Price Action and Trading Discussion

Something I will watch next week.

EUR/NZD has returned back to the weekly low from middle of february, where the upmove initiated.
It allready tried to move up, but got rejected for now. But I think there is a good chance for a decent upmove from the 1.56-1.57 area and will probably go for a touch trade if price reaches those lows again.

I've attached also a diagram, a comparison of the index strenght for those two, for the last month and a half. Since NZD is in a huge uptrend and EUR in a downtrend I would expect, especially in the light of recent (positive) Eurozone developement, and the fact that strong support is reached, this pair to be a promosing long opportunity.

GBP/NZD a classic down continuation setup. I would like to see break of RN and then a pullback to go short.

Alarm got triggered and I couldnt resist.

Trendline&Resistance confluence. Touch trade, smal SL.

Will bank 1st TP fast.

A solid resistance area but a bit risky considering the move we have just had.

200 ish pip move already on the pair today and considering its the end of the week we may simply see price consolidate.

True.

My reasoning was, that exactly because there was such a strong move, a continuation is unlikely. I wanted to snatch some 30-ish pips and move SL down, but not happening for now.

Highly likely to remain a bit quiet for the rest of the session I would think

DW was right about your GU setup been too risky but you may just make a little pips from the expected consolidation before the UTC (UpTrend Continuation) next week. I'd wait for some retracement and PA formation before going long next week. Goodluck though.

@DW and all, From your setups pix you have posted (been going through them), it seems you prefer using buy/sell stops (momentum) more than buy/sell limit entry (retracement) and I'm amazed how they ve worked magic for most of your displayed successful trades. Were you having terrible experiences with limit entries in the past? What do you look for before considering using buy/sell stop entries rather than limit entries?
It seems you dont trade index and commodities like DJ,SP or XAU/USD,XAG/USD; any reason why?
Also, I often move my SL to/closer to BE when the trade is in green pips of sometimes R:R of 1:1/more only for price to spike to adjusted SL before going in my direction again and a "potential" successful trade/setup becomes a losser and this is often frustrating after waiting days for the move; So how and what do you look for before moving your SL?
As you evaluate your account and trades history of the last financial year, can you categories the pairs that have made your account fat (profitable) in the short term (5-60min TF news- or R/S- influenced scalp) and in the long term (4hr-Daily/weekly purely PA trades)???
What pairs are you looking at for potential next week trades?
Thanks for sharing your insight. I'm learning so much from you and the great minds in this thread

Yes im not sure if your familiar with the book Way of the Turtle. But a successful trader after every 50 pips opened a new position and managed his previous positions making them b/e and locking in pips always having a exposure of one of his positions.

Was curious to know your methodology of opening up lots. Idk how your managing but I am realizing by not adding positions to my winners and riding the profits its a see saw battle between 50% losers and 50% winners and losers always coming on top at the end of the day due to one reason or another.... :S

Just to clarify, the turtles opened new positions at 1/2(n) where N is the 20 day average true range of the daily bars. A flat 'open at 50 pips' across all currency pairs would be a bit extreme generalization with no notion of volatility among different pairs. (http://www.dailystocks.com/turtlerules.pdf on Page 13)

You need to encode a good Risk/Reward into your system when using supply and demand. I don't mean to speak for Darkwolf, but if you are going to pyramid positions I'd personally recommend finding the overall trend then building up positions at supply or demand areas. There are a lot of things to consider in position sizing/money management, but picking key supply and demand areas that fall in line with a current trend will net you amazing R:R.

The day that most people realize that they need to stop focusing on win percentage and start focusing on R:R is near to the day people become professional traders. Even a trader with a measly 15% win rate, but a 1:10 R:R will be profitable if they stick to their system and their R:R.

Supply and demand allows you to really pick a narrow entry (stop loss wise) compared to most systems. A 1:10 R:R is very attainable with tight entries.

I use both acctually.
As you know, price moves in the pattern "trend-consolidation-trend" or it is ranging. When I see a clear consolidation, I usually go for the direct entry (b/s stop). On the other hand, if I see a trend, and an area, which I take for S/R, is broken, I'll generaly wait for a pullback.
Pretty simple acctualy.
Sometimes I also go for touch trades, supply/demand stuff, if I consider it highly likely to work - as in my unsuccesselfull GU trade. (I knew I should not take it but...)

Im still very new to trading and limited in capital. Thats why I trade only instruments, which offer micro lots. I do watch gold and silver, though.
Besides, those 30-ish pairs is enough for me; for now.

First of, I take partial profits, so if SL gets hit after that its not so bad. Yes, it could have been more (in this scenario you mention), but every strategy has its strong and weak parts.
Now that I think about, why/when do I move my SL... I guess its related to momentum. If I see a sharp move, Im more confident to move my SL fast and the other way around.

Tnx for the link.

You know of any other good, position adding resource?

I have a R:R strategy and taking some profit after some green pips messes up my R:R plan big time. What I have tried doing these past days is trying to make my risk extremely low (SL of 10-20pips; I usually miss some trades where price didn't retrace to my target 62%/78% fib entries.), then take 80-90% of my position when I'm up 2-4 R:R (2 for counter trend trades and at least 4 for trend trades but sometimes, I get greedy as taking a part of my position reduces my profit big time and this hurts when the trades end up raking in more pips on remaining 10-20% lots size but I'm glad when remaining lots size gets stopped out at BE)

Win ratio as against R:R is a an amateur's fantasy and it's a huge deception.

You plan to have those 10-20 pip SL's on D and 4H charts?

After top down analysis from Daily through 1hr TF, my trades are taken from 5/15mins TF after price reaction from R/S and based on the time of the day.
And because I have an excel sheet where my position lot sizing is calculated based on my % account bal risk ($$$) and my SL (pips), my lot size gets bigger with smaller SL

Oh not at all i understand the point your making. Though could you please clarify what you mean by supply and demand?

It is entirely what this whole thread is about... price action at key areas.

ON S/R

Like every other technical tool...s/r needs to be traded properly to be effective.

I trade S/R two ways:

#1. I trade s/r in the direction of the trend--in this specific case, i dont take my s/r lower than h4.

#2. I trade the s/r in an anti-trend direction...this is a special case and certain particular conditions need to be met....in this case, my s/r is usually weekly, monthly, sometimes, daily.

(b)Of course, i want a linear regression confluence at the point of entry too.

(c)This specific s/r has to be at previous market turning point and very fresh(never been tested). Why? S/R that happened as a result of market turning point are created through the fractionation of orders by fundamental big trading entities. They bleed into their position over days, sometimes, weeks in many cases, months. Thereby turning that region into a nice consolidation/market turning point. THERE ARE STILL FRESH ORDERS RESTING IN THAT AREA WAITING TO BE TRIGGERED. This will provide subsequent boost. Big players with long time horizon don't jam pack their orders in within seconds or hours. (Not just my trading experience, but yes, i do have analytical papers backing everything i just wrote.)

which leads to point #d.: The time range from when that s/r level was created to when it is now being tested should preferably not be more than 1 year at most and 1 month at least; 6 months for maximum efficacy. Why? Market Memory. One market trade have at least a memory of 2 weeks.(i have analytical papers for this too...yes, s/r can work up to 20 years, no doubt(i have analytical studies for this too)..but their efficacy diminished after a number of years.

If the time window is too narrow, you have a fake breakout reversing....if the time window is too large, then the fundamental factors that indicated to large fundamental traders that entering the market at that point is good value could have disappeared or rendered immaterial--which defeats the purpose of entering the market again at that level. Thereby rendering that spot less than optimal entering point again. If the fundamental reasons for entering AUD/USD at 0.9859 is no longer there, why then should fundamental trader that entered at 0.9859 before, thereby causing market turning point...why should they re-enter again at 0.9859? No reason at all. NZD/SGD at 58.00 with NZD good wool production is not the same as NZD/SGD at 58.00 with bad wool production.

this is one of the reasons why a S/R levels that look good may not work, because the fundamental reality of the market has changed. However, a pure technician may not be aware of that. Hence, it is highly recommended to pure technician: trade with the trend. Trend trading baked in fundamental info for the most part.

This issue of fundamental spoiling the show then leads us to the next question, which is: how do we avoid this apart from using trend trading?
Well, read up on fundamentals or use a proxy analysis. e.g. the indexes.
If the basket of NZD indices is at similar/same level where it was before when NZD/SGD was at 58.00, then, the relative fundamental strength is assume to the same with regards to other countries.

Market turning points? that leads us to point #E:
The market turning point needs to be at least 7 trading days of market action zone. In fact, the more trading days it takes to form the reversal == the more money it takes to bleed into the market to form that s/r zone== The better that s/r zone will be.

Which leads us to: how do we determine a good s/r zone apart from the usual suspects of requiring larger time range, requiring higher time frames formation, and requiring fundamental this or that? Are there technical formations that might tip us to a good S/R level? Yes.
(a)If your weekly s/r level that price is coming back to test look like a 1,2,3 formation on the H4. that is a good sign. (yes, i have statistical studies backing this up) Note that a 1,2,3 formation can look like a inside bar or a pinbar. Yes, candles = technical chart patterns too.
(b) If that 1,2,3 formation fits well into the concept of momentum ratio As succintly explained by entropylad. William O'Neil analyze this concept in his book although he didnt give it such a fancy name as "momentum ratio".
(c)If that 1,2,3 formation was followed by a breakout and pullback but the pullback was forced pushed away before touching the breakout point As beautifully explained by dazzdude and WMD. . That is golden.


HERE A FEW ERRORS WIDELY ATTRIBUTED TO GOOD S/R

That there are large block of orders at s/r levels. No. Point to me one serious analytical paper backing this claim up. Are there multiple orders residing there? yes. But they are fractionated. And if fundamental condition is plauribus ceteris, fundamental trader will keep their orders there still...however, their orders are fractionalized.

You dont want levels that has been tested from both sides. This will have eroded supply of orders clustering around it. The only thing that may still offer a bounce off that level is market memory. (just google market memory)

You preferably do not want that level to be proven as support or resistance previously. I know this is dogma:make sure that level was proven to be good support and resistance in the past. I am of the contrarian view. You dont want that. All that will do is eat into the cluster of orders residing there. And keep eating into it until the new direction of market orders overwhelm the ones at s/r level leading to price smashing through s/r. So, only go for untested levels for maximum efficacy.

IN A NUTSHELL:GOOD S/R LEVELS CONSIST OFF:

-- Higher time frames market turning points(not breakouts). Turning points.
-- Make sure the fundamental situation at the time of the turning point is similar to what it is now. or use proxy analysis if your fundies are weak. If the fundamentalists with enough market firepower to cause the market turning point, now see price retrace to their previous level....some of them will see that as a bargain to enter again. (that is assuming fundamental condition remains unchanged). They have much longer trading time frame horizon.
-- Which is why i prefer that S/R zone gets retested within 1month to a year. Not more or less.
-- Of course, i want the S/R zone to last at least a week in length.
-- Use confluence. I prefer linear regression analysis coinciding with the S/R
-- Make sure your WEEKLY s/r zone turns into 1,2,3 formation on H4.
-- Make sure your 1,2,3 formation has a momentum ratio to it.
-- Make sure your hook line is untested. check WMD thread.


***APART FROM MY TRADING EXPERIENCE, I CAN PRETTY MUCH BACK UP EVERYTHING WRITTEN HERE WITH ANALYTICAL STUDIES***

regards,

skynet

Hi Jibjib,

Supply and demand is simply another term for support and resistance areas.

Some traders like to call it supply and demand, although they will argue that is completely different it is very much exactly the same thing.

It is not a term that I use at all, I simply call it support or resistance.

Hi Skynet,

A well thought out and insightful post.

Keep it simple. If the support or resistance area is an obvious one, and there is some good PA evident then I will consider the trade depending on how that PA has set up and why. Apply your risk management and job done.

In my experience, I have learnt that it is the simple things that work the best.

This is something that when I first learnt to trade someone said to me, and after years of looking at various different approaches to trading I can safely say, it really is the simple things that work the best, I should have listened to his advice to begin with.

Hi dboy,

First of all I will always use bury or sell stops as my entry method, simply due to the fact that I prefer to wait for a bar to have closed before making a decision. I usually trade on the conservative side and have my entries placed above or below bar closes or support and resistance areas. I dont usually trade percentage retracement of bars etc or simply place orders at a level in the market hoping that price will bounce away from it, I prefer to have the confirmation.

When trading 5 minute charts I tend to use mainly at market orders, and at times I will trade at touches of ares rather than waiting for confirmation. But I trade much of the short term 5 min charts anymore.

What I look for when placing my orders is simply PA at key areas, the confluence the better.

I do not trade commodities simply out of personal choice. A few years ago I did trade some indicies and stocks, but now I simply like to trade the currencies and that is it, again this is simply a personal choice and it suits my available times to trade. The main trading sessions are at night my time in Australia therefore I am at home and can watch the charts.

As far as BE trades, that is a part of trading. The way I look at BE positions is that its far better to have a position stopped at BE than it going against you and a winning trade then becomes a losing trade. If my trade gets hit BE then so be it, move on to the next opportunity. Yes it can be frustrating when it turns and goes in the direction you originally wnated it to, but you would be even more frustrated if that position that was a positive trade then becomes a losing trasde. Trading opportunites will always present themselves, when the trade is done its done regardless of the result, if you follow your plan then its a good trade, move onto the next one.

I simply look for areas that are likely to cause price to stall, then I will make the decision to either enter BE or potentially even reduce my risk.

As far as this week goes, I will simply need to wait and see what presents itself. Even though we had the spikes on Friday there could be some potential for price to simply fall back into its previous trends.