How To Easily Draw Supply And Demand Zones

[Strategies] Here is My Trading Approach, Thought Process and Execution

Hello everyone. I've noticed a lot of us here are quite secretive about how we trade, especially when we comment on a fellow trader's post. We're quick to tell them what they're doing isn't the "right way" and they should go to babypips or YouTube. There's plenty of strategies we say but never really tell them what is working for us. There's a few others that are open to share their experience and thought processes when considering a valid trade. I have been quite open myself. But I'm always met with the same "well I see what you did is quite solid but what lead you to deem this trade valid for you? "
The answer is quite simple, I have a few things that I consider which are easy rules to follow. I realized that the simpler you make it, the easier it is for you to trade and move on with your day.
I highlight a few "valid" zones and go about my day. I've got an app that alerts me when price enters the zone on my watchlist. This is because I don't just rely on forex trading money, I doubt it would be wise to unless you're trading a 80% win rate strategy. Sometimes opportunities are there and we exploit them accordingly but sometimes we are either distracted by life issues and decide to not go into the markets stressed out or opportunities just aren't there or they are but your golden rules aren't quite met.
My rules are pretty simple, one of the prime golden rules is, "the risk is supposed to be very minimal to the reward I want to yield from that specific trade". i.e I can risk -50 pips for a +150 and more pips gain. My usual target starts at 1:2 but my most satisfying trade would be a 1:3 and above. This way I can lose 6/10 trades and still be profitable.
I make sure to keep my charts clean and simple so to understand what price does without the interference of indicators all over my charts. Not to say if you use indicators for confluence is a complete no-no. Each trader has their own style and I would be a narcissistic asshole if I assumed my way is superior than anybody else's.
NB: I'm doing this for anybody who has a vague or no idea of supply and demand. Everything here has made me profitable or at least break even but doesn't guarantee the same for you. This is just a scratch on the surface so do all you can for due diligence when it comes to understanding this topic with more depth and clear comprehension.
Supply and Demand valid zones properties; what to me makes me think "oh this zone has the potential to make me money, let me put it on my watchlist"? Mind when I say watchlist, not trade it. These are different in this sense.
👉With any zone, you're supposed to watch how price enters the zone, if there's a strong push in the opposite direction or whatever price action you're observing...only then does the zone becomes valid. YOU TRADE THE REACTION, NOT THE EXPECTATION Some setups just fail and that's okay because you didn't gamble. ✍
!!!IMPORTANT SUBJECT TO LEARN BEFORE YOU START SUPPLY AND DEMAND!!!
FTR. Failure to Return.(Please read on these if you haven't. They are extremely important in SnD). Mostly occur after an impulse move from a turning point. See attached examples: RBR(rally base rally)/DBD(drop base drop). They comprise of an initial move to a certain direction, a single candle in the opposite direction and followed by 2 or more strong candles in the initial direction. The opposite candle is your FTR(This is your zone) The first time price comes back(FTB) to a zone with an FTR has high possibilities to be a strong zone.
How to identify high quality zones according to my approach:
  1. Engulfing zones; This is a personal favorite. For less errors I identify the best opportunities using the daily and 4H chart.
On the example given, I chose the GBPNZD trade idea I shared here a month ago I believe. A double bottom is easily identified, with the final push well defined Bullish Engulfing candle. To further solidify it are the strong wicks to show strong rejection and failure to close lower than the left shoulder. How we draw our zone is highlight the whole candle just before the Engulfing Candle. That's your zone. After drawing it, you also pay attention to the price that is right where the engulfing starts. You then set a price alert on your preferred app because usually price won't get there immediately. This is the second most important part of trading, PATIENCE. If you can be disciplined enough to not leave a limit order, or place a market order just because you trust your analysis...you've won half the battle because we're not market predictors, we're students. And we trade the reaction.
On the given example, price had already reached the zone of interest. Price action observed was, there was a rejection that drove it out of the zone, this is the reaction we want. Soon as price returns(retests)...this is your time to fill or kill moment, going to a 4H or 1H to make minimum risk trades. (See GBPNZD Example 1&2)
  1. Liquidity Run; This approach looks very similar to the Engulfing zones. The difference is, price makes a few rejections on a higher timeframe level(Resistance or support). This gives the novice trader an idea that we've established a strong support or resistance, leading to them either selling or buying given the opportunity. Price then breaks that level trapping the support and resistance trader. At this point, breakout traders have stop orders below or above these levels to anticipate a breakout at major levels with stops just below the levels. Now that the market has enough traders trapped, it goes for the stop losses above or below support and resistance levels after taking them out, price comes back into the level to take out breakout traders' stop losses. This is where it has gathered enough liquidity to move it's desired direction.
The given example on the NZDJPY shows a strong level established twice. With the Bearish Engulfing movement, price leaves a supply zone...that's where we come in. We go to smaller timeframes for a well defined entry with our stops above the recent High targeting the next demand zone.
The second screenshot illustrates how high the reward of this approach is as well. Due diligence is required for this kind of approach because it's not uncommon but usually easily misinterpreted, which is why it's important it's on higher timeframes.
You can back test and establish your own rules on this but the RSI in this case was used for confluence. It showed a strong divergence which made it an even easier trade to take.
...and last but definitely not least,
  1. Double Bottom/Top. (I've used double bottoms on examples because these are the only trades I shared here so we'll talk about double bottoms. Same but opposite rules apply on double tops).
The first most important rule here is when you look to your left, price should have made a Low, High and a Lower Low. This way, the last leg(shoulder) should be lower than the first. Some call this "Hidden Zones". When drawing the zones, the top border of the zone is supposed to be on the tip of the Low and covering the Lower Low. **The top border is usually the entry point.
On the first given example I shared this week, NZDCAD. After identifying the structure, you start to look for zones that could further verify the structure for confluence. Since this was identified on the 4H, when you zoom out to the daily chart...there's a very well defined demand zone (RBR). By now you should know how strong these kind of zones are especially if found on higher timeframes. That will now be your kill zone. You'll draw another zone within the bigger zone, if price doesn't close below it...you've got a trade. You'll put your stop losses outside the initial zone to avoid wicks(liquidity runs/stop hunts)
On the second image you'll see how price closed within the zone and rallied upwards towards your targets.
The second example is CHFJPY; although looking lower, there isn't a rally base rally that further solidifies our bias...price still respected the zone. Sometimes we just aren't going to get perfect setups but it is up to us to make calculated risks. In this case, risk is very minimal considering the potential profit.
The third example (EURNZD) was featured because sometimes you just can't always get perfect price action within your desired zone. Which is why it's important to wait for price to close before actually taking a trade. Even if you entered prematurely and were taken out of the trade, the rules are still respected hence a re entry would still yield you more than what you would have lost although revenge trading is wrong.
I hope you guys learnt something new and understand the thought process that leads to deciding which setups to trade from prepared supply and demand trade ideas. It's important to do your own research and back testing that matches your own trading style. I'm more of a swing trader hence I find my zones using the Daily and 4H chart. Keeping it simple and trading the reaction to your watched zone is the most important part about trading any strategy.
Important Note: The trade ideas on this post are trades shared on this sub ever since my being active only because I don't want to share ideas that I may have carefully picked to make my trading approach a blind pick from the millions on the internet. All these were shared here.
Here's a link to the trade ideas analyzed for this post specifically
Questions are welcome on the comments section. Thank you for reading till here.
submitted by SupplyAndDemandGuy to Forex [link] [comments]

(Cont.) Strategy Analysis and Prep GJ - 11.11

(Cont.) Strategy Analysis and Prep GJ - 11.11
11.10.2019 analysis: https://www.reddit.com/Forex/comments/duoc68/uthefrozen_one_strategy_analysis_and_prep_gj/

DAILY SUPPLY AND DEMAND ANALYSIS

Monday - Definitely a day ruled by the bulls. Referencing my last post, there was not a whole lot that my trade entries (chosen before market) allowed me to do. A bit past the upper side of my chosen entry zone you will see a double top, and on the M5, it makes a pretty clean M pattern. However, because it was so extended, I simply didn't want to jump in and "Guess the Top". Those with better analysis than I may have seen the turning point as the perfect short, as it lined up with a high made on Nov 7 at about 10:45 just perfectly. Personally, I think it is difficult to decipher demand from noise on the M15, but today was a learning experience, as I was surprised to see so many levels blown out of the water by London's early moves. Lessons learned.
Anyhow, not much changed here in the larger time frames. Daily chart and H4 are creating a very nice volatility tunnel. A true tease, the guppy is not giving us much here. What really bothers me? On the daily chart, it looks as though the nearest upward spike peaked on Oct. 21. Look left and what do you see? Not a whole lot. Nothing in the way of major supply to stop the impulse we saw. Much like banks build their order book in the JPY session (depending on who you study), this appears to be the same thing only on a grander scale. Is the lack of supply/selling pressure enough to see this to 147.xxx in the coming month, or would the banks rather average down to better supply/price before making that same move...

POSITIONING OF POTENTIAL ENTRIES:

This pair is in a lot of noise, and as such, like yesterday, I am truly thrown off about whether to choose a long or short bias. Rather, I will simply determine two points at which I feel I have both allowed myself to allow the market to make its move as well as allowed for the over extension necessary for good R:R.
To the short side, I like an entry of around 140.58. The red "1", "2", and "3" represent any unfilled orders in the near term. the 3rd level is the most opportune in my humble opinion. Beyond that, there is significant room to run, so I will be looking for good signs of reversal before making my entry.
To the long side, I am more cloudy. At the very least, the US/AUD low provides some simply stop hunt opportunities, but this is not as far out as I'd prefer. the M15 Proximal demand zone shows a fairly text book rally-base-rally. However, being on the M15, I am not putting much behind it other than a zone to watch should the long stop hunt move get blown by. The 3rd level of demand listed with the Blue "3", provides a location with unfilled stops that stand the most to lose given the last trading day.

https://preview.redd.it/2bwwnzutj6y31.png?width=1915&format=png&auto=webp&s=dd16179dd0516b773abc6b099f572e03d8b4c2c8
All that said, I will wait and see which direction the market surges in London open (if at all), and then prep myself for the fade. Having looked through u/thefrozen_one trades, I am going to be looking for the following to assist my entry:
  • Sharp rejection at my chosen entries - I am still learning how to place these, so I will also be looking left for structure to provide confluence to my analysis in the moment.
  • M/W patterns on the M15 or M5
  • Tweezers/long wicks - again, looking for confluence here and not blindly trading wicks.
I appreciate those who entertain my rambling. At this stage, I am not anywhere near predicting the next move. However, this has been my first opportunity to consistently keep myself honest in analyzing and tracking a forex pair, free of indicator madness. I am excited to see my rather dry and ambiguous observances mature into confident bias with which I attack daily trades.
Green pips to all!
submitted by Rich_Foamy_Flan to Forex [link] [comments]

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