Correct The Exposure: Dynamic Range
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Step 2: Correct The Exposure With Levels
Since every photo's histogram is unique, there is no single way to adjust the levels for all your photos but most of them look best when they utilize the full range, dark to light. This means that it is often best to extend the histogram all the way from black (0) to white (255):
To do this, move the black triangle to the right and the white one to the left until each one meet the histogram. Click Ok. Open again the levels tool and notice the differences: the histogram is expanded now over the whole range, but something strange happened. Some of the vertical lines are missing from the histogram. This phenomenon is called "posterization" and means that we are missing some details due to the transformation we've made. This is the life, everything has a price, we loosed some details in order to improve the used range. This is normal and acceptable if it does not become visible in the image. Look for it in your photo after working with the histogram. It is more visible in regions of gradual color transitions, like the sky. If the posterization is visible you should reduce the stress applied to the histogram.
Here is the result for our example, original photo first, adjusted one next (click to enlarge):
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