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Supply and demand in a nutshell by Alfonso Moreno

  • #181
  • Jun 16, 2013 1:09am Jun 16, 2013 1:09am
This post is not a screenshot explaining an entry, it's just about most the important and basic rules of trading, which we ALWAYS have to remember.

Supply and Demand trading helps us to achieve this, no lagging indicators, no overloaded charts, just price action.

Quote
1. Buy low, sell high
2. Let profits run, cut losses quickly
3. Add to a winning position, not a loser
4. Go with the trend

These rules look simple and are certainly easy to understand. So, why so many of us kill ourselves in the market? What makes it so difficult to follow these guidelines? The answer to this question contains the secret for our future success in forex. The problem lies not within the rules, but within ourselves as we apply these rules to our investments and trading decisions.

The text above is an extract of Zen in the Markets book... So simple, so clear!

Our left hemisphere (the rational side) does a great analysis most of the times once you have a sound trading plan, but the right hemisphere (the emotional side) is the one that will most likely pull the trigger.

What to do? What am I doing?
1. Trade live 3 hours a day, then turn MT off
2. Pre-plan all of your trades, never open an market execution order, your orders should always be limit orders
3. Set & forget versus Set & Regret. Set & forget all of your orders. Whatever happens happens
4. Don't modify your orders
5. Make sure you have a sound trading plan, you let your runners run and cut your losers quickly. A minimum 3:1 Risk/Reward is a good companion
6. Meditate, relax and disconnect. You don't know what the markets are going to do next

Have a nice weekend.
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  • #182
  • Jun 16, 2013 1:25am Jun 16, 2013 1:25am
Those are words to live by Alfonso. Any of us that are swing trading should be very familiar with what you say here. It's the "Plan your trade and trade your plan" idea. Thanks for the reminder!
  • #183
  • Jun 16, 2013 12:15pm Jun 16, 2013 12:15pm
I've watched a video on weathy traders habits today which I really liked and I wanted to share it with you. We all "know" about those habits, but many of us break some of those habits, it's good to have someone reminding you of them.

The video is at the bottom, I've taken the time to put the habits down while I was watching them so that you could read them all:

Wealthy traders:

1. Are patient with winning trades, and enormously impatient with losing trade
2. Realize that making money is more important than being right
3. Look at technical analysis as a picture of where traders are lining up to buy or sell. The markets is about human being, traders make price chnage, supply and demand make price change, not a moving average or lagging indicator
4. Before they enter any trade they know exactly where they will exit for either a gain or a loss
5. They approach trade number 5 with the exact same mindset they did on the 4 previous losing trades
6. They use naked charts and focus on zones. The more indicators they use, the more rules needed, thus adding indecision to the equation
7. They realized a long time ago that being uncomfortable while trading is OK. They are comfortable being uncomfortable
8. The markets the trade fit their personality. They are a participant, not an on-looker
9. They stopped trying to pick tops and bottoms long ago - and stopped losing money doing so...
10. They stopped thinking about the market being "cheap" or "expensive"
11. They are willing to change sides, short to long and vice-versa when the market tells them to do so
12. They trade aggressively when trading well and modestly when they are not
13. They realize the market will be open again tomorrow
14. They never add to a losing trade... EVER
15. Cash is the target, but they set goals for their trading that are anything but money. Goal is not cash, find a goal for yourself, if you do that goal, money will come as a result of that. You can have a successful trading day even if you lost money that day
16. They read trading books, but they read more "crowd" books. They know that market is driven by human psychology
17. They provide liquidity to the markets while watching price and volume. Hot toy in XMas, selling them in EBay
18. They have a way to gauge fear, greed and speed of transactions. One way: tick charts. 312 ticks
19. They practice reading the right side of the chart - not the left. Money is made on right side of the chart, the side of the chart that hasn't printed yet
20. Every wealthy trader has an "edge"
21. Their position size is calculated exactly on risk tolerance
22. Profit targets are based on Average True Range. Base your stop losses on something objective
23. One or two trades a month - make their month. Let the runners run
24. Are confident decision makers in the face of incomplete information
25. A losing trade is not a reflection on themselves as a trader
26. Their business isn't trading - it's finding the right trades
27. They write down or record every trade - price, thoughts, mood...
28. Their conviction on an active trade remains unless something major changes. There is a reason you chose a stop loss, don't move it
29. A winning trade does not result in taking an extra risk the next trade
30. They trade the "reaction" not the "news"

Inserted Video
Set and Forget supply and demand trading community
  • #184
  • Jun 16, 2013 6:51pm Jun 16, 2013 6:51pm
Greetings Alfonso

Very informative thread and cleaver S&D indicator you have developed. I've been a long time fan of supply and demand but like many other people when I look at a chart I see so many S&D levels that they become meaningless and sometimes price reacts at the level and sometime it doesn't. Identifying S&D levels where price is likely to react has always been one of the biggest frustrations with my trading. I will follow your thread closely as you appear to have developed some clear cut rules for identifying the S&D levels. So here is my first go at the charts.

On the monthly GBPUSD chart I have identified the control S&D areas. Price has just recently entered the weekly supply speedbump which to me would signal we may be wanting to look for shorting opportunities. Now we drop down to the daily chart and we see price is about 100 pips away from a non fresh daily supply level. When and if price enters the daily supply level we will also be hitting the weekly speedbump distal level. My question is do we look for shorts in this area as the daily supply area is not a fresh area? If you look for shorting opportunities do we wait for a bearish candle formation say on the 4hr chart before we commit to a short position? The other option is to wait to see if price gets to the next highest daily supply level which appears to be a fresh supply level before we think about a short position.
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  • #185
  • Jun 16, 2013 11:18pm Jun 16, 2013 11:18pm
Thanks for your post, I really appreaciate it. Doing my best, glad that you find thread clear and informative. I have very clear rules, still fine tuning them, but they are quite sound as of now, they will be improved more and more.

As far as the GBPUSD is concerned, look at my previous posts about it. I will wait for the H1 TL sub-trend to be broken and some lows to be absorbed, like on the picture and brand new H1/H4 supply areas to be formed. I took that trade short and had a loss, but it looks like it now wants to drop.

On a non-fresh D1 or a level on top of a level I will wait for this kind of confirmation, I will not set & forget.
I would set and forget on the upper D1 fresh supply if there is a nice original AND fresh level, else I will wait for this kind of confirmation.

I had a couple of losses on the pound pairs, by few pips, and now they are dropping. There is one short trade based on the same circumstance, the GBPCAD where I didn't have a loss and it looks like it's dropping. So I had 2 losses on gbp pairs and this gbpcad seems to be working at least for now.

GBPUSD
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GBPCAD. I missed this short entry, but I got the lower one on GBPCAD though
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Quoting ozziedave
Greetings Alfonso Very informative thread and cleaver S&D indicator you have developed. I've been a long time fan of supply and demand but like many other people when I look at a chart I see so many S&D levels that they become meaningless and sometimes price reacts at the level and sometime it doesn't. Identifying S&D levels where price is likely to react has always been one of the biggest frustrations with my trading. I will follow your thread closely as you appear to have developed some clear cut rules for identifying the S&D levels. So here is...
Set and Forget supply and demand trading community
  • #186
  • Jun 16, 2013 11:18pm Jun 16, 2013 11:18pm
I think... the majority of the pairs whit include de usd like base currency is making a redistribution, maybe is good be thinking for a big drop!, maybe... or just i'm mistake...
  • #187
  • Jun 17, 2013 12:40am Jun 17, 2013 12:40am
I think so as well... As you can see in the chart below for DOLLAR INDEX, I posted it on Friday as well, $index has reached a D1 demand are and it's accummulating there, whereas on the majors we've reached a D1/WK supply area for distribution. When both the $index and the majors match opposing higher timeframe S/D areas, it's a bigger confluene and could make price move quite a bit... So far, it's doing nothing, it's Monday morning and tomorrow Tuesday Dragghi will be speaking at 8 a.m and there will be some news. I guess that tomorrow will be the day when we start seeing some movement.

Another D1 close above that low that penetrated the D1 demand could be the start of some buying, it's a pattern I use a lot for rejections. 3 candles closes above the lowest low at a D1/WK SD area, H1 demand areas and go!

Alfonso

Quoting jaceves7
I think... the majority of the pairs whit include de usd like base currency is making a redistribution, maybe is good be thinking for a big drop!, maybe... or just i'm mistake...
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Set and Forget supply and demand trading community
  • #188
  • Jun 17, 2013 12:58am Jun 17, 2013 12:58am
Planning a short on GBPJPY at the D1 distal supply area.

There is a nice H4 supply area right there as you can see, original and fresh, so those are the ones I want to use for counter trend. It's a level within a level, that is, a H4 supply within the a D1 supply area.

The lower H4 supply area is at the D1 proximal line but it's not fresh, so I'm not using it, it might bounce off it? Yes, but my rules won't allow me to take non-fresh levels.

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There is the H1 supply level within the H4 supply area. It's still too wide, 47 pips. I need to add spread and some wiggle room, so too high risk.

What did I do? When these situations happen, I will use a 30-35 pips risk protecting my entry a few pips above the supply area, that's all. If it makes it, ok, else ok as well. It matches more or less the highs of those candles within the zone.

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My breakeven is 3:1 my risk, I'll be closing half of my position at 3:1 as well and let the rest run
Set and Forget supply and demand trading community
  • #189
  • Jun 17, 2013 1:06am Jun 17, 2013 1:06am
I am long on EURJPY since last Friday. The H1 demand level was too big wide for my risk, so I drilled it down to 30 pips and got the long entry, there was a nice imbalance there, it matched the lowest low spike on the D1, a retest to it.

Closed part of my position and trailing the rest.

I do have a limit sell order in the same fashion I did for GBPJPY in last post. Too wide so I drilled it to H1 and 30 pips because it was too wide.
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  • #190
  • Jun 17, 2013 7:51am Jun 17, 2013 7:51am
Was reviewing the GBP charts and noticed a 4hr supply zone that appears to be untested and is rejecting price at the moment. Would you consider this a valid supply zone for current price action?
Attached Image(s) (click to enlarge)
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  • #191
  • Jun 17, 2013 7:58am Jun 17, 2013 7:58am
I see GBPUSD supply levels in a different way.

Look at the levels on my charts. Upper one is too much time at level. Lower one is a reaction to a speedbump supply on the left, a drop, base drop. It's not original either, so not for me for a counter-trend.

We're too high in the curve to go long, so I want to go short but no original supply levels above, so doing nothing for now. I can't go long since I'm too high in the WK curve. I want some proof that there is supply in any of those areas? How will I get some proof? When I have some demand absorbed. There was a fake signal to sell on Friday and I had a loss, but I had to try because my rules told me to go short there. It didn't work but it means nothing for next entries!

So for now I am doing nothing, just waiting patiently...

Quoting ozziedave
Was reviewing the GBP charts and noticed a 4hr supply zone that appears to be untested and is rejecting price at the moment. Would you consider this a valid supply zone for current price action? {image} {image}
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  • #192
  • Jun 17, 2013 12:49pm Jun 17, 2013 12:49pm
Looking at the GBP/USD for a short entry. The first chart is a 1 hour, the level is fresh and original. i went back in time and the level is original. the 2nd chart is a 30m. I had to drill down the 1h to make my risk smaller
Question. Would you short this original and fresh level. It did make a lower low and broke previous demand?
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  • #193
  • Edited 3:52pm Jun 17, 2013 3:18pm | Edited 3:52pm
It looks like a good level to go short at. I have been away all afternoon, I had that level painted at the very beginning so that I could watch it when I turned my MT on, but will take a look at the market in the morning, for me the markets are closed at this time of the day, I mean, I don't want to look at the charts at this time, even if I miss a trade. But I would go short. I was waiting for such a level to occur as I explained in my posts, brand new supply level that absorbs some demand. We are at a WK/D1 supply, the plan says to go short. If it's a loss it does not mean the rules do not work, it's just a numbers game after all. Next one might work!

Remember that if you drill the level down to lower timeframes (m30 or m15), you might miss many trades. The level is on H1 or the timeframe you use to draw your entry levels. You have to know which is the maximum number of pips you will risk on that timeframe. For me 20-30 pips is perfectly fine! If you drill it to 15 pips, you know what I mean.

You took that short then?

Quoting Sdprice
Looking at the GBP/USD for a short entry. The first chart is a 1 hour, the level is fresh and original. i went back in time and the level is original. the 2nd chart is a 30m. I had to drill down the 1h to make my risk smaller Question. Would you short this original and fresh level. It did make a lower low and broke previous demand? {image} {image}
Set and Forget supply and demand trading community
  • #194
  • Jun 17, 2013 5:11pm Jun 17, 2013 5:11pm
Hi Alfonso, just two things to say, first, thanks so much by all the information you are provide us, is, of my way of think, most reliable and helpfull even than the xlt OTA, i has been seen about 80 hours of session for that guys and believe me, your videos and explanations give more light with just less of 3 hours, its really difficult find some threads like yours and even more difficult find people like you who help others selflessy; and of course the second one is a consult, i'm i little confuse whit the supply and demand in control, you take your levels ORIGINALS? or just FRESH and ABOVE or BELOW the price? that ask you because i'm seen some cases in that the levels are just placed above or below the price but isn't ORIGINALS.

Again, thanks a lot by the kind support!

And... sorry by my bad english, i'm not so good yet whit that lenguage
  • #195
  • Jun 17, 2013 11:11pm Jun 17, 2013 11:11pm
is this label fresh and original. can i go long first time it come to this label.
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  • #196
  • Jun 17, 2013 11:19pm Jun 17, 2013 11:19pm
Hey Derek (SDPrice),

Hope you took that H1 supply on GBPUSD, it's working nicely! Congratulations for spotting it correctly. I'm not in it, as I said, I won't trade at nights, or I will be all day long in front of the computer, you know what I mean. Hope that you got it, if you drilled it down to M30 then you didn't get, that's why drilling down does not work many times. If your level is on H1 then go for a H1 level

I had talked about $ index being at D1 demand and that majors could drop accordingly, this is what is happening more or less now.
I mentioned that having previous demand absorbed on the pound could be a nice possibility to short, it has happened, which is great.

Look at my charts:

- Previous H1 demand was absorbed, giving us permission to selll at the brand new original/Fresh H1 supply. H1 up trendline was broken solidly with some candles, the first pullback to fresh/supply is the trade
- The yellow line is the WK supply proximal line. We're too high in the curve, within a WK supply, so we can't, WE SHOULD NOT BUY.
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- See where we are on the weekly chart, right within a WK speedbumbp supply. Time to look for original levels of supply to short on a set & forget basis, or the absorption of previous demand on lower timeframes to short on the first pullback to brand new supply
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Quoting Sdprice
Looking at the GBP/USD for a short entry. The first chart is a 1 hour, the level is fresh and original. i went back in time and the level is original. the 2nd chart is a 30m. I had to drill down the 1h to make my risk smaller Question. Would you short this original and fresh level. It did make a lower low and broke previous demand? {image} {image}
Set and Forget supply and demand trading community
  • #197
  • Jun 17, 2013 11:22pm Jun 17, 2013 11:22pm
Hi Ochin,
I can't know, you can't know if that level is orignal or not by just looking at that chart, sorry

In order to know if a demand level is original you have to draw a horizonal line at the lowest low of the level, and look left and left, no matter how far in time, in the timeframe where you have drawn it. If that horizontal line hits a previous demand level, then it's not original, if it does not hits then it's original, that simple.

On your chart, we can't see what there is to the left (without cutting through candles), so I can't tell you if it's original sorry. Go to the origina nd find out.


Hope that helps
Alfonso

Quoting ochinkumar
is this label fresh and original. can i go long first time it come to this label. {image}
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  • #198
  • Jun 17, 2013 11:25pm Jun 17, 2013 11:25pm
I appreciate your comments, thanks a lot! It takes time, but with patience and a good emotional/trading plan we can all make it.

I don't understand your question about original and fresh, so I can't answer that sorry If you show me graphical example/explanations, then I might see what you are trying to put accross.

Alfonso

Quoting jaceves7
Hi Alfonso, just two things to say, first, thanks so much by all the information you are provide us, is, of my way of think, most reliable and helpfull even than the xlt OTA, i has been seen about 80 hours of session for that guys and believe me, your videos and explanations give more light with just less of 3 hours, its really difficult find some threads like yours and even more difficult find people like you who help others selflessy; and of course the second one is a consult, i'm i little confuse whit the supply and demand in control, you take...
Set and Forget supply and demand trading community
  • #199
  • Jun 17, 2013 11:28pm Jun 17, 2013 11:28pm
NZDUSD chart: i am watching this original demand label (yellow)
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  • #200
  • Jun 17, 2013 11:31pm Jun 17, 2013 11:31pm
Quoting panoramia
Hey Derek (SDPrice), Hope you took that H1 supply on GBPUSD, it's working nicely! Congratulations for spotting it correctly. I'm not in it, as I said, I won't trade at nights, or I will be all day long in front of the computer, you know what I mean. I had talked about $ index being at D1 demand and that majors could drop accordingly, this is what is happening more or less now. I mentioned that having previous demand absorbed on the pound could be a nice possibility to short, it has happened, which is great. Look at my charts: - Previous H1 demand...
Unfortuantly i did not take the trade. I regret it, but it is was on those learning process for me. the trade is currently breaking strong downward. The reason i did not take the trade is i thought the trade was too big of a risk for 23 pips. I don't really have a system for how many pips to risk for each time frame. I don't risk no more than 2% of my account for a trade, however, i have no system for pip risk for each time frame: Wk, D1, 4H, 1h. What do you typically risk for those time frames: Wk, D1, 4H, 1H??
Thanks alfonso,
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