Romancing the Price

dow before the weekend.

Before I get to my post, I have to say that my FF is messed up yet again after so called "weekend maintenance". I am getting sick of this. No, check that. I am sick of this. End rant.

Okay, on to the topic dejour. A lot of people have problems with the fact that I am not a trend trader. They say I ignore the trend and am only concerned with catching tops and bottoms. I will discuss how a Supply/Demand trader defines trend, but first I want to talk about how the professionals trade the market and how we all do things in other aspects of life.

Many people here on FF know the old adage:

The Trend is your friend.

There is another adage known to most professional traders. And when I say professional traders, I am talking about the big money traders. :

If you think the market has turned, you're early. If you know the market has turned, you're too late.

One of the biggest mistakes losing traders make is that they buy after a rise in price in an area where there is supply. And they sell after a fall in price in an area where there is more demand. Many of these traders are trend traders. They are not buying low to sell high. They are buying high to sell higher. They are not selling high to buy back low. They are selling low to buy back lower.

If you are such a trend follower, I ask you this. When you go to the supermarket, do you buy cola when it goes on sell (price is fall), or do you wait for it to go off sale (price is rising)? Would you rather buy a house when prices are rising or when prices are falling? When housing prices are rising, wouldn't you rather be a seller than a buyer? When you visit your favorite haberdashery, and find out they will be having a sale in two days, do you go ahead and buy the outfit you want, or do you wait two days to buy it when the price is going down?

Well, If you in the other realms of your life you look to be a buyer when prices is falling or down and be a seller when prices are rising or up, understand that the financial markets are no different.

The big money professionals are selling when prices are rising and buying when prices are selling. They understand that a new trend usually starts before an old one ends. This really makes the big money not so much trend followers as trend setters........

Don't get me wrong. There is nothing wrong with trading with the "trend". If you are selling in a supply zone as price has risen in a larger down trend, that is. There are a couple of things to remember. First, You are still selling as price is rising. Second, a trend is defined as a move from a demand zone to a supply zone or vice versa. As long as a zone remains open, then we can define multiple trends in the market at one time.

Take a look at the chart below.

The overall trend is actually up. We know this because there is a demand zone that is open with price above it. Price encounters supply and starts to head down. This would be defined as a lesser order down trend. Price reaches the Demand level and buy orders are triggered. The subsequent move from this demand zone back into the previous supply zone is an Up trend.

Now, if you had bought at the demand level. You would have been buying as prices were falling. This is the ideal place to buy. Why? Because we know in hindsight prices rose? No. Because you know that most losing traders are selling after a fall in price in an area where there is more demand. Simply, it is an ideal place to buy because it would mean you are doing the opposite of what most losing traders do. As Sam S likes to say, "know who is on the other side of your trade". We know it can't be the big boys because we know they are most often correct at tops and bottoms. Which means they are not selling as price is falling here.

Do I concern myself with trading the tend? Not really. I am looking to buy when and where the perpetually losing trader is looking to sell. I am looking to sell when and where the perpetually losing trader is looking to buy. I don't like to reference Warren Buffet as he is an investor and not a trader. But he did say, "be greedy when everyone else is fearful and be fearful when everyone else is greedy". You can't follow the advise of one of the world's riches men by buying gold when it reaches a 52 week high. Nor would you being following this advise if you sold the Euro at a 6 month low.

As the boys on the biggest trading desks say:

If you think the market has turned, you're early. If you know the market has turned, you're too late. (And being late is the bigger sin.)

Agree with everything you say HG - this should be a sticky for the up and coming Gazette. The arguments between trend traders and top/bottom pickers will continue for many years to come no doubt about that. I just wondered why is that of all the famous traders I can think of right now are trend followers eg. Turtle traders, Ed Seykota, Larry Hite, Bill Dunn, to name just a few.

And non-trend followers, I can only think of Richard Wyckoff (and the VSA guy -forget his name), and those selling his stuff just educators imo. And Seiden, well who know's, I see him more of an educator than a trader.

My point is where are all these 'famous' non-trend traders that are churning out millions in profits every year? The fact that they are not well known probably tells you more about the trading education industry (famous names to sell courses etc), rather then the fact that there might not be any successful top/bot pickers at all.

Another point is of course could be about semantics. Getting in at the start of a trend is in reality a form of trend trading. Whether we are getting it at the middle of the supply/demand curve or at the extreme end, trend traders and top/bottom pickers all have one thing in common and that is we expect price to move based on the assumption of buyers/sellers moving price in one direction, and to continue to push that price in that one direction.

Technically, trend traders are late to the party and will be sometimes selling into demand, buying into supply and will lose out, just as top/bottom pickers sometimes will be wrong catching those so called falling knives. Statistics will prove the better logic; any volunteers to test SD trading compared to 20 day high breakouts on eurusd in the last ten years?

The bottom line is that successful trading is all about the process of doing it, not about whether trend trading is better than contrarian trading. But for lower DD and logic my money is on contrarian any day, but it pays to be both and know when to use each.

So, names of successful top/bottom pickers......??

I reject your premise that success can only be measured by fame. There are countless successful people who "toil" in anonymity.

Nevertheless, I will play your game:

1. Jim Rogers
2. Sam Zell
3. George Soros
4. John Templeton
5. Marc Farber
6. David Dreman
7. John Neff
8. The Bank of Japan

But I would stress that there are many "nameless" traders out there that are successful.

Who moves the currency markets? The members of FF with their 250 dollar mini accounts? No the markets are moved by big money. Therefore every turn in the market is a move that is the result of big money. But if the big money makes the markets turn, then they are selling when prices are rising and buying when prices are falling. This does not make them trend followers, rather trend setters........

Now everything is back to normal but still your attachment thumbnail is not showing.

That was not my premise more of an observation which was not well informed.

fresh from the oven with proof...

The below quote is from a PM I got. Since the Red Army Faction has basically moved to a new home, I think I'll answer it here.


This really is the wrong question to be asking. When you say "hold", that implies some sort of support/resistance aspect to me. I am of the belief that Supply/Demand Delta Zones are not the same thing as support/Resistance.

I use the term Supply/Demand Delta Zones because it does explain some of the underlying elements of what a zone represents. But there is another name that although is used less often, is actually more precise. That term is "Entry Signal Zone".
An "Entry Signal Zone" is just that-a zone or price area where you would like to see your entry signal appear. It does not matter if price "disregards" a zone most of the time by traversing through it as if it was not there. What matters, are those times when price does not. Moreover, what matters are those times when price does not and your entry signal requirements appear as well.

Sure, I can point to countless times when price moves up to a Supply/Demand Zone and bounce back down. While that may be nice to see, it really is irrelevant. The only relevant times are those when your entry signal appears at the same time.

I know I tend to only show those Zone that "hold" or price bounces from, but there is a reason for that. Those Zones that do not "hold" or price does not respect, are meaningless. The identification of a Zone comes with no expectations that price will do anything when it returns to it.

Think about this.

Price can do one of three things when it returns to a zone. 1) Price can ignore the zone as if it was not even there. From my point of view, this is no harm no foul. 2) Price can respect the zone and bounce but in doing so not give you any of your entry signals. 3) Price can respect the zone and bounce whilst giving you one of your entry signals to participate in the move.

So here's the rub.

Of the three above cases, case #2 is the worst. Not case #1. #1 is of little consequence. You don't have any expectations when price was moving towards the zone. So you can't be that upset if price does not respect the zone. #2 is a little different, however. While you still have no expectations of price as it returns to the zone, you do expect to see an entry signal a large portion of the time price bounces. If price is constantly bouncing but you are consistently not seeing entry signals, then you have problems.

Take a look at the chart below.

This is a really nice chart but it could just as easily not be. It could be an example of case #1 if price just continued down and closed the zone. Again, this would be no harm no foul. It could also be a case where there was no entry signal within the price action that is within the Zone. For example, there is no engulfing pattern here. Or if you use the Fakey pattern, it is not in this price action either. But since there is a pattern, that is rule-based and predetermined, it falls into case #3.

Since most of the readers of this post are far smarter than I, it's a good bet they have already seen the next issue: two traders using the same Zones but different entry signals will have different results. I don't want to spend any time on this, but I did want to at least acknowledge it.

I'll end where I began. Supply/Demand Delta Zones are not the same thing as Support/Resistance Zones. However, like Support/Resistance Zones, Supply/Demand Zones are not trade signals in and of themselves. Every Supply/Demand Delta Zone that you identify could "Hold". That, however, would not mean a thing. Unless they all held with the appearance of a valid trade signal.

If you haven't made your way to the new home of the Red Army Faction, you don't know what you're missing.

Anyway, I thought I would put these two charts up to maybe spark some debate.....

The first chart has some Supply/Demand Zones as done by the majority of the Red Army Faction.

The second chart shows my Supply/Demand Zones for the same time period.

Thanks for this post H.
Very insightful and right to the point.

kindest regards,
Jonas

Both methods are dependent, in part, on entry technique/signal within the zone.

Seiden purists enter at the origin without confirmation entry signal, based on a high probability score for the level. A lower scoring requires a confirmation entry but also at the origin of the move.
Pros: Get in at the extreme where there are more likely to be more willing buyers/sellers in your trade direction.
Cons: Will miss some moves that turn before reaching the origin of the move perhaps due to competition between traders to enter into a trade.

Your delta zones take the initial thrust of a strong momentum move and thus include the main meat of the move and the origin.
Pros: You will catch trades that turn before reaching the origin of the move.
Cons: Attempts at entering before the origin may also lead to entering too early into a move thus getting stopped out.

So what's the better zone? Only hard stats could reveal that and even then it boils down to risk management. Entry technique/signal however may hold a clue also.

I wanted to share some thoughts on some interesting chart action.

First I should explain some terms:

1. SSD (Supply Swamping Demand)
2. DSS (Demand Swamping Supply)
3. Entry #s 1-6: these are actually better understood to be potential entry set-ups rather than entries. Which is actually what the post is about.

Entry #4:

The first thing that should be understood is the origin of the term Supply/Demand Delta Zone. I chose this name because it defines what has happened in the area represented by the WRB Hidden Gap. But there is more to it than that. Both Supply and Demand are used because traditional WRB Analysis would say that any valid trade signal within the Zone could potentially be taken. In other words, both a long or a short could be taken as long as the zone remains valid and some other factors are in place (some of which will be discussed later).

Again, I would mention that the other name for the zone is Entry Signal Zone. Here one should note the absence of the adjectives long or short. Further implying that both a long or a short would be valid.

However, I have moved into Sam's camp on this. Whilst the name remains the same, a Supply/Demand Zone created by a dark (Open>Close) WRB Hidden Gap, should primarily only be used for short entries. This effectively turns it into a Supply Delta Zone. Now we can go one step further. We want to take Short entry signals after a rise in price that occur on or within the Supply Delta Zone.

Entry #4 does not meet this requirement. It is a long entry signal after a rise in price into a Supply Delta Zone. Therefore it is not actually an entry. However, if you are already long from entries #1 or #3, then it could be a valid continuation signal for an add-on.

Entry #5:

This is beautiful and the type of entry that the haters love to hate. Well, for me, it is not actually an entry. I want my entries to be on or within the Supply/Demand Delta Zone and this entry is not. Notice that price has come through the Zone. What this entry does is confirm that the zone is not closed. Normally, a Zone would be closed there is conviction above and below the zone. In this case, conviction would be defined as a full White (open<close) body above the Zone. There are two basic exceptions. the first would be if one allows for a doji to have small body rather than simply being open=close. Since by definition, a doji is indecision, it can't also be conviction. The second exception would be if the interval that has a full White body above the zone is involved in an entry signal pattern.

In this case the entry signal is a single interval. If it had been part of a multiple interval pattern where even just one tick of one interval was on or in the Zone, then it would have been a valid entry.

Although this is the first interval with a full white body above the zone, it does not represent conviction. Since we see that Supply is Swamping Demand on this interval. Thus this is a belated result of the Supply Zone and thus confirms the zone is still open.

To be sure, some might go ahead and use this as an entry. I am saying it is not. So I do not want to hear that it is perfect but after the fact. You want to hate. Hate. But not on this one.

Entry #6:

Like entry #4, this is a continuation entry signal. Unlike entry #4, however, this one is in the correct direction. But let's back up for a second. Note that I used the word continuation. That's right. It is not just about picking tops and bottoms. We can still trade with the trend. A reversal signal can also function as a continuation signal.

apologies for not posting here lately.. been quite busy.. i hope everybody had a good trading day.. mines was great, especially with gold where i have achieved my personal best to date for a single trade.. last gold buy closed with 2000 pips...



i'll post my some of my NFP trades later..

in the meantime have a great weekend.........

wonderful as usual

here some NFP trades as promised.. there was nothing much to trade in both direction.. NFP enabled me to close them..

Wow I can finally post on this thread after months of reading it. May as well start proceeding with a couple of trades. On the scalp.

Bit of a swing trade still running, 1 position off and targeting higher.

Hi CT ...well done on your hard work, dedication and commitment.

Would it be too much to ask if you could title the instrument of the charts that you post? Tf's are cool..we more or less know that you are either M1 or M5....but the instrument is a little difficult for me to read. Thanks mate.

No probs. I'm short DAX targeting yesterdays gap.

EURGBP short.

H4 supply went right to the top but allowed me in with a really tight entrance.