Supply and Demand, Price Action and Wide Range Bars

This is NZDUSD.

The pink arrow points to a bearish WRB. Price falls away then returns and even exceeds. It reengages then falls through with another WRB (the second pink WRB). Price comes back to the base of the second WRB and it's an easy sell for a 3:1+ trade. Every trade is different but this is a prime example of what look for.

yeah, i have watched almost all his free youtube videos. Didn't wrote the name as i was not sure do you want to mention him again. His approach is similar to Coghlan's material.

It's hard for me to set through a candle like this one.



A lot of WRB traders would be taking profits here. This gets into the discussion of Risk to Reward ratios (R:R). It seems to me that one of the issues with a fixed R:R is that it assumes price always acts the same once you've entered a position.

A fixed ratio also doesn't take volatility into account. Volatility ebbs and flows. When volatility is rising, it may be an ideal time to exit positions. In other words, it behooves a trader to exit when price movement is rising as opposed to when price movement is falling or is stagnant.

Enter yet another use of a Wide Range Bar (WRB): Exit or stop management. WRBtrader advocates exiting a position at the appearance of the first WRB after trade entry. He exits as soon as the interval meets the definition of a WRB. I would prefer to wait until the interval is completed and see if it meets the definition of a WRB at that moment.

Obviously, one cannot fix their R:R in this method. One never knows how large the WRB will be (only that it will be the largest body ((Open-Close)) of the last 3 intervals). And one never knows when a WRB will appear. A WRB could appear on the same interval as your entry interval.

There's a lot more to be said about this, and I hope people will chime in with their thoughts.

However, I want to change gears and talk about another reason ZONES are so valuable. Supply/Demand Zones act as magnets for price. As such, Supply/Demand Zones make ideal price targets. The issue here is, if we assume price will always trade into the nearest opposing Zone, what happens if said Zone is less than 3 times our risk? Or 4 times, or 5 times whatever R:R we think we should be using? Do you go for the ratio which might entail assuming the Zone will fail ( the tp is on the other side of the Zone and therefore price must trade through it)?

I'm not in favor of "touch" trading because I don't like the notion that a Zone automatically works. But I don't like the notion that a Zone is automatically going fail even less. And that is what one would be thinking if they put their target price on the opposite side of the Zone in order to satisfy a fixed R:R.

Let the discussion begin.

Update:



Should we listen to what the Market is telling us, or listen to those who advocate strict adherence to R:R?

My first question would be, where is the price action happening in relationship to the last pivot in your market?

You could sell a portion and let the rest run or add on when the expected pullback occurs?

Are you trying to trade every new high/low (minor swings) or are you combining the minors into a major?

I do agree that it usually is prudent to take profits when a monster bar occurs, but........ there is always a but isn't there.
(the but is how big is that monster bar).

This is why it's called discretionary trading.

Considered selling this one for a trip down to the demand level below. The R:R wasn't favorable so I passed but the "set-up" is something to keep in mind.

USDCAD has been trending down on this 15 min chart. The WRB shown by the blue arrow is not one I can get excited about in this context. It didn't go anywhere and got capped by a not so well-defined supply above. But the supply exists and it has been verified. The blue WRB did take out some bearish PA to it's left (reversal of effort) so one could have justified a trade based on that but it was against the current trending of this pair. Price has come back to it's base. I wouldn't be surprised if it pushed through to the downside but that remains to be seen. Finally I could not justify the R:R on this.

EG


I'm always there, great work
Winston Read

While I have spent time in the same places as Winston, I am finding that the GBP/USD is measured best on the mountains and valleys without extended lines (per the picture). Tying in Hidden Gaps question, I got short around 1.36800 expecting it to run to about 1.3850 where I got out with some of my trade and then waited to see what would happen next. With some money in pocket I am hoping for the pullback to the angled/time measured line ( I had an order at 1.3869 and it failed to get there by a couple of ticks). But I have some still on, where does it go, the next angle/time measure which is a 1.5 measurement and bounces. I am hoping for the double and nothing says it will get there.

Just showing the simplicity of manual measuring and being surprised at the accuracy of the time factor of the measured lines

My chart is not running bars or candles, I prefer to just look at the close, the high and low (the blue and red dots) of each bar without all the drama of the show. I still get the data I want and can still measure quite easily.

I think your stop loss is not a good place and I hope you have not lost. But overall, your trading and your TP is absolutely right. Your trading style is great.
im in trade too.

Risk:Reward = Disciplined Trading

Win Rate: Traders often erroneously value win rate as the most important barometer of their success. This leads them down the wrong path searching for the proverbial holy grail of "entry centric" trading methods.

How often do you see traders touting a fantastic win rate? New traders see this and immediately want what that trader has. Not-so-new traders get a sick feeling in their stomach wondering what they are doing wrong and how can they achieve such a win rate. I know because I've been there.

Dramatic example: Take for example a scalper who brags to you about a win rate of 80% plus. As you speak to him you discover that in fact he does have a win rate of 80%! Being a scalper this trader logs in 30+ trades per day trading S&P mini future contracts. His scalping method relies on taking profit after only 3 to 5 ticks. The S&P 500 tick value is $12.50/tick and this trader trades multiple contracts per trade so taking profit even after a few ticks is no small amount. Astonishingly you eventually discover that this trader's account is actually slowly eroding! How can this be?! The more you speak with him the more you find out. Eventually it becomes clear what is going on. This scalper can win ten trades in a row and then with only one or two trades he wipes out all his profit. The scalper even brags about this and believes he just needs to be "more careful" and be "more disciplined". He never uses a stop loss because he says his scalping method doesn't allow him time so he relies on manual exits. The problem, he says, is that sometimes he lets one or two trades go too far into the red thinking it's going to turn. He justifies this by saying that since he has bagged 10 trades in a row he has plenty to cover the one or two trades that go against him.

My win rate: Personally my win rate is south of 50% and yet I am profitable. Although I believe I have a trading strategy that is reasonable I know that by itself it will not make me profitable. Let me say it again. My trading strategy by itself does not make me profitable! The number one reason I am profitable is because I adhere to strict money management rules that not only apply to each trade but to all aspects of my trading which includes:

1. overall capital (total funds available for trading)
2. funds in each trading account (futures, stocks and forex)
3. max drawdown allowed on any given trade (amount allowed on what I think is a really good trade but the stop loss is difficult to place based on market structure)
4. usual allowed drawdown on so-called every day trades where stop losses are small and market structure is obvious
5. 3:1 minimum target on every trade.

Why 3:1? Quite simply because accepting anything less than 3:1 increases the importance of a relatively high win rate. In other words you MUST win more than 50% of your trades to be profitable over time and no matter what you think this is very difficult.

Fixed or consistent? 3:1 does not imply a fixed pip/dollar amount per trade. In other words stop losses will vary in size based on market structure but targets will always be 3X the stop loss size. So if my SL is 20 pips on a particular trade then the target must be 60 pips. On another trade my SL may be 15 pips therefore my target must be 45 pips. If the market doesn't look like my target can be achieved then I don't take that particular trade. Even though there is variance in pip/tick size by sticking to a consistent R:R it evens out over the long term.

Therefore every trade I take is in fact based on what I perceive the market has to offer to me at any given point.

Early exits: Early exits essentially violate one's R:R and will over time diminish your account. An early exit for example that by itself results in a 0.5:1 trade may make one feel warm and fuzzy because they logged a win but such squeamishness often becomes a habit. Do this too often and your account will surely get smaller over time.

Write the check: This is how I trade. I write the check and put it in the mail. Once I analyze the trade and find it meets my criteria I place the trade with the target and stop loss and walk away. It either hits target or not. End of story.

Trailing: On rare occasion I find my trade ready to hit target on a trade where my analysis suggested a >3:1 trade. In this case I may move my stop loss up based on market structure to allow the market to move further. Doing this does not decrease my R:R to <3:1 but it will always increase it to >3:1.

So if you want to talk about discipline then get your money management in order.

Don't construe "fixed" with consistent.

http://www.futuresmag.com/2011/02/28...d-i-take-trade

Thanks Shantala! It's good to know that I'm not alone in my thinking. So many believe win rate and method trump R:R and they are so mistaking.

Have a nice Weekend

Hi Winston, thanks again for sharing your method, your last trade is good but I wouldn't have considered the yellow bar as a WRB.

The limit order was based on price action in at least a short term environment where demand seemed prevalent.