Trading CFDs and Forex with Market Profile and Supply/Demand | Forex Factory

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Trading CFDs and Forex with Market Profile and Supply/Demand

  • #1
  • First Post: Edited Mar 12, 2015 4:51am Feb 13, 2015 10:09am | Edited Mar 12, 2015 4:51am
Trading using Market Profile and Supply/Demand the right way.

Many people think S/D is a counter-trend trading method. It's not.

S/D zones when analysed in relation to primary and secondary trends can give you perfectly timed entries with low-ish, clearly defined risk based on price action and enable you to basically, buy low and sell high. S/D is also

Market Profile is an elusive concept for many, but actually simpler than you imagine. Value Areas enable you to read market sentiment on day-to-day basis in relation to the previous trading day. This can give you unprecedented confidence in picking your entries for intraday trades, as well as which swing trades you need to get out of.

Examples to follow.

I will also post stuff about trading psychology, since this is completely a psych game where your own self-discipline can make you or break you. Literally.
  • #2
  • Feb 13, 2015 10:14am Feb 13, 2015 10:14am
Let's do a GBPUSD analysis. Starting with a top down approach:



1. Monthly chart - downtrend

2. Note where last reactive S/D zones are. In this case price hit a Monthly demand after a long-ish downtrend and the trend has now turned as there's a reaction from Monthly demand - intiative buying is evident.
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  • #3
  • Feb 13, 2015 10:17am Feb 13, 2015 10:17am
GBPUSD Weekly chart:

3. Secondary trend is up - visible on Weekly and thanks to the reaction from Monthly demand

4. Uh-oh - we've missed the move and the turn is already on the way, now what?
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  • #4
  • Feb 13, 2015 10:17am Feb 13, 2015 10:17am
Everyday when i start to trade then i follow technical analysis i will follow your post every day please keep it up...

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  • #5
  • Feb 13, 2015 10:19am Feb 13, 2015 10:19am
GBPUSD Daily chart:

Ok, still time until we reach that Daily supply at 1.5560.

Now you know the following facts:

- Trend has turned and you have a trade direction - long

- Still plenty of time before the price reaches next supply

So now what? How to join a swing?! We all love a big of swing
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  • #6
  • Feb 13, 2015 10:31am Feb 13, 2015 10:31am
By calculating a Value Area in relation to the previous days trading, you can see the sentiment on the day and use Value Area High or Value Area Low with some Multi timeframe analysis for confluence, I like H4-M30 combo - to get in on the swing that's already on the way.

What's a Value Area?

"The Value Area represents the range of prices that contain 70% of a day’s trading activity. This 70% represents one standard deviation and reflects the area where a majority of the trading occurred"

This VA frequently acts as S/R for the next trading day. I always calculate my VA on 30 min candlestick data, with a start of VA at Wall St Open and with a cut-off point half hour before the electronic trading ends on Wall St. So for London - that's 2.30pm - 8.30pm

For various other assets, such as WTI crude - start time is at NYMEX open at 2pm London time
For Gold, start time is 1.30pm - COMEX open.

For FX pairs, I always take the Wall St trading hours. I am not particularly interested in getting in on positions before the overlap of UK and US.

To find out more on Market Profile, I suggest Mind Over Markets book, by J. Dalton
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  • #7
  • Feb 13, 2015 10:33am Feb 13, 2015 10:33am
Once you have the Value Area from the previous trading day, Wall Street open can bring about three things:

1. Price opens above value

2. Price opens inside value

3. Price opens below value

Each of these conditions give you a clue on market sentiment on the day, in relation to the previous day - where was price at this time yesterday and how are market participants reacting
  • #8
  • Feb 13, 2015 10:35am Feb 13, 2015 10:35am
So now that you know what a Value Area is, let's have a look at where GBPUSD value area is on H4 chart:

Green lines are VAH and VAL

Orange rectange represents Value area on the day

Blue rectangles are demand

Green rectangles are supply
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  • #9
  • Feb 13, 2015 10:41am Feb 13, 2015 10:41am
And finally let's have a look at a 30 min chart and see where Wall Street opened, to determine if higher prices are still being accepted.

Sure enough, Wall St opened above Value. This is a realtime chart, so lets observe what happens in the next couple of hours

I am long here, with a stop at 1.5350, for target 1.5560. Looking for a rejection of VAH, with a condition that if price closes inside Value on a 30 min period in the next hour (before NY lunch), I will be out of the trade. If however price manages to stay above Value on 30 min candle close, I shall leave the trade running for a swing at 1.5560.

All that's left to do now is to wait for price action to show you the way
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  • #10
  • Feb 13, 2015 10:44am Feb 13, 2015 10:44am
And to further explain the VAH: Since price opened above Value at Wall St, indicating acceptance of these higher prices, I am looking to a rejection from VAH - a bullish engulfing and follow-through higher, if we don't run out of time this Friday.
  • #11
  • Feb 13, 2015 11:16am Feb 13, 2015 11:16am
GBPUSd todays chart
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  • #12
  • Feb 13, 2015 11:58am Feb 13, 2015 11:58am
Hi ..

Subscribed..

Would you consider EU also is in a trend change, or due to the fundamentals its a different outlook?

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  • #13
  • Feb 13, 2015 2:54pm Feb 13, 2015 2:54pm
Quoting fxdk
Hi .. Subscribed.. Would you consider EU also is in a trend change, or due to the fundamentals its a different outlook? {image}
Not just yet, EU is waiting for fundamental news at this point, so in case of game-changing events, technicals won't work. Any trends in force are usually a sign of some sort of fundamental reason that kicked the trend off. Therefore if we didn't have the whole Greece mess and upcoming EU QE, I'd be considering a trend turn in E/U. But since this isn't the case and the fundies picture once again puts Eurozone existence in danger, I will stay away from predicting swings on that pair. If an intra day setup comes up , I shall take it, but don't except me to run e/u positions for longer than a day or two for the time being.
  • #14
  • Feb 16, 2015 6:30am Feb 16, 2015 6:30am
Let's see where we are on GBPUSD in relation to Fridays Value Area. For now, prices have fallen below Value, but since it's not Wall St open yet, some patience is required to see where the open happens. It's a small Value Area so even if we get an 80% rule, I have to look at a bigger picture to make the trade worth while. Target still stands at 1.5560, the next supply area visible on Daily chart and also in accordance with the Weekly.

80% rule states that if prices open OUTSIDE Value then proceed to move INSIDE value and a 30 min candle closes within it, there's an 80% chance of rotation through the whole value area.

If the candle tests inside by dipping toes into value then rejecting, that is NOT a condition for 80% rule. Also the poke inside value has to happen early enough in the day, because the volumes drop as the trading day winds down.

And so we await Wall St open...
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  • #15
  • Feb 16, 2015 6:34am Feb 16, 2015 6:34am
Quoting doggette
Let's see where we are on GBPUSD in relation to Fridays Value Area. For now, prices have fallen below Value, but since it's not Wall St open yet, some patience is required to see where the open happens. It's a small Value Area so even if we get an 80% rule, I have to look at a bigger picture to make the trade worth while. Target still stands at 1.5560, the next supply area visible on Daily chart and also in accordance with the Weekly. 80% rule states that if prices open OUTSIDE Value then proceed to move INSIDE value and a 30 min candle closes within...

I've taken this trade.

Only thing is there is no proper virgin demand level. But as the location is the bracket's bottom with a previous and prominent acceptance and as a reaction occured on this lvl, I think it could work.

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  • #16
  • Feb 16, 2015 7:03am Feb 16, 2015 7:03am
I took my sl.

We'll see if it confirms or not.
  • #17
  • Feb 16, 2015 7:26am Feb 16, 2015 7:26am
Quoting Unabletrader
{quote} I've taken this trade. Only thing is there is no proper virgin demand level. But as the location is the bracket's bottom with a previous and prominent acceptance and as a reaction occured on this lvl, I think it could work. {image}
Can I suggest you change the MP to only Wall Street trading hours? Pro traders never use 24-hour profile as those values will be wrong. POC on spot market for GBPUSD is 1.5404 for the overlap from Fridays trading. You only need the active trading hours, volumes and levels generated in low liquidity overnight trading get obliterated in active UK and US trading hours, and especially in the overlap. Which is why we tend to use only VA with a start time at Wall Street and end time half hour before electronic Wall St close. Although these hours vary depending on which asset you're trading (some have a different open times, instruments that open at Comex or Nymex). But for most the start time is between Comex and Wall St open.
  • #18
  • Feb 16, 2015 7:28am Feb 16, 2015 7:28am
Quoting Unabletrader
{quote} I've taken this trade. Only thing is there is no proper virgin demand level. But as the location is the bracket's bottom with a previous and prominent acceptance and as a reaction occured on this lvl, I think it could work. {image}
Oh also forgot to say according to Jim Dalton, MP should be generated through 30 min period - so only 30m candlesticks for MP calcs.
  • #19
  • Feb 16, 2015 8:20am Feb 16, 2015 8:20am
Quote
Pro traders never use 24-hour profile as those values will be wrong. POC on spot market for GBPUSD is 1.5404 for the overlap from Fridays trading. You only need the active trading hours, volumes and levels generated in low liquidity overnight trading get obliterated in active UK and US trading hours, and especially in the overlap

I use daily and each-session profile. Why do I use Daily profile on 24h markets? Because daily activity impacts market conditions during the all day.

Quote
​Oh also forgot to say according to Jim Dalton, MP should be generated through 30 min period - so only 30m candlesticks for MP ca

He doesn't say that.

He says that the auction process is the most relevant with 30min. Then if you want to see where is POC or Value area you should even your volume profile because this is what it's all about (TPO are used as a volume proxy to see where is the most accepted/rejected price).

Though 30min should be used when you want to know more about acceptance or reject through Time I only use 30min to spot rejected area.

And from my experience, professional traders use both 5min and 30min charts to trade via MP concepts.
  • #20
  • Feb 16, 2015 8:21am Feb 16, 2015 8:21am
5min allows very short term trade

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