Supply and demand in a nutshell by Alfonso Moreno | Page 123 | Forex Factory

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Supply and demand in a nutshell by Alfonso Moreno

  • #2,441
  • Sep 14, 2013 6:50am Sep 14, 2013 6:50am
Quoting panoramia
{quote} No comments or critiques on my side Ivan! I do have the same setups waiting on at my VPS. If conditions continue to apply when price reaches those areas, I will be taking those similar trades. It looks like you know what you are doing, all I can say is congratulations my friend Alfonso
Hi Alfonso! Thanks for the encouragement, means a lot coming from you.

And Marko good sharing there, I like how you use those indicators together with S/D concepts. It is interesting how all these pieces of puzzle fit together. I really agree with what you mentioned regarding divergence. I also noticed that very often price will exhibit divergence on the LTFs as it is approaching our HTF zone. When I think about it divergence is really a loss of momentum, and it makes sense that price is losing momentum as it is approaching our zone. Take it further and there'll often be chart patterns like double tops with the second top fake breaking out of the first, 3 drives up, rising wedge, compression etc on the LTFs as price is approaching our HTF supply zone. All that will almost always be coupled with bearish divergence on multiple indicators and what is happening in the background is just smart money filtering in their sell orders. While not necessary, those definitely add confidence in taking trades in zones which are valid according to Alfonso's rules. Here is one recent example:

Attached Image (click to enlarge)
Click to Enlarge Name: USDCHF.png Size: 49 KB


Its funny cuz after spending a couple of years studying chart patterns, indicators, candlesticks etc, I found that so far Alfonso's strategy has the highest proven expectancy and makes the most logical sense. In a nutshell, I realized that indicator signals and candlesticks tend to fail more if the zone is invalid to begin with, and if the zone is valid, I don't even need them! I can place a limit order and be part of the pin or engulfing bar that is forming.

Ah I really digressed... Just wanted to say I enjoyed your sharing and there were nuggets of useful trading knowledge in it. Shall stop deviating from the original thread material now, have a great weekend everyone!
  • #2,442
  • Edited 10:05am Sep 14, 2013 7:11am | Edited 10:05am
Quoting Myst1z
{quote} Hi Alfonso! Thanks for the encouragement, means a lot coming from you. And Marko good sharing there, I like how you use those indicators together with S/D concepts. It is interesting how all these pieces of puzzle fit together. I really agree with what you mentioned regarding divergence. I also noticed that very often price will exhibit divergence on the LTFs as it is approaching our HTF zone. When I think about it divergence is really a loss of momentum, and it makes sense that price is losing momentum as it is approaching our zone....
Thanks for your message and compliments Ivan. I haven't been trading for long, only 2 years and a half, but I see when someone has something good to say, like Marko. However, I've learnt something very important, which has become key in my short trading career, as well as in life: I will avoid overcomplicating things! I will sleep better

I am aware of MACD divergences, others use RSI/Stochasctic divergences, volume analysis, etc. Those will probably work if applied correctly and rules are defined for every situation. But... there is always a but... I do not want to stay in front of the computer to wait for divergences or confluences of any kind. I want to have as fast of a decision making process as possible, so that the trigger is pulled without any fear, and most importantly, without me watching it!

Losses are part or the game, I am happy with a 50% success ratio. The fact is that my ratio is normally higher than that, an average of 60-65%, which is even better. Not always but it's around that. Why should I struggle to add more % to that ratio if with 40-50% I will be making money? That's the conclusion I arrived to not too long ago, I must say, and I love the idea to have concluded that. Why? Because I just want to live my life and if I can help others achieve the same, that's even better! I haven't decided to become a trader to earn money as my goal, but to earn some money to help me achieve my goals and passions, nothing else. My ego has been kicked hard in the ass, he's not longer allowed to take part in my trade setups decision process because of that simple reason, simple rules.

Losses are WELCOME. They have to happen, it's part of the game. For me losses are like the stocks of a hardware store. How does the owner of a hardware store pretend to sell his products if he does not invest acquiring new items to sell? Losses are just the same, losses are to trading what the stock is to a hardware store. You have to lose in order to win.

This analogy may seem simple or silly, but it's just the way it's. It helps me not to add any more indicators even though they could add a little bit more to my % success ratio. But you know what? I do not want to increase my % ratio by adding new indicators, if my % success ratio goes better it will be because I am getting better and better at what I am doing. But this is just my way of looking at trading and my own decision with the short experience I've gained. The same applies to life.

I am not negating the use of extra indicators, that's a decision you have to make. What I am just saying is that no matter what you do, you have to become proficient and expert at what you do without having to add extra items to help you become better. That's an illusion. Your mind will play tricks with you and will make you believe that if you add new things and toys to your charts, you will have better odds to win! Simplicity is key in trading, because your ego and emotions are lurking in the dark to stab at you when you least expect it. I combat them by using as simple an approach as possible.

By the way, the potential past USDCHF H4 short you mentioned on your post was a valid one. I missed the top H4 fresh speedbump by few pips but I took the lower one live; I closed it because it was late Friday and I am not gonna leave a trade open during the weekend if it has not move really far from my entry price. A screenshot of my entry at my VPS is attached, all my entries are taken on my server, that's why my entries are not shown as limit orders on my screenshots. My local PC is just for a fast analysis, the VPS does the rest. I also took the opposing H4 demand on the EURUSD, inversely correlated to the USDCHF, which I mentioned on last Friday's webinar.

I didn't take into account:

  1. Any macd divergence
  2. Any bearish engulfing candle pattern
  3. Any compressed demand
  4. Any double top fake-out
  5. Any compressed demand on the arrival to my entry

    Why didn't I take all this into account? Because I was not in front of my computer, I just set my trade and forgot about it. So I don't care what's going about all those "clues", because I don't need them in order to take a simple decision

What did I take into account?

  1. Dropping from higher timeframe D1 supply
  2. A valid fresh H4 supply level in an scenario where all levels of supply are being respected and demand levels are being violated

What's the benefit of the way I am doing it?

  1. Simplicity, not a complex decision process
  2. Only supply and demand imbalances are taken into account
  3. The trendline helps to filter out. NOTHING ELSE

Does it mean that other indicators can't help? Of course not! But I just want to do it as simple as possible. KISS method!
Alfonso

Attached Image (click to enlarge)
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Set and Forget supply and demand trading community
  • #2,443
  • Sep 14, 2013 7:49am Sep 14, 2013 7:49am
Hi everyone, I'm preparing for next week, and would like to share the chart of the dollar index with you (It's not in MT4 because I don't have it there)

We all now the long awaited possible tapering will come out the coming week, so we can expect the dollar will react to that strongly.
Given the weekly and daily chart, we can only conclude the higher probability is on the long side.


4H chart (blue=weekly, green=daily and orange=4H)
Attached Image(s) (click to enlarge)
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  • #2,444
  • Sep 14, 2013 9:55am Sep 14, 2013 9:55am
Quoting panoramia
{quote} Thanks for your message and compliments Ivan. I haven't been trading for long, only 2 years and a half, but I see when someone has something good to say, like Marko. However, I've learnt something very important, which has become key in my short trading career, as well as in life: I will avoid overcomplicating things! I will sleep better I am aware of MACD divergences, others use RSI/Stochasctic divergences, volume analysis, etc. Those will probably work if applied correctly and rules are defined for every situation. But... there is always...
Hi Alfonso, wow how on earth did you write such a long reply in such a short time?! And yes I totally concur with you! Its exactly like what you said. I feel that if a zone is going to work out, it is going to work out anyway, divergence, bearish engulfing or not. When I was first introduced to S/D concepts early this year, it interested me so much I dived into all the related threads/forums/webinars and found that there were so many ways to trade it, wait for candlestick confirmation etc. I spent so many months trying out everything, getting overwhelmed, not achieving consistency, and coincidentally ended up with a set of rules that are pretty similar (but much inferior) to yours. There were many holes and recurring issues, and it was only recently that I realized your filters and rules really helped to plug those holes.

Not sure if you've read the book Blink by Malcolm Gladwell, but he wrote about this ability called Thin Slicing and I could really see how this could be applicable to trading. Thin slicing is the process of filtering the very few factors that matter from an overwhelming number of variables. There is too much to elaborate here, but in recent weeks the parallel between this and trading is really beginning to sink into me. On a chart there can be many "variables". They come in the form of chart patterns, indicators, candlestick patterns etc. I'm really trying to thin slice and eradicate all the excess variables and narrow it down to what really matters. The USDCHF example is a perfect example of this. The variables are compression, double top, bearish engulfing, divergence etc. The narrowed down factors that really matter? What you stated - dropping from D1 supply, H4 supply which engulfed previous demand. Simple, but all that is needed. The variables are good but not necessary.

Currently I'm using your rules to thin slice because those factors you look for matter more than anything else I've studied. I still can't help noticing those chart and candlestick patterns but I'm trying not to let them influence my decision. I'm sure that eventually my rules will not be exactly the same as yours, neither will yours stay the same, but as they are now they really serve as a very good platform to start with. My goal is to achieve consistency with this basic set of rules first and only then will I start tweaking/testing out additional stuff on a separate demo account to see if I can improve the results.

Thanks for sharing your thoughts in the previous post, really appreciate it as such posts help add to my conviction as well as provide me insights on how a successful trader should think.
  • #2,445
  • Sep 14, 2013 11:33am Sep 14, 2013 11:33am
The EUR/GBP is dropping like a rock after it hit that MN supply. It has taken out demand on MN and has created new Supply in control.
Attached Image (click to enlarge)
Click to Enlarge Name: eurgbp mn.png Size: 98 KB


If you look left on WK there is just space for price to fall.
Attached Image (click to enlarge)
Click to Enlarge Name: eurgbp wk.png Size: 100 KB


On daily there is a shorting opportunity at 0.84313.
Attached Image (click to enlarge)
Click to Enlarge Name: eurgbp d1.png Size: 102 KB


I will wait to see if price reacts to the speedbump on daily to go short at the above level.
Attached Image (click to enlarge)
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IF price does react to the speedbump and price does rise to that D1 supply then i will switch down to H1 and look for fresh levels that qualify according to the odds enhancers. Because the D1 level is fresh and i am trading with the trend i can leave set and forgets on H1.


Let me know what i have wrong/right about my analysis so i can learn please.

Nick
Keep your blades sharp!
  • #2,446
  • Sep 14, 2013 11:49am Sep 14, 2013 11:49am
Quoting Nametaker
The EUR/GBP is dropping like a rock after it hit that MN supply. It has taken out demand on MN and has created new Supply in control. {image} If you look left on WK there is just space for price to fall. {image} On daily there is a shorting opportunity at 0.84313. {image} I will wait to see if price reacts to the speedbump on daily to go short at the above level. {image} IF price does react to the speedbump and price does rise to that D1 supply then i will switch down to H1 and look for fresh levels that qualify according to the odds enhancers....
Hi Nick!

Did I always tell you that I love your templates? Yes, I did! I have the black background because on my testing I am a lot of time in front of my computer, white hurst the eye, but your template looks really nice! I might probably start using a similar one very soon

I agree with your analysis, Myst had the same one. I do have a limit sell order covering the whole 22ish pips D1 supply. I am not gonna wait for any reaction, the D1 TL is down, the D1 level is so thin that I am gonna take the trade based on MN/D1 combo, width is minimal for a D1 level. I do have a few MN/D1 trades planned on my D1 account, starting to do my position type of trading, this one on EURGBP looks nice!

Do not get confused! I am doing that based on a D1/MN combo, take into account your analysis, it's dropping like a rock and lots of room to keep on dropping, so I am gonna take the risk, rules apply so I must act like a robot, but I am handsomer
You can set & forget and/or wait for confirmation on H1 as well for sure.

You did a great analysis!
Alfonso
Set and Forget supply and demand trading community
  • #2,447
  • Sep 14, 2013 11:57am Sep 14, 2013 11:57am
CADCHF is reacting to higher timeframe supply zone. Shorts are close to be valid

  1. The ascending H4 trendline (white) has been broken solidly
  2. Now we have price dropping but no levels on H4 yet
  3. I am allowed to short all valid H4 supply levels on the way down
  4. Lots of room to demand!
  5. Price is right at last month low!
  6. If last month low is broken, we might have a base jump on CADCHF

Alfonso

Attached Image(s) (click to enlarge)
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Set and Forget supply and demand trading community
  • #2,448
  • Sep 14, 2013 11:58am Sep 14, 2013 11:58am
Quoting Axlz
{quote} Marko, That idea about hedging is brilliant. I'm very curious to see someone try it.


It is a viable way to trade, I’ve traded that way in the past with equities and it’s complicated you would need to add additional sets of rules and trading that way can really mess with your emotions. Where you might think you are locking in a 1% loss when you add the 2nd pair, in fact you are in a new spread because you now have 2 positions on so if one of the pairs moves adversely your 1% loss can become a 2% loss or more, plus there is additional wiggle room, padding, spreads and slippage for the 2nd pair. I hope this makes sense otherwise I can explain it in more detail if need be.




Thanks,




Joe
  • #2,449
  • Sep 14, 2013 12:01pm Sep 14, 2013 12:01pm
Quoting fortunateson
{quote} It is a viable way to trade, I’ve traded that way in the past with equities and it’s complicated you would need to add additional sets of rules and trading that way can really mess with your emotions. Where you might think you are locking in a 1% loss when you add the 2nd pair, in fact you are in a new spread because you now have 2 positions on so if one of the pairs moves adversely your 1% loss can become a 2% loss or more, plus there is additional wiggle room, padding, spreads and slippage for the 2nd pair. I hope this makes sense otherwise...
That would be over-complicating the "simple" steps process laid out on the thread. That sounds like super advanced emotional stress Joe We'd need a therapy at a SPA resort in Kauai after that Just kidding my friend

Keep It Super Simple Stupid! KISSS

I love KISSSES
Alfonso
Set and Forget supply and demand trading community
  • #2,450
  • Sep 14, 2013 12:12pm Sep 14, 2013 12:12pm
EURNZD H4

  1. If the descending trendline is solidly broken, together with last week low (red bids), longs would be allowed on H4
  2. Else, we need to wait for D1 non-fresh demand to be broken to keep on selling

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 137 KB

  1. On the D1 we are at non-fresh demand, so we need to wait for the TL break confirmation, set and forget is not allowed
  2. On the WK chart, we have lots of wicks, sort of a classic support area

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot2.png Size: 133 KB


I am planning a few swing trades on Saturday on my VPS so that I can take my Monday off and disconnect It's another way of doing it, when the markets are closed!
Alfonso
Set and Forget supply and demand trading community
  • #2,451
  • Sep 14, 2013 12:21pm Sep 14, 2013 12:21pm
Just want to say that even though I'm still paper trading, I feel really confident that I'm able to avoid most of the pitfalls most traders fall into BECAUSE of your methodology, Alfonso. Your way of thinking and constant striving to take emotion out of the equation is great to learn from. I'm reading a few books on trading psychology and most of things they say to avoid I feel I have taken steps to prevent from happening. Just knowing WHEN to enter and WHEN to exit before a trade is paramount to continuing to feel confident and keep a level head. I'm sure I will and am making mistakes, but this forum and your videos are INVALUABLE.
  • #2,452
  • Sep 14, 2013 1:38pm Sep 14, 2013 1:38pm
Hi Alfonso,

Great webinar as always.
I have a question:
- If an ascending trendline is broken on the H4 and there is a supply zone just above the trendline - is this a valid zone to go short or do we have to wait for fresh levels below the trendline? e.g. EURJPY below

Many thanks
Max
Attached Image (click to enlarge)
Click to Enlarge Name: EURJPY.JPG Size: 78 KB
  • #2,453
  • Sep 14, 2013 1:43pm Sep 14, 2013 1:43pm
Hello guys,

I have also been testing divergence with the S&D methodology, and it has been working extremely well so far. I believe this could be an excellent tool in confirming the validity of our zones.

Once again, I want to apologise to Markot.

It was foolish and arrogant of me to be so rude to you, when all you were offering was your years of wisdom. In the end, your advice was excellent and is working well in my testing.

I must learn not to judge people and to discard my own ego.

Thank you Markot.
  • #2,454
  • Sep 14, 2013 1:46pm Sep 14, 2013 1:46pm
Quoting M.4.x
Hi Alfonso, Great webinar as always. I have a question: - If an ascending trendline is broken on the H4 and there is a supply zone just above the trendline - is this a valid zone to go short or do we have to wait for fresh levels below the trendline? e.g. EURJPY below Many thanks Max {image}
Thanks Max! You are welcome!

There are a couple of wrong things on your screenshot:

  1. That trendline you drew is not a valid TL, second valley did not remove previous supply (High High), it's a basic rule for drawing the trendlines, the same applies for SD areas
  2. The valid TL is the one I painted, it made 2 peaks after hitting opposing HTF supply area

Hope it makes sense! You need to pay closer attention to the Highs or Lows being removed in order to draw valid TLs.
Alfonso

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 667 KB
Set and Forget supply and demand trading community
  • #2,455
  • Sep 14, 2013 1:48pm Sep 14, 2013 1:48pm
Regarding the divergence, every single time so far, when price has been approaching a zone where it has created a top or bottom, divergence has confirmed it.

There have also been situations, where I thought price was making a top or bottom, but divergence indicated the OPPOSITE. I did not take those trades/zones, and price actually retraced BACK into the HTF zone and overshot the previous zone, creating a new level of S/D, which was then CONFIRMED to be valid by divergence.

These confirmed zones continued in a much more trending manner, towards the next HTF zone.
  • #2,456
  • Sep 14, 2013 1:54pm Sep 14, 2013 1:54pm
Quoting Axlz
Hello guys, I have also been testing divergence with the S&D methodology, and it has been working extremely well so far. I believe this could be an excellent tool in confirming the validity of our zones. Once again, I want to apologise to Markot. It was foolish and arrogant of me to be so rude to you, when all you were offering was your years of wisdom. In the end, your advice was excellent and is working well in my testing. I must learn not to judge people and to discard my own ego. Thank you Markot.

I already accepted apology but thank you for your kind words.
  • #2,457
  • Sep 14, 2013 1:55pm Sep 14, 2013 1:55pm
Quoting fortunateson
{quote} It is a viable way to trade, I’ve traded that way in the past with equities and it’s complicated you would need to add additional sets of rules and trading that way can really mess with your emotions. Where you might think you are locking in a 1% loss when you add the 2nd pair, in fact you are in a new spread because you now have 2 positions on so if one of the pairs moves adversely your 1% loss can become a 2% loss or more, plus there is additional wiggle room, padding, spreads and slippage for the 2nd pair. I hope this makes sense otherwise...
Hello Joe,

Thank you for your response.

That seems very complicated to a newbie such as myself. :nerd:

Probably best to stay away from it, and as Alfonso said, not overcomplicate things.

Thanks again for your response.
  • #2,458
  • Sep 14, 2013 1:55pm Sep 14, 2013 1:55pm
Quoting Axlz
Regarding the divergence, every single time so far, when price has been approaching a zone where it has created a top or bottom, divergence has confirmed it. There have also been situations, where I thought price was making a top or bottom, but divergence indicated the OPPOSITE. I did not take those trades/zones, and price actually retraced BACK into the HTF zone and overshot the previous zone, creating a new level of S/D, which was then CONFIRMED to be valid by divergence. These confirmed zones continued in a much more trending manner, towards...
Hi Samir!
I am not the one to judge anybody... But think about what you are doing. Turn off your neurons for 10 seconds...

You are testing divergence in order to backtest the clear methodology that has been laid out on the thread for months? You know what you are doing? Ask yourself

Let me tell you what you are doing:

  1. You are adding new elements to the decision process BEFORE you have backtested a strategy that works out pretty well
  2. You haven't even started to be protifable and understanding this strategy and you are adding new elements
  3. I have seen that quite a few times, and the results are always the same. Neurons get tired and your emotions take over

Weren't you supposed to be testing the methodology letter by letter to gain confidence? Why are you adding new things that are not part of the strategy?
If you continue like that, the results is known to 95% of traders out there, you are steppwing away of a clean path, you are hitting the bushes.

That's my opinion! But like I said in a previous post, please do not post messages about your tests or findings, keep them for yourself. You need AT LEAST a sample of some 500-1000s trades per rule that you want to test in order to reach a definite conclusion and then live test it.

If you don't want to follow my recommendation, don't do it, I am just trying to help you, but it's all up to you. But please keep those tests for yourself or a private thread of you own so that we can discuss the strategy on this thread. This thread is not about MACD divergences or any other indicator, it's about SET & FORGET, quick analysis and decisions, simple rules and fast actions.

Thanks for ur comprehension!
Alfonso

Set and Forget supply and demand trading community
  • #2,459
  • Sep 14, 2013 1:57pm Sep 14, 2013 1:57pm
Quoting panoramia
{quote} Hi Samir! I am not the one to judge anybody... But think about what you are doing. Turn off your neurons for 10 seconds... You are testing divergence in order to backtest the clear methodology that has been laid out on the thread for months? You know what you are doing? Ask yourself Let me tell you what you are doing: You are adding new elements to the decision process BEFORE you have backtested a strategy that works out pretty well You haven't even started to be protifable on the strategy being taught and you are adding new elements I have...
My apologies Alfonso!

I enjoy trading so much, that often I get over excited and start getting ahead of myself.
  • #2,460
  • Edited Sep 15, 2013 1:14am Sep 14, 2013 2:07pm | Edited Sep 15, 2013 1:14am
Quoting Axlz
{quote} My apologies Alfonso! I enjoy trading so much, that often I get over excited and start getting ahead of myself.
That's a mistake I believe. Trading is not something to love, a woman is! Trading is just a means to achieve your goals, dreams and fullfil your passions.
Once you add love to trading you are adding emotions and emotions will kill you.

Up to you! Let's stick to the strategy as described in post #1, read the private message I sent you please!
Alfonso
Set and Forget supply and demand trading community
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