From tomorrow onword i am going share some trades based on Demand and Supply Levels on my facebook page.
Link of my facebook page- https://www.facebook.com/Neoxauusd1
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Below are the details about this useful stratergy-
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The setup
Well, since I'm interested in Price Action, the setup is quite simple: just the price in candle sticks. No indicator at all.
This technique should work on any pair and TF.
The basic idea
Sometimes price move very rapidly in one direction. What does it means? Let's use an example to make things simple:
- Some people are selling a huge amount of $currency
- That makes price drop quickly from 1.3 to 1.2
- It means that a lot of people who wanted to sell $currency at around 1.3 couldn't do so, since price moved so fast
- So next time the price goes back around 1.3, a lot of sell orders are
going to be filled, and price is going to move down again
Of course it works the opposite if price increased from 1.2 to 1.3
Once you realise that, you just have to use this information at your
advantage. Here's a EUR/USD chart from 1 hour ago that shows this.
Legend:
1) Price dropped quickly from here. We call this a level
2) Then when the price reaches back the same level, it drops again
The levels from where price move quickly in one direction are called:
- Demand levels, when people are going to buy and price will increase
- Supply levels, when people want to sell and price will go down
(In the example chart above, the blue rectangle is a supply level)
So you just have to identify these supply or demand levels, and place orders when the price goes back into these levels.
Obviously not all levels are going to work as planned. But from my
experience, enough are going to work in our favor to make this system
work.
That's it! It is that simple. The rest of this post and thread is about
techniques to help you increase the odds of picking good levels with
good trade management.
How to identify the levels
Identifying levels if quite easy. All it takes is three steps:
1) Look at your chart, and try to find successive big candle of the same colours. We want the price to move STRONGLY.
2) Try to find the beginning of those quick moves, usually it's where price moves slowly in sideways
3) This sideway movement is your supply or demand level.
Different types of levels
We can divide the levels into 4 different types:
- Drop Base Drop (DBD)
- Drop Base Rally (DBR)
- Rally Base Rally (RBR)
- Rally Base Drop (RBD)
This sounds weird? Here's an image that should make things clear.
Characteristics of a level
It's easy to find levels, but some of them are better than other. In
order to select the best ones, you first need to understand the levels.
Here are the mains characteristics of a level:
- Is it a supply or a demand level?
- The type of the level, as discussed above.
- How price left the level: height of the candles and number of candles in the same direction.
- The number of candles in the level.
- Freshness. How many time the price have touched the level? If none, it means the level is fresh.
As an example, how would you describe the level in the first chart of this post?
It's a RBD supply level, with a really fast and strong price movement.
There are only 2-3 candles at the beginning of the level. And the level
was fresh before getting at 2).
Entry, stop loss and take profit
Once you identify a good level that you want to trade, you have to set
up the trade. Here's how I do it with a little example, based on the
first chart of this thread.
Legend:
- Blue rectangle: the supply level
- Blue line: the entry of the trade, at the beginning of the level
- Red line: the stop loss (SL), usually a few pipes above the end of the level
- Green line: the take profit (TP), that is simply placed in a way to
have a 1:2 or 1:3 risk:reward ratio (in this example it's a 1:3)
So once you know how to draw levels, setting up a trade is really simple with these rules.
Trade management & Money management
This is the boring part of trading, but it's also really important. You need to have a plan, and stick to it. This is my plan:
- Only place orders on high probability trades, it means only trading really strong levels
- Always set up SL and TP for all of my trades
- Usually risk 2.5% of my account on each trade
- Use a 1:2 risk:reward ratio, sometimes 1:3
- Use pending orders
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Thank You.
Happy Disciplined Trading.
