppiness; it is where the reaction actually happened.

The zones worth trading from share a few traits:

• Price reacted there more than once, or reacted there once and left fast. A level that was touched and violently rejected is often stronger than one that was touched five times and slowly ground through.
• It is visible on the higher timeframe. A zone you can only see on a five-minute chart is a five-minute zone. It might hold for twenty minutes. A daily zone can hold for weeks.
• It has a role. Old resistance that was broken and is now being retested from above is a classic support zone. Old support that gave way and is being retested from below is resistance. The flip is what tells you which side of it you want to be on.

How to find one in under a minute

Start on the weekly or daily chart, not the one you trade on. Look left. Mark the swing highs and swing lows where price clearly turned, and the areas price left with big candles and no overlap. Then mark yesterday's high and low and any round number nearby. That is usually enough. If you have more than four or five zones on the chart, you have too many and none of them mean much. Keep the obvious ones.

Then ask where price is now relative to those boxes. There are only three answers: it is at a zone, it is approaching one, or it is in the middle. "In the middle" is the most common answer and the one that ends the checklist. There is nothing to lean on in the middle. Your stop has nowhere sensible to go, and every small move looks like a signal.

Fresh zones and used zones

A zone is freshest the first time price comes back to it. Each visit after that uses up some of the orders that made it a zone. A level that has been tested three times in a week is being worn down, and the fourth test breaks it more often than it holds. This does not mean never trade a tested zone; it means the first test gets the benefit of the doubt and the fourth does not.

What a zone does not do

A zone is a place, not a signal. Price arriving at support is not a reason to buy. It is a reason to pay attention and run the rest of the checklist. Plenty of zones break, and when they break the same box becomes the level you trade against from the other side. The zone tells you where; the next six questions tell you whether.

Example

This is a made-up example. Say a large semiconductor stock, call it XYZ, ran from 120 to 175 over a few months. On the way up it stalled twice at 148 to 151: once in the spring, when it was resistance for three weeks, and again when it broke through and left fast. Now, after the run, XYZ has pulled back and is sitting at 149.40. You draw a box from 147.80 to 151.20. It covers the wicks of both earlier reactions. Price is inside the box. Old resistance is being retested as support, on the daily chart, for the first time since the breakout. That is a yes to question one. It does not mean buy. It means the checklist continues.

Compare a second stock in the same sector that is at 62, having bounced between 55 and 70 for two months with nothing marked near 62. It is in the middle. Nothing more to do today.

The question, answered

A zone is a box, drawn on the higher timeframe, where price has reacted before.
Price is either at one, approaching one, or in the middle.
In the middle, there is no trade; at a zone, the checklist continues.
The zone tells you where to look, not whether to act.

This is the question the Magnizone indicator is built to answer.