Price Will Tell - Supply/Demand Price Action Trading

Will trade the top of a retrace to the M15 decision point if it sets up. May try and buy it up there on M1 if decent conditions prevail.

Booked.

I want to write something here that will begin with perhaps complexity but hopefully resolve into simplicity. It all revolves around GJ trading today.

Initially I wanted to short from the decision point in the upper blue box, but in the process of getting back up there, price fell further and and made a lower decision point (lower blue box). The target for shorts was 155.50 and had been on the radar all day - check out H4 for the reason why.



As you can see, price chopped through both of those decision points. With the addition of a couple of lines it made what I refer to as an "expansion". I've no idea if this is the correct term but it's the term I use. The expansion looks like this:



If I add a further horizontal line you can see that the expansion broke down with what can essentially be called a Head and Shoulders pattern. The problem here though, is that by the time the pattern resolves, it's too late to short it.



I was watching this pair on a few timeframes. The short trade got away from me because I simply wasn't ready for it. This wasn't an issue because I'd already made pips for the day but it's interesting to recount the entry that could've been because we can see on a M5 timeframe how price breaks down in these scenarios. It's a great example I think, of pure price-action based trading - simple; logical; no indicators.

The key for me, and I think something happens on a regular basis is that price already begins to make its breakdown inside the expansion. Far too often we'll draw lines and wait for price to break those instead of focussing on where the actually breakdown begins - in the horizontal axis.

The breakdown is clear. I've said this before and I'll say it again - it's all about the breakout. Nothing can happen in these markets, i.e. no trading opportunities without there being some underlying breakout. The "heads up" here is the break of the tiny swing point around the short horizontal orange line. Nothing fancy - pretty clear really. Even clearer on a line chart if you're interested.



I'll now remove the trend lines and just focus on the horizontal axis. The breakout is very quickly tested (check mark). If we now wait and see if there's bearish price-action around this test, we know that we have confirmation to short. The bearish price-action (for those with eyes for this sort of thing) comes in the form of a bearish M chart pattern, resolved south with that final bearish engulfing candle (not marked).



This PA is one of a few that could've set up. Trading this way is also one of a zillion ways in which we can make pips. For me, however, what played out today conforms to my objective, which is to control with razor-sharp accuracy, the reason why I'm putting my money into the market.

The currenct M5 battle is revolving around 155.20, which is in the process of breaking down and shaking out. It would be nice to see 153.25 (H4) hit this week. But I won't say it "will" hit because I don't speak for the market; I just listen to it, and follow.

Quick scalp.

Quick scalp.

First booked, trailing the second.

Stopped at cost on the second position.

This pair's in H4 resistance, so it's not too much of a surprise.

Interested to see if CADJPY sets up bearish PA at 84.68. Not keen on trading past 5PM any more but will watch anyway.

Price turned just shy of prior level and has now set up what looks like a bull flag. A close around this price in one hour will be indecision on daily candle. No M15 bias as of yet, just observing what is, not what might be.



Edit:

Daily view. Doesn't feed directly into M15 trading for me, but worth a note nevertheless.

A word to the wise about the supdem indicator.

I do use the indicator as a reference for the top and bottom of the TFs I’m trading, but under “normal” circumstances (for me, “normal” in this case means when price is trading in between the top and bottom of the curve) it’s switched off. There’s good reason for this as the following will hopefully demonstrate.

This morning, I was trading CADJPY but also watching AUDJPY too. (Full disclosure, I made a bit of a silly mistake and moved the stop too early having witnessed a decent enough move away from entry. This resulted in the trade being nicked out. Here’s the entry/exit below. There’s also a target there, which has just been hit, so for me this is a good result because it means the analysis was correct.)



What I want to mention, however, is AJ in relation to the supdem indicator. In the chart below we can see that AJ had set up a “fresh demand zone”, that was also made with a "nice PA". Fresh demand zone was “stacked” above the lower demand zone that had formed around 16th May, and may have been a buy signal for some. We can see, however, that price chopped straight through.



I can’t count many times I’ve lost on similar trades. Also, on every losing trade, this indicator was the common-denominator. It reached a point where the only thing to do was either give up or go back to studying naked charts and SD101, and learn to read “direction”. I chose the latter and eventually reached the understanding that the supdem indicator, as useful as it is in certain circumstances, only prints “wiggle”. It lacks the human ability to read “direction”. And I can say quite categorically that as traders, if we lack the ability to read “direction” then this market will stuff us. Read direction, however, and the market makes a fun dancing partner.

Here’s the same AJ chart with the indicator removed and a basic short horizontal line put in. Does it look clearer? Intraday price had been going down (direction), it retraced to the bearish PA then setup a bearish chart pattern (I’m not spelling that pattern out btw, but for those interested it’s on the candle closes and can be clearer seen on a line chart).



The irony in all of this of course, is that a “fresh supply zone” printed later on.



Sure, a sell could be placed when the fresh supply zone printed, but for me this is inefficient trading. It’s high risk/reward, and moreover, for those trading indicators only it overlooks the most important and fundamental aspect, which is price-action.

I’m not suggesting that AJ is going to go to target. But I am waiting to see if it tests the H1 swing point at 78.875. Nevertheless, traded efficiently in accordance with direction and SD PA, this would now be a free trade that at a minimum would be running at B/E, scaling out if multiple positions were taken.

I’m not knocking the indicator, I think it’s a great tool. But like all tools it takes a certain way of using it to get the best result.

I never did get the hang of the supdem indi!

It highlight swing points, which you think would be S/R rather than S/D. Reds idea of S/D was his "fluster cucks" which might be shown on your chart as:



In hindsight this is an example of S/D where you are better off looking to trade back to it, rather than waiting for price to pin it and then trade away from it.

Your thoughts?

Yea, I think supdem is very good for highlighting swing points but I also try and look at the charts holistically because without really working to understand SR and particularly how SR feeds into SD, we can't ultimately judge direction. The mindbend is that SR and SD are really just separate phases of the same thing. And in the end it's all PA anyway!

Ill address the fluster cuck bit later, but first I'll try and illustrate how I distinguish SD from SR though I must emphasis that it's just one context of SR/SD and it's really just only the way I see it.

GBPJPY MN chart:



The major bearish swing point and fresh supply zone occurred at 192.35ish. There's no way in my view, that retail creates that sort of PA. Despite not having the volume to create it, I'd suggest retail doesn't have the co-ordination either. Institutions create that PA, and once they put their footprint into the market, I'm looking to try and trade with them, certainly not against them.

In isolation that MN PA looks like a randomly generated Supply Zone (quick note on the phrase Supply Zone. Is it bredin that created the indie?? Anyhow I remember reading a comment of his where he said that he designed the indie to draw Sam Seiden's Rally-Base-Drop/Drop-Base-Rally PA). This MN is a beautiful example of the indie working as it was designed. But, here's the key - if we draw in a simple line on our chart we have a context for that supply zone setting up where it did:



The simpler the better, however, the killer mistake in my view is to automatically refer to a line like this as a resistance (in this case) without actually having any form of confirmation in PA to guide us in our analysis that it is a resistance. This is where the zones come in, but it is also where they conflate and get funky.

The resistance did obviously eventually setup and the PA took the form of a fresh supply zone. In this context it's also what I term a primary resistance - a fresh supply in other words. Had that supply been tested and bearish whipsawing PA setup (the stuff red spoke about) then it would've made a great sell (think double-top). If the area had received a third test, however, I would now classify it as a standard or retail resistance, which for me becomes distinct from supply and is an area that I steer clear of selling on account of it being the sort of area where sellers get mugged.

Regarding the fuster cluck. I have to say that I just see it as a band of retail support and resistance. And in the same way that I wouldn't touch retail resistance, I also wouldn't touch retail support. Best to just watch them battle it out. If you check the original CADJPY chart, you'll notice the market printed a fresh low on the closes - it's that little white arrow pointing down. This breakout was the heads up for me that price now wanted lower and the reason why I eventually shorted the confirming PA on retrace. Similar scenario on the AUDJPY.

I'm not sure what your last question refers to. Maybe you can illustrate the chart?

Realtime example.

CADJPY M15

First chart looks cluttered to my eyes:



Second chart (and how my chart is actually set up) looks clearer to my eyes.

Crazy Friday market

Bit of follow through on this. I actually took the trade but was stopped at b/e 2 x candles later. In all fairness there was a quite a bit of SR in the vicinity, particularly on the approach. But at the end of the day, a signal's a signal.

T/P was some lower SR at the yellow line. Irony is there was another lovely little trade missed on the M5 GJ that went to target straight away. Opportunities.... Opportunities....

Have a good weekend all.

As it moved stronger to break 2 demands at a time, i look for an entry @ the decision made to go low (supply). Preety good.

Great trade. Did you take that on touch?

Yea, its the only fresh supply left before price drop.

simond, thank you for taking the time to reply. I shall continue to follow your thread with great interest.

Nice. Been looking more recently into touch-trading again. Past couple of years I've focused primarily on PA confirmation on account of being stung so many times. Looking forward to seeing more charts of yours.