Hi,
Thanks for the reply.
I always include the swing highs and lows definitely.
I’ve kind of noticed that when the source of a zone is too big e.g. too big bearish candle before a demand zone rise occurs; you use the next small bullish/doji bar as the source.
Am I correct?2.
Also do you think using the low/high of an engulfing candle/pin bar as a stop loss is too risky especially on a 5 min entry on a 1 hour zone.
You say to use the zone as a stop loss for breakout retest trades but not for typical demand and supply zone trades?
3. Sometimes in breakout zone retest on two lows/highs I’ve noticed the zones respect the open /close of the HH or LL, not necessarily the open/close of the LH or HL.
4. And in the 2nd method of second chance entries, you use pending orders just to confirm?
I know sorry, lots of questions. But I am very serious about trading. It’s all I have.
Thanks a lot for your time and knowledge.
My Answer:
You’re spot on about drawing zones, most of the time I’ll use the next small bullish (or bearish, depending on the big candle) candle to pinpoint the source of the zone. If two zones happen to be close to each other, I just merge them into one.
This usually means less risk compared to taking trades at each individual zone.
About placing stops right above the high/low of a pin bar or engulfing candle… it can be risky, but only if a market reversal isn’t likely. Let’s say the market bumps into a supply zone and a big bearish engulfing candle shows up.
This should ideally trigger a reversal.
But if it doesn’t, or the downward move is weak, the market might just head back above the engulfing candle’s high.
In that case, it’s smarter to close the trade and wait for another entry opportunity.
Often, if the move caused by the engulf or pin bar doesn’t break through the supply zone’s low or the nearest swing low, it’s a strong hint that the market’s going to push past the engulf’s high and the supply zone’s high too.
Usually, when the market steps out of the zone, it tends to come back in so the banks can place more trades. Take a look at the 1-hour EUR/USD chart; there’s a supply zone formed from the drop when the market hit the daily sell zone. Drops like that make me think banks are selling.
If the market revisits this supply zone and a big bearish engulfing candle appears, it’s a sign they’re selling more, and a reversal is likely coming.
You’re right, the breakout zone usually respects the higher highs and lower lows more than the lower highs and lower lows.
That’s been my experience too, and it’s why I mentioned it in the article.
Predicting whether the market will respect the HH and LL or the LH and LL before it even enters the breakout zone?
That’s a tough one, and I haven’t cracked that code yet.
Now, for the second method of second chance entries, we use pending orders. Here’s the deal: the engulfing candle outside the zone already confirmed the market’s direction, which aligns with the supply or demand zone.
So, no need to wait for another engulfing candle to form before entering a trade – you’ve already got a good idea of where the market’s likely headed.
Hope this helps!
Catch you later,
PAN