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 on the right track!
That bearish engulfing candle might have seemed like a false signal at first, but it actually created a zone we can trade. It was probably a bit of profit-taking in disguise, making it look like a two-high reversal pattern. That’s why I marked that M15 supply zone – it’s a potential turning point.
Remember, banks are always playing the long game.
The first move down (the one that formed the initial high) is where they start testing the waters, placing some initial sell trades. Then, that second upward move? That’s where the banks are likely finishing up their positions, getting the rest of their orders filled.
They’re test the waters with the first move, then dive in headfirst with the second.
Now, this second move usually doesn’t quite reach the high of the first one, unless there are a bunch of stop-loss orders sitting just above it. In that case, banks might push price up just enough to trigger those stops, squeezing out a bit more profit before the real reversal kicks in.
It’s a classic move, and it’s something to watch out for!
You nailed it on the M15 demand zone!
That jump into the supply zone was classic profit-taking.
They love to trim some gains, freeing up capital for their next big move. We probably saw a bunch of retail traders who went long on that bullish candle get spooked and close their trades at a loss, creating a perfect opportunity for the banks to swoop in and buy up discounted positions.
And that FOMC release the next day?
Textbook bank behavior.
They don’t just blindly follow the herd when major news drops – they’re patient, they assess the situation, and then they make their move. The initial dip after the news? Just emotional retail traders reacting, creating a “buy the rumor, sell the fact” scenario.
See, those retail traders get scared when the market dips, especially after a steep fall. They start selling, pushing the price down even further.
And who’s there to catch those falling knives?
Banks, of course!
They see the dip as a bargain, happily buying up all the cheap sell orders.
Once banks have loaded up, the selling pressure eases, and price starts to climb back up, forming that wick on the FOMC candle. Then, when price breaks above the candle’s open, the FOMO kicks in for the retail traders. They see a bullish move and start buying, giving the banks the perfect chance to take some profits off the table.
That’s what creates the wick at the top of the FOMC candle.
You were spot on about why the price hit the M15 demand zone.
The jump into the supply zone? Profit-taking by the banks. They trimmed profits to free up capital for new buy trades. We probably witnessed that here. Retail traders who went long on the bullish candle likely panicked and closed their trades at a loss, flooding the market with sell orders.
The banks then swooped in to buy up those cheap positions.
The FOMC release the next day was a big clue.
Bank traders don’t just rush in when big news hits – they observe, assess, and then strike. The initial dip after the news is a classic knee-jerk reaction. Remember the old saying, “Buy the rumor, sell the fact”? That’s exactly what happens when the announcement releases.
Retail traders get spooked by the dip and start selling, driving the price even lower. That’s when the banks seize the opportunity to buy at a discount, snapping up the retail traders’ sell orders.
Once the banks have bought enough, the sell orders dry up, and the price starts climbing, forming that wick on the FOMC candle. When the price moves above the FOMC candle’s open, retail traders see a bullish trend and jump in with buy orders, fueled by FOMO.
This gives the banks a chance to take some profits off the table, creating the wick at the top of the FOMC candle.
It’s a smart move to draw your zones on a higher timeframe and then zoom in on a lower one for precise entries. But don’t go crazy marking up every single timeframe with zones – it’ll just clutter your charts and confuse you.
Since you’re trading on the H1 chart, focus on those 1-hour zones.
You’ll still see the bigger picture from the higher timeframes, but lower timeframes will give you a closer look at the action happening within those zones.
Remember, the trend is your friend!
And you need to identify the trend on the timeframe you’re actually trading.
If you’re on the M15, look for higher highs and lower lows on the M15 chart.
Trend changes always start on the smallest timeframes, so don’t get fooled by what’s happening on the bigger picture.
One more thing:
When you see a supply or demand zone nearby, be patient!
Wait for price to actually reach the zone before you jump into a trade. In that earlier trade you mentioned, you went short on the bearish engulfing candle, but there was a little demand zone lurking nearby. That demand caused a small bounce, which put your trade in the red.
If you had waited to see how the market reacted to that demand zone, you might have gotten a better entry price.
You’re doing a fantastic job so far!
You’ve really grasped how the banks operate and how their actions influence us retail traders. That’s a major step towards becoming a successful trader.
Sorry for the long email, things have been a bit crazy around here lately.
If you have more questions, fire away! I’m always happy to help.
Cheers,
Liam – PAN