Hi mate,
I wanted to ask when you trade the hourly chart with 5 mins entry, what is you Risk:Reward/management strategy.
I’ve also noticed many times the way you create demand and supply zones on the four currencies can be different to what you outlined in your publications on drawing zones. Could you help me a bit? I’ve read all your advanced articles and most of the others in general.
Thanks for your time and consideration.
My Response:
When it comes to the 5-minute entry, the setup varies.
For instance: If I’m trading a supply or demand zone, my risk on the trade will fluctuate according to the size of the zone, influencing the risk-reward ratio of the trade. My approach to trade management involves aligning trades with my longer-term market outlook, not just the daily trend (which becomes less critical when trading lower timeframes anyway).
I understand where the market is likely to react, and where it may reverse (usually higher timeframe zones and/or psychological levels).
So, I’ll hold my trade until one of these points is reached.
Then, I’ll monitor the price action to better predict what’s next.
- Identify the Zone: First, I identify a supply or demand zone on the hourly chart. The risk I’m willing to take on the trade will vary depending on the size of the zone, which influences the risk-reward ratio.
- 5-Minute Entry: I then switch to the 5-minute chart to pinpoint a precise entry point using stand-out candlestick patterns like pin bars or engulfing patterns.
- Stop Loss Placement: My stop loss is typically placed a few pips beyond the zone’s distal line (the edge furthest from the price).
- Trade Management: I hold the trade until the market reaches a key psychological level (price ending in 000 or 0000), or until the price action suggests a reversal. At that point, I’ll closely monitor the price action to decide whether to take profits, trail my stop-loss, or exit the trade entirely.
Drawing Zones: Nuances and Adaptations
You might notice small differences between how I draw zones in the supply and demand article and how I do it in other lessons. I didn’t explain how to draw zones for unique market scenarios, such as zones drawn from a single candle base instead of two, and also marking RBD/DBR zones from messy price action. (SupdemV2 can help out a bunch here!)
Single Candle Base: If a strong base forms from a single candle instead of two, I might still consider it a valid zone, especially if it aligns with other technical factors or market context.
Choppy Bases: If the rally or decline originates from a choppy base, it’s necessary to draw the zone to include all nearby swing lows or highs – typical smart money entry points. Incorporate the lowest swing low under the base for demand zones, and the highest swing high above the base for supply zones.
Swing Highs/Lows: When a supply or demand zone forms near a swing high or low, I often incorporate the swing point into the zone itself, as these levels represent points of buying or selling pressure
Pro Tip: If the supply or demand zone develops near a swing low or high, consider incorporating the swing low/high into your zone area.
Swing lows and highs often result from smart money buying (demand) or selling (supply). They can form as smart money takes profits or enters positions to reverse the market.
Take a look at the attached image:
I’ve drawn the demand zone to include the lowest swing low before the rally. Many traders start the demand zone (proximal line) from the inital source of the rise, but that’s not the best approach. Smart money buying comes in at the tip of the swing low, hinting at a strong possibility the market could breach the white demand zone and reverse closer to the low.
Apologies if this seems confusing, B.
Hope this helps…
PAN.