Supply and demand in a nutshell by Alfonso Moreno | Page 203 | Forex Factory

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Supply and demand in a nutshell by Alfonso Moreno

  • #4,041
  • Mar 4, 2014 8:08am Mar 4, 2014 8:08am
Quoting GregT
Seeking opinions on a EURGBP (EG) situation I am currently contemplating. I have attached a MONTHLY and H4 chart for EG. I have recently been exited from a short trade on this pair and am seriously considering taking a second bite at this pair if price comes back up to the proximal edge of the H4 SZ shown on the H4 chart. However, I cannot see a H1 SZ inside the existing H4 zone that is deeper than the existing H4 proximal edge, so my proposed entry would remain 0.8284 with SL at 0.8340 The reason I am considering a second entry is due to the fact...
Nice analysis Greg. That H4 short was a valid short that many of us took at the community. The H4 chart is in consolidation mode, no direction so there is no trade as per the rules, not only because of that but because the H4 supply is not fresh.

You want to take a short on that level again? Rules are VERY clear about it, only fresh levels. Of course you can take it but H4 is no longer in a downtrend, H4 TL is broken (the one you painted is not correct since the second peak did not make a lower low than the second leg created by first peak. The first hit of that level is what I call a kiss trade, second tests sometimes work well...

But again, the key thing here is: do you take second pullbacks (non-fresh levels)? Is that on your trading plan? Have you tested these entries in uptrend/downtrend scenarios for at least 500 samples and not just a few of visual tests in hindsight? If you have done so, and you had a nice success ratio, then go ahead. If you haven't, you are going against the rules laid out on first post.

It's all about your trading plan and the rules. The rules clearly state that ONLY FRESH levels are allowed, so you'd be going against the rules.
Hope it makes sense!
Alfonso
Set and Forget supply and demand trading community
  • #4,042
  • Mar 4, 2014 4:01pm Mar 4, 2014 4:01pm
Hello!

I trade Supply & Demand, and my trading plan is largely based on your ideas Alfonso, especially the set & forget method.
Thank you again for all the materials. I also give credit to you on my journal first post :-)

My trading plan is customized to my time availability, I trade end-of-day only, once every 24 hours, I look for SD levels on H1, I place limit orders, and SL and TP at a set 2:1R distance. I use daily trend as a filter. That's it.

Based on the backtests I performed for my approach, and a diligent analysis of ~70 trades posted on my journal on demo, as well as last ~20 live trades on a micro account (I know it is less than 500, but I think it is already becoming a representative sample), it seems that a use of the dynamic trailing stop would produce better outcomes.

Many losing trades would be smaller, as the stop would have moved at least a bit.
Some winners would be significantly larger than 2R, if the price moved a lot without retracing.
Some losing trades would even become winners, in case where the price goes to 1.9R and then retraces to -1R. With a trailing stop, this would be a 0.9R winner.

Unfortunately, some trades that would-be 2R winners, will end up as break-even or even a small loss with a trailing stop. It is not a holy grail for sure.

Here is my question: did you also backtest the idea of using a dynamic automated trailing stop? What was the outcome, if I may ask?
Is there some reason, which I may miss, why you seem not to recommend this in your first post? (the automated dynamic trailing stop that moves 1 pip every time the market moves by 1 pip in your favor).

I will certainly appreciate responses from both Alfonso and others who may have tested this.

While I am not planning to change my approach right now, as I have decided to execute my trading plan with high quality and consistently for 3 months, just like earlier I executed a 3 months forward-test on demo (it was profitable so I moved to live), after the current phase is completed, I may switch from TP 2R to trailing stop. And I'd like to hear from you about the idea.

Thanks!
Michal9
  • #4,043
  • Mar 4, 2014 6:37pm Mar 4, 2014 6:37pm
Quoting michal9
Hello! I trade Supply & Demand, and my trading plan is largely based on your ideas Alfonso, especially the set & forget method. Thank you again for all the materials. I also give credit to you on my journal first post :-) My trading plan is customized to my time availability, I trade end-of-day only, once every 24 hours, I look for SD levels on H1, I place limit orders, and SL and TP at a set 2:1R distance. I use daily trend as a filter. That's it. Based on the backtests I performed for my approach, and a diligent analysis of ~70 trades posted on...
Hi Michal,

I've not tested the trailing stop trade management at all, I don't like those trailing stops, they can get you out of a nice winning trade too soon. Also since my TP is minimum 3:1, normally it's 5 or 7 to 1, a trailing stop will just hit my SL and prevent me from having a nice runner. Sorry I can't help you there. What I've tested is technical trailing stops, that is, moving the SL right above/below the newly formed levels in the direction of your trade. That is, if you took a H1 long and then price created a new H1 demand level valid for adding to your position, THEN and ONLY THEN I will move my SL the wiggle room distance underneath the distal line of the new H1 demand level. It will be either a loss or a winner, no breakeven.

Hope that helps!
Alfonso
Set and Forget supply and demand trading community
  • #4,044
  • Mar 5, 2014 4:29am Mar 5, 2014 4:29am
Quoting panoramia
{quote} The H4 chart is in consolidation mode, no direction so there is no trade as per the rules, not only because of that but because the H4 supply is not fresh...It's all about your trading plan and the rules. The rules clearly state that ONLY FRESH levels are allowed, so you'd be going against the rules.
Thanks for your feedback Alfonso. It does make sense. I am still at the point where I am working out what I should be doing during consolidations. Your inputs are helping me sort out my thoughts and reinforcing the backtesting when I get the time. Because of my limited time, I am forward testing and documenting observations in my log and asking questions here to assist me to fill in gaps in what I am observing.
  • #4,045
  • Mar 5, 2014 4:59am Mar 5, 2014 4:59am
Quoting panoramia
{quote} Hi Michal, I've not tested the trailing stop trade management at all, I don't like those trailing stops, they can get you out of a nice winning trade too soon. Also since my TP is minimum 3:1, normally it's 5 or 7 to 1, a trailing stop will just hit my SL and prevent me from having a nice runner. Sorry I can't help you there. What I've tested is technical trailing stops, that is, moving the SL right above/below the newly formed levels in the direction of your trade. That is, if you took a H1 long and then price created a new H1 demand level...
Hi Alfonso, that's clear, thanks.

I will do some more backtesting and may report back the result. In the meantime, I will continue executing my current trading plan (with TP at 2R) and a journal. I am fully aware that a set TP 2R is limiting my winners which sometimes could be 5R like you mention. At the same time, it has a psychological appeal of higher win ratio, shorter losing streaks, and faster closure of the trades and getting the result.

With my trading end of day, the trailing stop may be a viable method, to enable bigger winners and not give back too much profit. But of course the flipside is, as you say, it will often take me out of a good trade on a normal retracement. And I want my plan to remain very simple, too.

Ok, thanks again and all the best. I know what I will do next :-)
Michal9
  • #4,046
  • Mar 5, 2014 7:44am Mar 5, 2014 7:44am
Quoting michal9
{quote} Hi Alfonso, that's clear, thanks. I will do some more backtesting and may report back the result. In the meantime, I will continue executing my current trading plan (with TP at 2R) and a journal. I am fully aware that a set TP 2R is limiting my winners which sometimes could be 5R like you mention. At the same time, it has a psychological appeal of higher win ratio, shorter losing streaks, and faster closure of the trades and getting the result. With my trading end of day, the trailing stop may be a viable method, to enable bigger winners...
Try with a 3:1 TP for all of your trades, no breakeven. Either a loss or a winner. No emotions involved. That's what we could call a "PayCheck trade account".
With a 40% success ratio, you will be on the winning side, more if you have 50% or more. Make sure you are trading with the higher timeframe trend and you have room for 4:1 or more to the opposing SD zone.

Try that for 2-3 months and you'll see the difference A 40% success ratio will put you on the winning side with 3:1 exits. No emotions! 2R against a 1R loss is not a good combo with a low success ratio, but 3:1 with a 40% is
Alfonso
Set and Forget supply and demand trading community
  • #4,047
  • Mar 5, 2014 8:00am Mar 5, 2014 8:00am
Thanks, yes, I understand a math behind it and it proves your point. I even created a equity curve simulation tool, to enhance my understanding, where you can assume 40% winners and 2 or 3R and see how your account balance may look like, assuming a random distribution of winners and losers. That's clear.

A challenge for me with a TP3R set & forget is that sometimes I have a 2.9R winner turn into a -1R loss. It unfortunately creates emotions for me ;-)
So, a TP 2R or trailing, combined with an expected higher win ratio, looked more compelling to me.

But, yes, I will give it a try. Next time I will do a journal review, for each trade, just like I did with a demo period, I will asses a what if for different closing methods. And I will calculate net outcome. If TP 3R is better, I may go for it.

Thanks again, great to discuss this. Of course, another dimension, general and independent for this, is to take best setups only, in line with the daily trend only, etc. But then, also, we miss a lot of would-be winners. And with TP just 2R, ofter counter-trend plays work out well.
Michal9
  • #4,048
  • Mar 5, 2014 8:04am Mar 5, 2014 8:04am
Hello fellow trader!

Hope everything is going great wherever you are in the world

I would like to share with you Set #1 of a series of forward testing videos I've created for USDJPY for members at the Set and Forget community.

You already know that ​I am always encouraging you to forward test any forex trading rules because in my humble opinion it's the only way to gain confidence and become consistent trading any rules set, be it supply and demand, ema crosses, fibonacci, you name it. It's just the way it's, do not believe what I say or do or what anybody else say or do, do it yourself. Step into the "believe stage" of your trading and get the most out of your marriage with the rules you will be embracing, it's the only way. Your thoughts are physical, but you need to work very very hard to make them become real.

There are a few sets like this one, this one is just to show you how rules work and how being patient and following the rules can provide you with high odds opportunities. In the following sets on year 2002 there were some great trades following the exact rules described in this thread, real time trading not knowing what the next candles are.

The video below will show you how I look at supply and demand in a more detailed way, candle by candle, you'll hear me describing price action in detail.

The only thing we have to prevent us from blowing up our accounts is:

  1. Our rules and trading plan
  2. Our Stop Loss Remember these rules can be extrapolated to other timeframe combinations

I am personally are concentrated and focused on forex swing trading H4 and above levels for entries for one single reason, it's not just trading but a way of life. Most of us (some may love to be in front of the screen all day long) want to have a life other than being in front of a computer screen all day long, H4 levels help you achieve.

Enjoy your day and have fun!
Alfonso
www.set-and-forget.com

USDJPY YEAR 2002 SUPPLY AND DEMAND FORWARD TESTING SET #1

Inserted Video
Set and Forget supply and demand trading community
  • #4,049
  • Mar 5, 2014 8:14am Mar 5, 2014 8:14am
Quoting panoramia
{quote} Try with a 3:1 TP for all of your trades, no breakeven. Either a loss or a winner. No emotions involved.
Very difficult to do, but probably the way to go. I am amazed how often when testing that price will repeatedly come back to test the trade
entry area before going to target. It seems the smart money knows where stops will be and when they will have been put there.
Thanks for your advice about forward testing with a trade simulator rather than just looking back over charts. It is much more valuable
as you cannot "cheat" by seeing what your brain wants you to see.

Do you have your next Webinar planned yet?
I have been watching the ones on the thread, but the sound quality is poor on the recordings making them a little difficult to follow.
Still very useful, nonetheless.


Jim
  • #4,050
  • Edited 9:57am Mar 5, 2014 9:10am | Edited 9:57am
Quoting JimN
{quote} Very difficult to do, but probably the way to go. I am amazed how often when testing that price will repeatedly come back to test the trade entry area before going to target. It seems the smart money knows where stops will be and when they will have been put there. Thanks for your advice about forward testing with a trade simulator rather than just looking back over charts. It is much more valuable as you cannot "cheat" by seeing what your brain wants you to see. Do you have your next Webinar planned yet? I have been watching the ones on...
Jim. forward testing is key... it will change your trading if you do 1-2 hours a day for a few months. It should be part of your daily routine. Price will retest entry very often, this is why moving SL to BE is an error when the level is great and we're trading with the trend... To me it's either a loss or a winner.

Next webinar possibly in about 10 days since I am away now for a few days. Sound quality has been fixed in the webinars since the end of last year but most videos on the youtube channel are old videos with my old computer/microphone giving me lots of problems.

Alfonso
Set and Forget supply and demand trading community
  • #4,051
  • Mar 6, 2014 7:58am Mar 6, 2014 7:58am
Hello Alfonso

Just wanted to say what a quite brilliant thread this is. What you are teaching people here is without doubt invaluable. I am currently watching all of your videos and reading all 203 pages. I feel that i've learnt so much all ready. I started learning about S&D trading on the FTS Forex site last year but what you teach goes far more in depth.

Regards

Ade
  • #4,052
  • Mar 6, 2014 10:47am Mar 6, 2014 10:47am
Quoting riddick
Hello Alfonso Just wanted to say what a quite brilliant thread this is. What you are teaching people here is without doubt invaluable. I am currently watching all of your videos and reading all 203 pages. I feel that i've learnt so much all ready. I started learning about S&D trading on the FTS Forex site last year but what you teach goes far more in depth. Regards Ade
Thanks for your kind comments Ade, I really appreciate that. Take your time to watch the videos as well as reading the pages... 203 is a lot but after a while you will start understanding the rules much better.

If you need anything, just ask and I'll be happy to help.
Regards,
Alfonso
Set and Forget supply and demand trading community
  • #4,053
  • Edited 5:17pm Mar 6, 2014 4:59pm | Edited 5:17pm
Quoting freakout
hello, I have a question... is there a SD indicator that draws zones automatically after first valid candle? because sometimes they occur after 3-4 candles and that's too late thanks in advance ;-)
Hi freakout, I dunno if you got an answer, I did not see that at least.
Is your zig-zag or ZZ semafor indi working better for you, or work differently?
It is my wild guess and observation: you need to have a fractal (according to its requirements) and the valley and 50% rules together.
even to draw a fractal one needs 5 candles (see a page for that here: http://www.ctrustnetwork.com/c407p1/.../fractals.html).
And yes I have seen people talking about entering on just 3 candle patterns, some even might based on 1 or 2 japanese candle formation, well, then they start using other validation criteria.
All these would serve as a confirmation, nothing says one cannot modify the indicator, but would you start drawing rectangles without any confirmation?
If so, what would be your criteria? I feel like "first valid candle" is a bit wag, since the ones who wrote the indi had a reason to believe it was the first valid candle. Dont you think so?
I attached a pic to see when and where this supdem v2 indi first draws the last rectangle. You might feel it was late, but would you be able to draw it with some degree of certainty earlier?
Attached Image (click to enlarge)
Click to Enlarge Name: supplyzone-w conf.png Size: 62 KB
  • #4,054
  • Mar 7, 2014 4:03am Mar 7, 2014 4:03am
Something I messed up as I cannot see page numbers on top/bottom which previously I used to see clearly. Now only first page I can see and on the bottom there is a down arrow with "More" title to it, please help thanks.
  • #4,055
  • Edited 5:23am Mar 7, 2014 4:49am | Edited 5:23am
I just wanted to share with you a couple of trades I recently took by following the exact rules of the rules laid out in Post #1 and the rest of the thread.

There were a couple of losses I took as well, but those are just part of the trading game, they are easily accepted, they have to or the emotional pressure won't be sustained.

EURUSD H4 LONG at D1 DEMAND

  1. Monthly UP
  2. Weekly UP
  3. D1 UP
  4. H4 TL being respected
  5. H4 demand at valid fresh D1 demand

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 31 KB


USDCHF H4 SHORT at D1 SUPPLY

  1. Monthly Down
  2. Weekly Down
  3. D1 Down
  4. H4 descending TL being respected. USDCHF is the EURUSD mirror as you probably know

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot2.png Size: 91 KB


NIKKEI INDEX H4 LONG at D1 DEMAND

  1. Monthly Up, bouncing off MN demand
  2. D1 Down
  3. H4 long within a D1 demand within MN demand, nested zones

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot4.png Size: 79 KB


S&P 500 e-mini H4 LONG

  1. Price broke out all time highs
  2. D1 UP
  3. H4 demand with the ascending H4 TL being respected

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot5.png Size: 30 KB


RUSSELL 2000 INDEX H4 LONG

  1. Price broke out highs
  2. D1 UP
  3. H4 demand with the ascending H4 TL being respected
  4. Similar trade to S&P 500 long

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot6.png Size: 21 KB


If you don't have access to the indexes, you can download IC Markets platform to see exactly the price action that led me to take those trades.
If you have any questions about these trades, feel free to ask about them. They were mentioned before the fact on www.set-and-forget.com supply and demand trading community in the weekly analysis and on their respective channels.

Go through the trade setups and see that all rules were met for entries, step by step.
Have a great NFP day, I won't be trading till Monday due to NFP potential high volatility.

Alfonso
Set and Forget supply and demand trading community
  • #4,056
  • Mar 7, 2014 3:54pm Mar 7, 2014 3:54pm
Thank you for contribution. Good Material ! Beautiful photo website !
  • #4,057
  • Mar 9, 2014 8:00pm Mar 9, 2014 8:00pm
Quoting panoramia
I just wanted to share with you a couple of trades I recently took by following the exact rules of the rules laid out in Post #1 and the rest of the thread. There were a couple of losses I took as well, but those are just part of the trading game, they are easily accepted, they have to or the emotional pressure won't be sustained. EURUSD H4 LONG at D1 DEMAND Monthly UP Weekly UP D1 UP H4 TL being respected H4 demand at valid fresh D1 demand {image} USDCHF H4 SHORT at D1 SUPPLY Monthly Down Weekly Down D1 Down H4 descending TL being respected. USDCHF...
Hello Alfonso,

I've read your thread step by step slowly because my english is poor and also your videos... so I would like to ask you something that I don't understand yet about...
1. In page one I've read "We never cut through candles to find SD levels, a flip zone is not a level", what do you mean by "a flip zone"? Would you like to explain and give sample by picture?
2. In your picture I've read "Speedbumps happen often at the beginning of the reversal". What's the meaning of speedbumps?

And I want to hear from you.... thanks for your time

Best Regards,
Soni
  • #4,058
  • Mar 10, 2014 12:57am Mar 10, 2014 12:57am
A flip zone is simply a price level where support becomes resistance and vice versa or supply level becomes demand level and vice versa.
  • #4,059
  • Mar 10, 2014 2:23am Mar 10, 2014 2:23am
Quoting sonigl
{quote} Hello Alfonso, I've read your thread step by step slowly because my english is poor and also your videos... so I would like to ask you something that I don't understand yet about... 1. In page one I've read "We never cut through candles to find SD levels, a flip zone is not a level", what do you mean by "a flip zone"? Would you like to explain and give sample by picture? 2. In your picture I've read "Speedbumps happen often at the beginning of the reversal". What's the meaning of speedbumps? And I want to hear from you.... thanks for your...
Quoting smalltalk
A flip zone is simply a price level where support becomes resistance and vice versa or supply level becomes demand level and vice versa.
Hi Soni,
Like another user mentioned, a flip zone is a price level/zone that was previously support or demand becoming potential resistance or supply.
A speedbump is a term no longer used, it's called now a CP pattern (continuation pattern), described in detail in post #1 and the videos.

Hope that's clearer!
Alfonso
Set and Forget supply and demand trading community
  • #4,060
  • Mar 10, 2014 2:58am Mar 10, 2014 2:58am
Quoting GregT
Seeking opinions on a EURGBP (EG) situation I am currently contemplating. I have attached a MONTHLY and H4 chart for EG. I have recently been exited from a short trade on this pair and am seriously considering taking a second bite at this pair if price comes back up to the proximal edge of the H4 SZ shown on the H4 chart. However, I cannot see a H1 SZ inside the existing H4 zone that is deeper than the existing H4 proximal edge, so my proposed entry would remain 0.8284 with SL at 0.8340 The reason I am considering a second entry is due to the fact...
Hello Greg,

Just wanted to update on the EURGBP trade we discussed a few days ago. The non-fresh H4 supply zone did not hold as expected. Rules would have prevented you from taking this loss on the second retest. Rules do not allow to take a second retest of a zone, not to say if the trend is downtrend is over on H4.
Alfonso

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 57 KB
Set and Forget supply and demand trading community
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