Since I trade the EURO, I watch the Dollar index. I like to see the DX reach supply/Demand when the EURO reaches Demand/Supply for confluence (odd enhancers). Here are my level on DX that I am watching.
I hope this helps. These charts only show my interpretation of the material that sam presents and how I apply it to my trading. I have tried a lot of other methods/strategies, and this seems to be what's been consistent for me.
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For me, the main thing is how fast price moves away from an area. I need to see a momentum bar away from a small congestion area for me to be interested in an area. The idea behind price consolidating before one of those momentum bars is that there is an imbalance of supply and demand. So when prices consolidate, see the area marked on the attached chart, prices seem to be in equilibrium. However, looking closer at this picture shows that there are more sell orders at this level than buy orders. Why? Because prices could stay at the level, we went down hard. Again, why, because there were more sellers than buyer at that level. As soon as the last buy order was filled, there were no more buyers and prices fell from the level. I am sure you understand this process but I just wanted to reiterate.
This is all I am looking for on the chart. I look for big momentum bars, then look at the origin of that drop to see if it's a fresh level. That means it hasn't been touched yet. Pay attention to larger timeframe levels as well. So if say there is a supply level on the daily chart, and then you go to the 60M chart and see a nice demand level, just make sure that the 60M demand level is not right into the daily supply level. As long as you are aware of the daily supply level and there is enough profit margin between the short term demand level and the larger timeframe supply level, then by all means take the trade. Does this make sense.
I hope this answers your question.
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This is definitely interesting, so don't think I'm just being critical for the sake of it, but aren't these supply and demand zones more or less equally well represented by swing highs and swing lows? If you define a swing high as a high that is higher than the 2 bars to the left and the 2 bars to the right?
See the chart of the Euro, the same zone talked about earlier. The YTC PAT approach I'm talking about would put those two lines above and below it.
You can discover what your enemy fears most by observing the means he uses to frighten you.
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What counts is where initiative activity took place and there is no better way to see that than by simply tracking wide range bars specially if they have as source a key market event or a news. You want to be aware of these wide range candles as they represent the *territory to be defended.
*Territorial animals defend areas that contain a nest, den or mating site and sufficient food resources for themselves and their young. Defense rarely takes the form of overt fights: more usually there is a highly noticeable display, which may be visual (as in the red breast of the robin), auditory (as in much bird song, or the calls of gibbons) or olfactory, through the deposit of scent marks.
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I shorted at 1,4080 and got out at the POC (50 area). I like the approach from Sam Seiden, Lance Beggs as well as Phil Newton too. (Regarding to Phil, there are a lot of videos from him at Forex Street. The Foreign Exchange Market).
Here is my chart on 6E for today. I didn't take the trade that's marked but that was good for about 40 pips.
As far as your questions, those are great questions and I will attempt to answer them. I have seen these levels drawn both ways, including the wicks on both the lower and upper bound of your range. However, like @trendisyourfriend has eluded to in his post, you are more interested at the ORIGIN of the move. The stronger the drop from the level, the better the level. Some levels are just not good enough. So instead of placing a limit order there and just waiting to be filled, they are "watch it trades". By this I mean if the level is not "good enough" (take a look at the word document with the odd enhancers that I posted). Since the width of the zone is your risk, you just would have to pass on some of these if you draw your zones to include the wicks (to the top side for supply zone and to the downside for demand levels)
Again, the key is the origin of the move. The less time spent consolidating, the better the level (that means supply and demand are way way off balance that's why price spent just a little time at that level). As far as the size of the consolidation (fight between buyers and sellers), again the "smaller" the consolidation the better. But again, I don't have a time period or number of candles to qualify "small"
Just look at your charts, see a level, mark it and see if it worked out or not. Sooner than later you will start to differentiate between the good levels and the not so good levels. This stuff works, and you just need to practice it. I am sure you know that trading is about probabilities. It's not about being wrong or right. These setups are high probability setups. The reward usually far out weighs the risks and you don't need a very high win% to be profitable. However the higher the better.
Again, how do most of these big traders make net their millions a year? Example, your gross profit of $20M and your gross loss of $19M, and the you will have made a million dollars for the year. My point is, it's not about being right, it's a numbers game. Your winners have to be bigger than your losses to survive in this game. I personally think price action with support (demand) and resistance (supply) is key to being consistently profitable. This is my opinion though.
I hope I answered most of your questions. If not, please let me know and I will try to explain further.
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