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To get the basics of supply and demand trading, you can visit this section of Ace Gazette.
WHAT DO YOU HAVE TO ASK YOURSELF?
1) Where is price likely to turn? Supply and Demand areas.
2) What can tell us if price is turning? CANDLES.
3) Where is price likely to go next? The opposite areas of Supply and Demand.
Thats it, you know everything there is to know. Good luck!
More seriously though, if you manage to convince yourself that you DO NOT need much more to
succeed in trading, you have done half the way. The other half is only discipline and a proper money
management.
THE SUPPLY AND DEMAND AREAS
So, how to identify the good areas? If you never used pure supply and demand zones to trade, and were
focusing on Harry Potters dragon-shaped moving averages clouds, you will probably have a hard time to
identify the zones, because it would be way too simple for you to see.
So you will probably need the attached indicator, based on ZigZags, which spots and draws for you
the supply and demand zones of interest. It is nothing more than a small indicator that shows you where
price turned in the past. Simple, yes, but the most important thing we need to know. Because those are
areas where the big guys decided to buy or sell and are likely to do so again when price comes back.
Then, if you want to filter your zones, watch precisely how price left the zone: big bold candle? Several
small candles building a base? Etc etc etc Then backtest and see how the best zones are created. We
cannot do everything for you, take it as a gift for your future success. Only hard work will take you there,
remember.
SHOULD I TRADE ON WILD GUESSES?
You DO NOT have to pick tops and bottoms to be successful in trading. If you are not experienced
enough, trying to predict something unsure can be very painful. Experience taught me that in the end,
you are less stressed with less precise entries but a better money management. Our best asset is that
we know that most of the time, when price decides to turn, it will always come back to test the newly
created area and pick up new orders that will help the price move faster, for good.
The conclusion of this paragraph is that you do not need to enter at the perfect pixel, you need to know if
the area will hold and have enough strength to make price turn. So consider yourself lucky enough that
price is coming back for you. The precision does not matter for now. When you get some experience,
you will be able to get better entries, but only screen time will help you, so right now we will focus on
what is needed to get you to your first profitable trades.
WHAT IS THE BETTER TIME FRAME?
Now, we have our zones drawn on our chart. People often ask: what is the better time frame? Well, there
is no answer to that. Supply and Demand is a universal law, OK? So it works on one minute and on
weekly time frames. The rest depends on what type of trading you want to do. If you want to have some
free time, you go for H4 and Daily. If you like the thrill too much and have a lot of time to devote to
trading, you go M5-M15. If you like taking a couple of trades every two days, you go M30-H1. Simple.
In the heart of our forum, the SD trading central you will find charts analysis that suit you, from scalping
to weekly swings.
Before going into Price Action or Price Analysis [PA] lets have a look at the overall process of learning
how to trade successfully. What we need to study and understand? What are the learning blocks? How
do we approach the learning process?
In this thread, in multiple posts, I'll try to explore various Price Action [PA] patterns.
I already have started series of articles about candlestick and chart patterns under "Education" menu. In
order to serve those who may have miss the articles or prefer to see them in forums better, I'll repeat
certain ones here. Perhaps expanding or summarizing them as appropriate.
Forum format offers additional benefit when it comes to interactivity and further improvement via
questions and answers. I or anybody else offers worthwhile additional knowledge through answers, will
be added in this first post so that everybody can read it in one post rather than going through many
different posts.
If an answer to a question is already in this post, I will humbly decline to answer by way of staying silent.
I like to start with big bad mamma of all candlestick patterns: Engulfing.
If you are not much enthusiastic of learning price action patterns, you should at least learn and
understand well engulfing pattern. You owe it to yourself as a trader. Ironically, engulfing candlestick
pattern one of the easiest to learn.
Why is such an important pattern?
Because it's the main pattern we can see gangstas, sorry I meant banksters [Big money, pro money, the
establishment etc] intention. It signals the turning point [trend change] at given time frame. Handling and
managing a turning point requires a lot of resources. It's virtually impossible to hide such large resources
in market, on a price chart. It's not the only PA pattern suggest reversal but it's the best and clearest one.
As it's a reversal pattern, Engulfing candlestick pattern is most beneficial when there is a up or down
trend. It's for identifying the turning/reversal point. It's kind of recognizing top or bottom of given up or
down trend move. Trends we are talking here is Time Frame specific. You may have many mini trends
withing the scheme of larger trends and therefore as you breakdown larger trend there will be many more
turning points of mini trends in a smaller time frames. Naturally, higher time frames patterns will be more
reliable and give better returns than lower time frames ones.
Keep in mind, most patterns themselves to requires a confirmation. For example, just because we see an
engulfing pattern on a uptrend that doesn't mean an auto sell assuming it'll turn there. In order the move
to reverse, we need to see convincingly buyers or sellers overcomes one another in quantitative terms.
High probability trades develops when these patterns occurs in supply/demand zones.
Engulfing patterns are made of two candlestick, one down and one up. Bull/Bear or Bear Bull/candles.
The image above uses red for price going down [bear candle] and green for price going up [bull candle].
Different traders may use different colors which is not important.
The important aspect that second candle totally engulfs the first one. It's even better if the body of the
second candle even covers the first candles wicks too.However, it's not necessary. Wicks are allowed,
they are usually small or non exist intent.
The size of the first candle is not important but it shouldn't be a doji as it would be very easy to cover
therefore force of the opposite move will suggest it's a weak one. However, the size of the second candle
does matter. Bigger is better [within reason]
How do we pick an engulf pattern?
Look for the existing trend up or down
See if the engulfing patterns occurs within supply and demand zones. Remember, engulfing patterns
occurring in new highs or ranging markets cannot be considered bearish or bullish reversal.. It'd more
likely be a continuation.
How do we determine the existing of down or up trend?
Some of the followings may be used for this purpose but my favorite one is to identify decent supply and
demand levels and work from there.
Peak and dip reactions are lower or higher than previous.
Price has been below or above it's trend line and so on. Best time to enter after engulfing pattern
established and price broke the trend line.
Chart 1
Chart 2
Chart 3
Chart 4
You may also consider using indicators as an additional helpers to see possible reversal points:
Chart 5
Chart 6
Caution:
Different brokers feed may display different candles due to their data feed server time and to certain
degree their liquidity providers, which will effect the display of engulf and other candle and even chart
patterns. Please see the below charts dotted rectangle area taken from two different brokers and notice
the different shape and size candles
Differences will be more and more as we go to lower time frames. In markets, nothing is clear cut, black
and white. There are no rules in markets written on stone that will apply at all times to all. Everything is
relative and relativity itself is kind of moving target. There cannot be a manual or static teaching will make
everybody profitable trader.
Not so fast. We need to check left first to see if there are any significant level or historically rich price line.
Always remember, we look at left and trade right.
We draw a line using current highs to locate a meaningful reference level. First reference area we see
goes back to Dec 2009. What a sweet reference area indeed. However, it doesn't suggest clear sell at
current bear engulf. Price can possibly move between the current level up to 1.50+ towards 1.51. For
those who may be thinking demand turned into supply in history and it may still act as a supply would be
a valid sell entry.
In my case, I may take the sell not on the basis of demand turned into supply but as lower probability
trade on the basis of engulf and price is being historically strong sellers zone. Depending my entry price
and type I may have ended with BE hit or few pips.
Now, would I take second bear engulf on sell again. Sure, I would. Why sure, history line still didn't hit
any significant supply zone?
1. Price is still in historically strong sellers zone.
2. Established new supply zone, tested and rejected with bear engulf.
1. Newly established supply zone. A weak test and rejection with bear engulf. If we did take this sell after
There are another type of little engulfs in our charts between the moves. On the way back these little
engulf patterns usually acts as quick reaction zones. It's Emene's favorite. I'll leave this one to Emene.
I'm sure he can do much better job than me explaining it.
want is to observe price in a supply or demand zone shown by our indicator and see if a zone is likely to
hold and reverse price or not. The areas of interest will be circled in color.
This is what you will be doing for the following weeks or months, so youd better used to it! Remember to
keep it simple by all means.
It exists some helpers that can give you some more confidence to trigger a trade, like the semafor
indicator, the RSI, etc Those helpers will are already available on Ace Gazette. A small and very
simple trading plan to get you started will be available soon.
In the future you will be able to put some new tools in your bag to help you improve the winning trades /
losing trades ratio.
Like:
- learn to watch higher time frames to see what are the best zones to consider on lower time frames. Ie, if
price is coming from a daily demand area and going toward a daily supply area, you will pay more
attention to the demand zones on H4 and H1 than to the supply areas. Makes sense?
- spend some time observing live which zones hold and which dont.
- study the importance of the different sessions (Asia, London, New York)
- learn how to use the dollar index as an indicator
- if you want, you can add one or two ingredients to fine tune your edge: fibonacci retracements /
projections, trendlines, etc Just make sure to not overload your charts so that you can still see what
matters most: PRICE ACTION.
After studying the many charts posted hereafter in this room you will have a clear picture of what
you need to look for. We will be posting some more examples on a regular basis to persuade you that it
works, day in day out. Keep watching them until it becomes completely natural for you.
Now what do you need to do?
Well, just visit the SD Trading Central on our forum.
Will post some trades here as I find it more convenient than the blog to engage discussion.
Trade: EUR/USD
Method: S/R, supply turned demand.
Time frame: H1
Trade: EUR/JPY
Method: AG trading plan. Engulfing in zone, semafor level 3, oscillator in oversold territory.
Time frame: M15
Trade: GBP/USD
Method: Daily horizontal level very important, check reaction on the left, green line is drawn from daily.
Semafor level 3, oscillator in oversold territory. Accumulation pattern.
Time frame: H1
Trade: EUR/JPY
Method: H1 Supply, first visit to fresh zone, oscillator overbought, semafor 3.
Time frame: H1
Trade: EUR/NZD
Method: H1 Supply, first visit to fresh zone, oscillator overbought, semafor 3, divergence.
Time frame: H1
Trade: Silver
Method: triangle consolidation break.
Time frame: H1
Trade: EUR/USD
Method: EURO INDEX at daily supply.
Time frame: H4.
Trade: AUD/USD
Method: H1 Demand reaction, late entry. aiming at close supply.
Time frame: H1 / entry M5.
Trade: GBP/CAD
Method: Touch entry on H4 demand. Not quite the best entry in the world.
Time frame: H4.
Assuming you understand and able to define / produce sound trading plan, did you test your plan
properly to see how it performs in real world. In now days testing your trading plan in real world doesn't
need to cost you a dime other than time. You need to test with not just few trades but hundreds of trades
under different circumstances to have usable output.
Most importantly, are you able to stick to your plan no matter what?
There are no shortcuts or magic formulas to make you a successful trader overnight.
Trading for living is not an easy task but not an impossible one at the same time. It all depends on you.
Some of us makes it some of us not.
Sometimes some traders ask me... What's the most important qualities of a successful trader over mid to
long term period in your view?
My answer has always been two words: discipline and patience.
Here is a morning gift I just got from Germany. Entered a tiny bit late after the engulfing you can see in
demand, and exited at fixed TG right below supply not to be screwed.
The two answers to your questions are in my text and on the chart.
1) The zones are all from the indy posted on Ace Gazette. The fractals one, not the inital supdem
indy. It helps me spot previous supply turned demand and previous demand turned supply. I do not
draw zones myself. I still cannot figure why so many members think they can spot zones better than a
computer but I gave up trying to understand that, it is beyond my intellectual abilities. And it makes
me upset. The indy does not miss zones, or at least, there are way enough zones you can trade. If
traders here focused on trading the zones the indy shows instead of thinking they can spot secret
hidden zones themselves, they would be profitable by now...
2) "Entered a tiny bit late after the engulfing you can see in demand". Now, you see the demand zone
right? I am sure you do. And you see my entry. So logically, if you go a bit below my entry, you will
see the engulfing that got me into the trade. Strong bull candle in demand. This is what we teach
here, keep it simple. What could have happened to me? Price could have pierced demand and my
trade could have been a loser. Big deal!
Please do not mind the tone of my message, I have absolutely nothing against you, in the contrary,
your are one of the people contributing to the community. I just would like members to go into second
gear now, it has been months and everything you need to be profitable is on the website. We keep
repeating the same things over and over. The rest is inside you.
How much work you put into your learning, how simple you keep your approach, and how you
manage your emotions.
For all this, you are on your own.
So come on Hornet, leave your brain at the door, put the indy up, wait for price to go into the zone,
watch PA, chose a position size that will not make you freak out, and take the damn trade
Have a great day.
I wish stupidity could be painful.
Here is a GU trade, same principle as always. A bit of drawdown because of the news yesterday but as
often, news were heplful to go deeper in demand and get new orders before messing with retailers.