Hello,
I have tried to let it sink in but must admit that I tend to overcomplicate things again.
Im looking for a simple step plan which I can repeat time after time so, in fact, trading becomes a bit boring…
I have attached two charts of EU to see whether my thinking process is a bit ok.
First, the line issue… I was taught that once it closes over something this line kind of becomes activated… I tried to show you this in the H1 pic attached.
As you can see, I marked a rectangle which represents the zone (not really a line) starting from the color change candles which initiates the drop down… To me that’s an initial run down, and I was told to mark it because price will most of the times react around this level once it comes back up…
Looking right, you can see indeed it came back up and formed a bearish engulfing pattern here… Now with your articles and email comments in mind, I thought I look at the M15 to see what’s going on.. first the zone itself seems a bit ‘long ago’ like you mentioned in your yesterday’s article… Next I looked at the zone I marked on the M15 and spotted a Supply zone!
Wow, so in essence the H1 engulfing pattern doesn’t necessarily fails on my color change initial run down but more apparently on the M15 supply zone, right?
I have marked the M15 chart as a possible entry chart, however I wasn’t behind the computer at that time so I didn’t trade those too badly…
When I look back at the H1, I feel like the move down caused by the H1 bearish engulfing pattern is just a ‘taking profit’ action of the banks?
I mean, the low is not really yet a lower low although we have a lower high…
What I find difficult, or perhaps I make it difficult to myself, is how to follow the price or the current trend… all timeframes look different… I mainly use the H1 as a comfirmation bias but looking at the H1 right now, I cant go short yet as it didn’t close below the last low yet… so price will probably move up?
it hit already a demand zone on the M15 chart.
Given the fact that we had the bearish engulfing, and prior to this candle we had a large H1 candle up, I think banks are taking profit and due to banks taking profit (using sell orders) price goes down… this results in retail traders exiting their losing long orders with additional sells, which caused price to hit the M15 demand zone??
This is probably a good chance for the banks to place new buy orders and probably move the price back up above the last swing high?
Above is purely thinking out loud, seeing if I start to grasp this concept…
To me, it seems im always tending to scalp… I would love to get to the H1 chart for entries… no matter that I need to lower lotsize… H1 seems more relaxed in terms of not ‘chasing’ the market.
You gave me two tips in the email>
‘’1. Always trade in the direction of the most recent high or low on the time-frame you trade off, dont get your trend direction from a different time-frame.’’
To me it seems I just messed this up right… I took my trend direction of the H1, I even called the chart ‘bias…’… could you do me a favour and mark the direction I should have traded to, the last recent high/low? I don’t understand correctly what your meaning… perhaps a language thing..
Is it that you advice to only use S/D on the timeframe your entering off and not to use i.e. H1 S/D and trade off the M15?
you also said>
‘’2. When you looking to place a trade make sure its not in close proximity to another other area which could cause a price change, i.e a supply or demand zone, dont worry about support and resistance levels causing a reaction as they will always be independent to the trader who has drawn them.’’
Are you saying here that once we have a nearby S/D zone, there’s not much room for possible profits?
Another thing I get from your email is, probably the ‘better’ places for entries are S/D zones which are coming from a base, so where we had a consolidation zone which price shoots out from?
I got so many more questions in my mind… lets concentrate on those first…
Im also looking for other pairs I can trade indeed… GBPUSD seems ok, and so seems EURUSD to me… perhaps EURJPY too..
Those also seem to have enough data in the Oanda orderbooks…
Well, im very grateful for you taking the time and efforts to respond to my emails… I can imagine you get lots of emails and sometimes its not easy to answer all…
If you got no time I completely understand!
I will get back to studying more tonight… im going to make this work!
Enjoy the rest of this day.
Best Regards,
My Response:
You’re doing great so far!
That bearish engulfing – it wasn’t a “fail” at all. It actually created a zone we can trade. It formed because of profit-taking and kinda looked like a two-bar high reversal, which is why I marked that M15 supply zone.
Usually, the first drop (making the first high) is where the smart money traders start entering trades into the market. The second rise is them topping off their positions. This second move usually stays below the first high unless there are a bunch of stop losses hanging around above the highs.
You were spot on about why the price hit that M15 demand zone.
The jump into the supply zone was classic profit-taking.
The smart money want to cash in some of their gains so they can execute more trades at better prices. We probably saw that happen here. Retail traders who went long on that bullish candle likely panicked and closed their trades at a loss, flooding the market with sell orders.
Smart money swoop in and buy up those cheap sell orders. They see the drop as a bargain!
The FOMC release the next day was also a clue.
When major news hits, smart money don’t just jump in blindly. They wait, see what everyone else does, then make their move.
When the news dropped, there’s an initial knee-jerk reaction, and then price falls.
Ever heard the phrase “buy the rumor, sell the fact”?
That’s pretty much exactly what happens with FOMC news.
Retail traders get nervous, see the market drop, and because it’s a pretty decent fall, they start selling, pushing the market even lower.
Banks then step in and buy, scooping up those retail sell orders.
Once the banks have bought enough, the sell orders dry up and the price starts climbing, creating that wick on the FOMC candle. Eventually, the price goes past the FOMC candle’s open. Retail traders see this bullish move, get FOMO, and start buying.
All these new buy orders give the banks a chance to take some profit, so they do, creating that wick at the top of the FOMC candle.
Drawing zones on one timeframe and then entering a lower one is a solid strategy.
Just remember not to mark zones on the lower timeframe if you’re trading a higher one.
Since I’m on the H1, I won’t draw 5-minute or 15-minute zones.
You’ll always see the higher timeframe zones on your trading timeframe; the lower timeframes just give you a closer look at the price action within those zones.
Always determine the trend on your trading timeframe.
If you’re on the M15, look for higher highs and lower lows on the M15 chart. Trend changes always start on the lowest timeframe, so looking at a higher/longer term timeframe for trend direction doesn’t make sense.
With nearby supply and demand zones, it’s usually best to wait until the price hits the zone before entering your trade.
In that trade you sent, you went short on the bearish engulfing, but there was a small demand zone that got touched before the candle closed.
That demand caused a little bounce, which put your trade in the red.
If you’d waited to see how the market reacted to that demand, you might have gotten a better entry price.
Plus, you couldn’t have known how the demand would affect the market – it could have pushed the price way above the highs, which would have meant a bigger loss for you.
Sorry for the long reply!