Question About Stop Position For Supply/Demand Trades?

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 Response:

You’re right about drawing zones…

Most often, I’ll use the next small bullish (or bearish if the big candle was bullish) candle as the zone’s source. At times, when two zones are right next to each other, I just consolidate them into one…

Typically, this strategy risks less money than if you placed a trade at each individual zone.

Placing a stop above the high/low of the pin or engulf is risky…

But only if it isn’t likely to cause a market reversal.

For example, if the market hits a supply zone and produces a large bearish engulf, this should cause a reversal. If it doesn’t, or only triggers a minor downturn, then the market is likely to move back above the engulfing candle’s high.

At this point, it’s best to close the trade and anticipate another entry.

Often, if the downmove triggered by the engulf or pin bar doesn’t break through the supply zone’s low or the nearest recent swing low, it’s a strong sign the market will break through the engulf’s high and the supply zone’s high.

Usually, if the market moves out of the zone, it tends to backtrack into the zone for banks to place any additional trades.

Check out the 1-hour chart of EUR/USD: you’ll spot a supply zone formed from the drop when the market entered the daily sell zone.

Drops like these make me suspect banks are placing sell trades into the market. If the market revisits this supply zone and a large bearish engulf forms, it’s a sign banks are placing more sell trades and that a market reversal is on the horizon.

Indeed, you’ll often find the breakout zone respecting the HH and LL rather than the LH and LL.

My experience has shown it usually respects the HH and LL more, hence why I mentioned it in the article.

I haven’t yet found a way to predict whether the market will respect the HH and LL or the LH and LL before it enters the breakout zone.

In the second method of second chance entries, we use pending orders for trade entry.

Here’s why: the engulf out of the zone has already confirmed the market’s direction, in line with the supply or demand zone. So, there’s no need to wait for another engulf to form before entering a trade – you already know the market is likely to move in the predicted direction.

Chat soon…

PAN.

Related Supply & Demand Questions

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