Title: Understanding Dirty Levels in Forex: How Banks Think
Original Article by AN017 on TradingView
Adapted and Expanded by [Your Name]
In the complex and fast-paced world of Forex trading, understanding how institutional players like banks think can give retail traders a considerable advantage. One of the most critical—yet often overlooked—concepts in this space is the idea of “dirty levels.”
The original insight by TradingView user AN017 introduces the concept of dirty levels—price zones and support/resistance levels that may look imperfect, messy, or even contradictory to conventional trading wisdom. This article expands upon that idea while offering a digestible, step-by-step breakdown of how large institutions approach these zones for liquidity purposes, how it affects price behavior, and how retail traders can integrate this knowledge into their strategies.
What Are Dirty Levels in Forex?
Dirty levels refer to price levels where expected clean bounces or rejections don’t happen in a textbook fashion. Rather than producing swift and clear reactions, price tends to test or break these levels slightly—what many would consider a “fake-out.” The behavior around these zones is intentional and orchestrated by larger players seeking liquidity.
Key Characteristics of Dirty Levels:
– They often form at previously respected support/resistance zones.
– Price typically overshoots or undershoots the level before reversing.
– These zones often trap retail traders on the wrong side of the trade.
– Institutions exploit the expectation of a clean bounce or reaction to manipulate the market.
Why Do Banks Manipulate Price Levels?
Banks and other large institutions operate on a different scale compared to retail traders. Moving large volumes requires sufficient liquidity, and the best source of that liquidity often resides at common, predictable technical levels—especially where retail stop-losses are positioned.
Banks look for:
– Liquidity pools: Areas around swing highs and lows where stop-loss orders gather.
– Imbalanced markets: Zones where buy/sell pressure is uneven, creating supply/demand imbalances that institutions can exploit.
– Inefficient price zones: Gaps, quick moves, or wicks where price hasn’t traded efficiently are of interest for value-finding and liquidity gathering.
How Banks Create and Exploit Dirty Levels
To understand dirty levels, it’s crucial to understand the game banks play. Their objective is to engineer price action to absorb liquidity and maximize efficiency in trade execution.
Steps Banks Take to Exploit Dirty Levels:
1. Identify Liquidity Zones
– Banks recognize key support/resistance zones where price previously reversed.
– They predict where most retail traders would place stop-loss orders—typically just above resistance or below support.
2. Use of Stop Hunts
– Banks push price slightly beyond these zones.
– Stops are triggered, causing liquidity to flood the market.
– Institutions then reverse the move, having obtained the liquidity needed for large positions.
3. Form Dirty Rejections
– Rather than cleanly bouncing from a level, the price may penetrate the zone before rejecting.
– Banks use this deviation to trap breakout traders and collect more liquidity.
4. Trigger Emotional Responses
– Retail traders are trained to follow certain price behaviors—the break of a high confirms a bullish trend, and vice versa.
– Banks exploit these expectations by creating false breakouts (or breakdowns), encouraging emotional decisions.
Illustrating Dirty Level Behavior (Example in EUR/USD)
Let’s consider a practical scenario involving the EUR/USD pair:
– Suppose EUR/USD has been respected at 1.0900 multiple times—a strong support level.
– Many retail traders now anticipate that price will bounce cleanly here on the next approach.
– As price returns to this level:
– Banks allow price to dip to 1.0890–1.0885, pushing slightly below.
– Stops below 1.0900 are triggered, injecting sell-side liquidity.
– Institutions absorb these orders and reverse the price sharply back above 1.0900.
– Retail traders
Read more on EUR/USD trading.