Introduction
Hi everyone!
I'm a long time reader of ForexFactory, and I learned a lot here about trading. And now I think it's time for me to return the favour, and show you how I trade.
I've discovered Forex 3 years ago, then blown up demo accounts for 2 years, and for the last 6 months I'm profitable with a real account.
My trading technique is simple: price action with supply and demand levels. If you are interested to hear more about it, keep reading!
Price Action with Supply and Demand levels
Introduction
I'll try to make this first post as simple and as clear as possible. So this post alone should give you a good overview of the strategy. However, if you want a better understanding of supply and demand levels, you'll have to read the whole thread to see the comments/answers/examples.
I haven't invented this method. I've learned it though: Forexfactory threads, a bit of sam seiden videos, and friends.
There are a lot to cover here, and my time is limited. So I've left some blanks that I'll fill in in the next few days. Sorry about that.
The setup
Well, since I'm interested in Price Action, the setup is quite simple: just the price in candle sticks. No indicator at all.
I trade mostly on EUR/USD, and on a 1h TF. But my technique should work on any pair and TF.
The basic idea
Sometimes price move very rapidly in one direction. What does it means? Let's use an example to make things simple:
- Some people are selling a huge amount of $currency
- That makes price drop quickly from 1.3 to 1.2
- It means that a lot of people who wanted to sell $currency at around 1.3 couldn't do so, since price moved so fast
- So next time the price goes back around 1.3, a lot of sell orders are going to be filled, and price is going to move down again
Of course it works the opposite if price increased from 1.2 to 1.3
Once you realise that, you just have to use this information at your advantage. Here's a EUR/USD chart from 1 hour ago that shows this.
Legend:
1) Price dropped quickly from here. We call this a level
2) Then when the price reaches back the same level, it drops again
The levels from where price move quickly in one direction are called:
- Demand levels, when people are going to buy and price will increase
- Supply levels, when people want to sell and price will go down
(In the example chart above, the blue rectangle is a supply level)
So you just have to identify these supply or demand levels, and place orders when the price goes back into these levels.
Obviously not all levels are going to work as planned. But from my experience, enough are going to work in our favor to make this system work.
That's it! It is that simple. The rest of this post and thread is about techniques to help you increase the odds of picking good levels with good trade management.
How to identify the levels
Identifying levels if quite easy. All it takes is three steps:
1) Look at your chart, and try to find successive big candle of the same colours. We want the price to move STRONGLY.
2) Try to find the beginning of those quick moves, usually it's where price moves slowly in sideways
3) This sideway movement is your supply or demand level. See below "how to precisely draw levels" for a more information.
Relevant post: http://www.forexfactory.com/showthre...95#post7038995
Different types of levels
We can divide the levels into 4 different types:
- Drop Base Drop (DBD)
- Drop Base Rally (DBR)
- Rally Base Rally (RBR)
- Rally Base Drop (RBD)
This sounds weird? Here's an image that should make things clear.
Characteristics of a level
It's easy to find levels, but some of them are better than other. In order to select the best ones, you first need to understand the levels. Here are the mains characteristics of a level:
- Is it a supply or a demand level?
- The type of the level, as discussed above.
- How price left the level: height of the candles and number of candles in the same direction.
- The number of candles in the level.
- Freshness. How many time the price have touched the level? If none, it means the level is fresh.
As an example, how would you describe the level in the first chart of this post?
It's a RBD supply level, with a really fast and strong price movement. There are only 2-3 candles at the beginning of the level. And the level was fresh before getting at 2).
What makes a level good
Relevant post: http://www.forexfactory.com/showthre...81#post7040081 Edit: there is a typo in this post that I cannot edit anymore. I should have said "RBD and DBR are the best levels".
How to filter out bad levels
[More information to come]
How to precisely draw levels
Relevant post: http://www.forexfactory.com/showthre...55#post7037055
[More information to come]
Swap levels
[will add this later]
Entry, stop loss and take profit
Once you identify a good level that you want to trade, you have to set up the trade. Here's how I do it with a little example, based on the first chart of this thread.
Legend:
- Blue rectangle: the supply level
- Blue line: the entry of the trade, at the beginning of the level
- Red line: the stop loss (SL), usually a few pipes above the end of the level
- Green line: the take profit (TP), that is simply placed in a way to have a 1:2 or 1:3 risk:reward ratio (in this example it's a 1:3)
So once you know how to draw levels, setting up a trade is really simple with these rules.
Trade management & Money management
This is the boring part of trading, but it's also really important. You need to have a plan, and stick to it. This is my plan:
- Only place orders on high probability trades, it means only trading really strong levels
- Always set up SL and TP for all of my trades
- Usually risk 2.5% of my account on each trade
- Use a 1:2 risk:reward ratio, sometimes 1:3
- Use pending orders
I only take 1-2 trades per week, but thanks to these rules I'm profitable.
Thread's rules
I'll try to post 3-4 times a week, with either a) more explanation about my system, b) trades that I took, c) trades ideas, and d) replies to your questions.
Feel free to post your own trades, analysis, and questions!
If you are interested to hear more, please let me know by posting a message in this thread! ;-)
Let's have some fun!
PS: Don't forget to subscribe to this thread, and to follow me on Twitter here: @21pips where I post charts daily.
Hi everyone!
I'm a long time reader of ForexFactory, and I learned a lot here about trading. And now I think it's time for me to return the favour, and show you how I trade.
I've discovered Forex 3 years ago, then blown up demo accounts for 2 years, and for the last 6 months I'm profitable with a real account.
My trading technique is simple: price action with supply and demand levels. If you are interested to hear more about it, keep reading!
Price Action with Supply and Demand levels
Introduction
I'll try to make this first post as simple and as clear as possible. So this post alone should give you a good overview of the strategy. However, if you want a better understanding of supply and demand levels, you'll have to read the whole thread to see the comments/answers/examples.
I haven't invented this method. I've learned it though: Forexfactory threads, a bit of sam seiden videos, and friends.
There are a lot to cover here, and my time is limited. So I've left some blanks that I'll fill in in the next few days. Sorry about that.
The setup
Well, since I'm interested in Price Action, the setup is quite simple: just the price in candle sticks. No indicator at all.
I trade mostly on EUR/USD, and on a 1h TF. But my technique should work on any pair and TF.
The basic idea
Sometimes price move very rapidly in one direction. What does it means? Let's use an example to make things simple:
- Some people are selling a huge amount of $currency
- That makes price drop quickly from 1.3 to 1.2
- It means that a lot of people who wanted to sell $currency at around 1.3 couldn't do so, since price moved so fast
- So next time the price goes back around 1.3, a lot of sell orders are going to be filled, and price is going to move down again
Of course it works the opposite if price increased from 1.2 to 1.3
Once you realise that, you just have to use this information at your advantage. Here's a EUR/USD chart from 1 hour ago that shows this.
Attached Image (click to enlarge)
Legend:
1) Price dropped quickly from here. We call this a level
2) Then when the price reaches back the same level, it drops again
The levels from where price move quickly in one direction are called:
- Demand levels, when people are going to buy and price will increase
- Supply levels, when people want to sell and price will go down
(In the example chart above, the blue rectangle is a supply level)
So you just have to identify these supply or demand levels, and place orders when the price goes back into these levels.
Obviously not all levels are going to work as planned. But from my experience, enough are going to work in our favor to make this system work.
That's it! It is that simple. The rest of this post and thread is about techniques to help you increase the odds of picking good levels with good trade management.
How to identify the levels
Identifying levels if quite easy. All it takes is three steps:
1) Look at your chart, and try to find successive big candle of the same colours. We want the price to move STRONGLY.
2) Try to find the beginning of those quick moves, usually it's where price moves slowly in sideways
3) This sideway movement is your supply or demand level. See below "how to precisely draw levels" for a more information.
Relevant post: http://www.forexfactory.com/showthre...95#post7038995
Different types of levels
We can divide the levels into 4 different types:
- Drop Base Drop (DBD)
- Drop Base Rally (DBR)
- Rally Base Rally (RBR)
- Rally Base Drop (RBD)
This sounds weird? Here's an image that should make things clear.
Attached Image (click to enlarge)
Characteristics of a level
It's easy to find levels, but some of them are better than other. In order to select the best ones, you first need to understand the levels. Here are the mains characteristics of a level:
- Is it a supply or a demand level?
- The type of the level, as discussed above.
- How price left the level: height of the candles and number of candles in the same direction.
- The number of candles in the level.
- Freshness. How many time the price have touched the level? If none, it means the level is fresh.
As an example, how would you describe the level in the first chart of this post?
It's a RBD supply level, with a really fast and strong price movement. There are only 2-3 candles at the beginning of the level. And the level was fresh before getting at 2).
What makes a level good
Relevant post: http://www.forexfactory.com/showthre...81#post7040081 Edit: there is a typo in this post that I cannot edit anymore. I should have said "RBD and DBR are the best levels".
How to filter out bad levels
[More information to come]
How to precisely draw levels
Relevant post: http://www.forexfactory.com/showthre...55#post7037055
[More information to come]
Swap levels
[will add this later]
Entry, stop loss and take profit
Once you identify a good level that you want to trade, you have to set up the trade. Here's how I do it with a little example, based on the first chart of this thread.
Attached Image
Legend:
- Blue rectangle: the supply level
- Blue line: the entry of the trade, at the beginning of the level
- Red line: the stop loss (SL), usually a few pipes above the end of the level
- Green line: the take profit (TP), that is simply placed in a way to have a 1:2 or 1:3 risk:reward ratio (in this example it's a 1:3)
So once you know how to draw levels, setting up a trade is really simple with these rules.
Trade management & Money management
This is the boring part of trading, but it's also really important. You need to have a plan, and stick to it. This is my plan:
- Only place orders on high probability trades, it means only trading really strong levels
- Always set up SL and TP for all of my trades
- Usually risk 2.5% of my account on each trade
- Use a 1:2 risk:reward ratio, sometimes 1:3
- Use pending orders
I only take 1-2 trades per week, but thanks to these rules I'm profitable.
Thread's rules
I'll try to post 3-4 times a week, with either a) more explanation about my system, b) trades that I took, c) trades ideas, and d) replies to your questions.
Feel free to post your own trades, analysis, and questions!
If you are interested to hear more, please let me know by posting a message in this thread! ;-)
Let's have some fun!
PS: Don't forget to subscribe to this thread, and to follow me on Twitter here: @21pips where I post charts daily.
However, the main focus should be Euro crosses.
