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Forex Factory - Supply and Demand in a Nutshell by Alfonso Moreno

Sam Seiden: back to the laws of supply and demand

The Forces of Supply Demand Move the Markets The 'cause' is quite simply the imbalance between Supply and Demand in the market, which is created  market indicators, Sam Seiden eschews traditional technical analysis in favor of the simple laws of supply and demand

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27/2/2014

Forex Factory

Forex Factory (http://www

May 18,

Supply and demand in a nutshell by Alfonso Moreno 5 Attachment(s)

SUPPLY AND DEMAND FOREX TRADING IN A NUTSHELL Set it and forget it

PLEASE TAKE THE TIME TO GO THROUGH THIS ENTIRE FIRST POST PATIENTLY AND WITH NO HURRIES

PATIENCE IS KEY

I KNOW THIS POST IS LONG AND IT CAN BE A DAUNTING TASK FOR YOU,

BUT THERE ARE MANY CONCEPTS YOU NEED TO UNDERSTAND THAT ARE KEY TO UNDERSTANDING SUPPLY AND DEMAND

IF YOU DON'T DO THAT,

OTHERS AND MYSELF WON'T BE ABLE TO HELP YOU

TAKE YOUR TIME,

IF YOU NEED HELP CONTACT ME OR LEAVE A MESSAGE ON THE THREAD

Trading the forex markets is not a 100 meters hurdles race with hurdles every 10 meters,

but a marathon race with hurdles every 100 meters

FREE LIVE SUPPLY AND DEMAND WEBINARS If you are interested in attending a free live webinar,

please fill out this form: www

com/free_webinars I hold webinars maybe once every 1 or 2 weeks,

it depends on where I am at the moment

It all started like a simple trade journal,

but out of the blue in less than 4 months it became something very different to what I had initially created it for

The thread has grown to such an extent that I could have never imagined: more than 600k views since May 2013,

000 posts

This thread is not a trading journal any more

it’s a meeting point to help traders understand how supply and demand works,

helping them to understand the forces that govern both the markets and our lives

I'm really glad that so many of you are interested in understanding how the market works

However the fact is that the thread started to absorb my life,

it took me a lot of time to manage not only the thread but replying to dozens of daily private emails that hit my inbox

I'm afraid that the number of emails I will be receiving in the next weeks and months will not decrease,

Life is karma,

Whatever you do in life,

it will be returned to you 10 times bigger

This thread is changing my life in many ways,

hopefully it will change many others as well,

the emails I receive is an indication of that

I am very happy and proud to have received such a huge welcome and all the private messages I get every day speak by themselves

I will not refer to any of them

those who have written to me will know what I am talking about

I've had to take an important decision if I want to keep on helping you and other traders

I was asked by some members to create a private area,

I believed it was the best decision to take,

both to help others in a more organized way (FF is great but it has far too many limitations) as well as allowing me to get my spare time back while keeping intact my passion for helping others

Other things have happened that have forced me to take this decision

Many won't like this idea,

some will hate me (I don't know why since I did nothing to them) others will like it

I can't make everybody happy,

I do not lose any sleep over it,

I won't try to change such a primitive instinct

What I am trying to do now is creating a community of supply and demand traders that trade by the same set of rules,

preventing trader's minds from being clouded with different and/or similar approaches to the markets

The community will be a subscription-based forum where any serious trader is welcome if his attitude is humble and open-minded

If you are patient and willing to learn then you will be welcome

Trading is all about putting your emotions aside to prevent them from affecting your trading decisions

This is what the private area is about,

If the idea appeals to you and you are serious enough,

com If you want to contact me,

fill in the form at: http://www

com/contact-us I will always do my best to give free support on this thread,

For those of you whose minds switched to negative and prejudiced mode after reading this small introduction,

please read Post 3369 I am very clear about many things on that post,

you should probably switched that mode off

There has been a discussion about the private forum where people did not respect me and other fellow traders

This post explains it all and shows links to live accounts

A commercial decision in no way destroys what I started and offered for here at FF,

all the information is here for others to carry on and learn from if they decide a private forum is not their cup of tea

People just want everything for free and everything handed to them and put no value in the time that the thread starter has put into running it

Time is money and everyone's time is valuable,

27/2/2014

Forex Factory

WHAT'S THE DIFFERENCE BETWEEN THIS THREAD AND THE PRIVATE COMMUNITY

? The difference is a better organized site with different channels and categories as well as undivided support to the serious trader who learns the rules given on this thread for free but still need confirmation & time to learn from fellow traders all following the same strategy and rules without having their understanding clouded by different approaches

If you are making consistent money then there is no reason to join

But if you see the potential to make money trading but for some reason still can't make money trading then there are other issues at work like trading plan,

This is where you can get your questions addressed fully & the support from all within the community,

This thread has taken me so much of my spare time that there is no choice but to do it this way

No one is forcing anyone to join

We are just like minded traders filtered into a serious forum analysing the same way

The support is there to keep you on track

The free info is right below on Forex Factory,

there is all you need to know about supply and demand

Read it and apply it

FORWARD TESTING THE RULES IN THIS POST IS KEY Back testing on Metatrader 4 or any other software that already shows you the next candles is mostly useless,

forward testing is the way to go

You can use Forex Tester 2 software to do it,

it's the best testing software out there in my opinion

Once you have tested these rules or any other rules for MONTHS (not months of data,

but months of work on your side),

ONLY THEN you will gain confidence trading these rules or any other strategy you decide to trade

It's just impossible to organize each lesson and topic in a single vertical thread like FF does,

I can't create a FAQ because there are so so many things to cover that it would be a daunting task I have no time for

This is why you have to take your time and forward test these rules or any other strategy's rules you want to trade with,

with a software like Forex Tester 2 for 3-4 months,

a couple of hours a day using Forex Tester 2 will give you all you need to know,

but most traders don't want to forward test,

they consider it a waste of time

They do not realize that it's the most powerful tool they have at hand to feel confident about any trading rules and eventually becoming full time profitable traders

Traders feel the urge to trade without the confidence of months of forward testing,

! You have to do your homework,

nobody can do it for you except yourself

Take your time and forward test,

you will see many things that you can't see now

If you are not willing to spend some months forward testing the ideas on this thread or any other strategy,

then you should not be thinking of becoming a trader,

you will mostly likely have the same doubts and gaps always

What will happen after let's say a week of forward testing the rules

? There are only 2 possible outcomes: You maybe find that the rules work pretty well and you are getting a nice % success ratio and you will STOP forward testing

MISTAKE

A week of forward testing is NOTHING,

if you stop so soon you are not getting the point

If you ever started to study a career at the University,

did you stop studying and making exercises after you read the first book

? You didn't you spent a minimum of 5 years studying,

and even after 5 years of university you finished the career and you know NOTHING,

because you have no practical experience

Life is like that You will see no progress and believe that the rules do not work and will skip this thread and go to another one

This could probably happen,

but it will happen to you on any strategy

You have to believe in the logic of the rules and the nature of the markets and supply,

because supply and demand governs the markets and our world

Take your time,

spend some months forward testing,

YOUTUBE VIDEOS ON SUPPLY AND DEMAND You can view the videos at my YouTube channel: http://www

com/user/supplyanddemandforex Subscribe to my YouTube channel if you want to be automatically notified of new videos being posted I've created my own templates and a very important and useful Metatrader indicator to draw my rectangles and extend them to current price,

as well as calculating the number of pips in the rectangle,

it will also draw trendlines automatically on the higher timeframes's D1 and WK supply and demand areas so that you can see where you are in the curve when you are on the lower timeframes

You will be able to download all Metatrader indicators and the template that I use

I will be using the same template always for all my posts here,

I'd like that if you post any charts,

you do it based on this template and indicators I've attached,

by using the simple methodology explained below

Why the same template

? If we all do it the same way,

then we all can help each other,

because we'll be basing our decisions on the same methodology

Having different charts with different colours and indicators,

dozens of lines painted all over the charts making it crowded,

will not allow all of us to see price action as explained in the thread

Quote I am not an OTA graduate,

All I've learnt has been taken from the Internet for free,

available free videos by Sam Seiden,

and a LOT of common sense and logic

Anybody who puts a lot of hard work can possibly achieve that too,

I've just taken the time to compile my own ideas,

work hard back-testing and forward testing the markets

I've written my own indicators,

my own trading plan and my own rules (many of them are common-sense,

I didn't invent the wheel),

and shared it with other traders,

I must say that I've been able to achieve this thanks to Sam Seiden's OTA free videos and other teachings available on the net,

as well as other Supply and Demand traders out there on several forums

Without it,

I would not have been able to accomplish this

Supply and demand is the law that governs the markets

27/2/2014

Forex Factory

I will be posting some of my trades,

good and bad ones on this thread

I will describe my rationale for my entries and for my exits

Hopefully others will be helped with my thread,

which is one of the 2 only reasons I'm writing it

The 1st one is to help others,

the 2nd one is to help me become more consistent by thinking out loud in the form of a thread,

this will help me become even more consistent following my own set of rules

Remember this VERY important thing: the more indicators you use on your charts,

the more rules you will have to add to your trading plan

Adding an indicator means you will have to add rules when to use it and when not to use it,

how it will help you make a decision,

when it will filter out a bad or a good trade,

If you add too many indicators,

you will be flooded with variables and decisions in your trading plan

You will be paralysed and you won't be able to pull the trigger

TYPE OF LEVELS,

CONTINUATION PATTERN versus SWINGS (valleys,

peaks) Let's make a pretty quick summary of the 4 types of zones we're looking to see on a chart

PEAKS & VALLEYS: best at the extremes of the curve or close to it 1

Rally-Base-Drop 2

Drop-Base-Rally These two are the best ones at the extremes of the curve,

they are normally reactions to the next two types of zones (read lower)

CONTINUATION PATTERN (CP): best for momentum,

when trading with the trend Not higher odds when you are counter trend or at the extremes of the curve

Rally-Base-Rally 2

Drop-Base-Drop The first thing you want to do is become an expert locating these kind of levels on any price chart,

It's just the same because price is fractal,

whatever structures and patterns there are,

you will see them on all timeframes

Many say that drawing the levels correctly can be "considered an art"

your mind and eye need training,

and lots of screen time till it becomes second nature to you

How far back in time do I need to go in order to find supply and demand levels

FRESH LEVELS versus ORIGINAL LEVELS Supply and demand levels can be: 1

Price has not pulled back yet,

Price has pulled back to it at least once Used up

Price has pulled back to level several times,

Level has been created out of the blue,

not being a reaction to any previous level Original and fresh

Same as original,

but it's alsy fresh (untested)

How do we know if we have an original level of supply

? (opposite for original levels of demand) Look left to find original levels Draw a horizontal line at the distal line,

and scroll your charts UNTIL you see that it touches a candle If that candle is part of another supply level,

then the supply level you were analyzing is not original You are not allowed to cut through candles,

once you look left by drawing the horizontal line and the line meets a candle,

you stop and decide if it's a reaction to a previous supply level To know how original a level is you need to look left because you need to look at the origin of the level WE NEVER CUT THROUGH CANDLES TO FIND SD LEVELS,

A FLIP ZONE IS NOT A LEVEL How do we know if we have an fresh level of supply

? (opposite for fresh levels of demand) Look right to find fresh levels Draw a horizontal line at the proximal line,

and see if price has toched the level If price has not pulled back to the proximal line then it's a fresh level Freshness of a level is known when you look right,

you have to see if price has pulled back into the level or not When is a supply or demand level confirmed as a level

? We need that the opposing supply/demand area is taken out (absorbed) before we consider an area to be valid AND/OR price making Higher Highs or Lower Lows in the timeframe where the level is being drawn If previous opposing area is not taken out AND/OR price is not making HH or LL,

the new level will be negated For instance,

if we see a D1 demand forming,

we'd require that at least one full candle (OHLC,

Low and close) closes entirely above the potential D1 demand basing area in order for that demand area to be considered as demand,

otherwise it will be considered part of the base Exception: if we are at the extremes in the curve (D1 demand fresh zone,

it doest not apply to non-fresh zones) we won't need that the new lower timeframe demand (H1 in this case) takes out previous H1 supply area for our entries,

If the D1 demand was not fresh then we'd need that previous supply be removed before the brand new demand is considered for a confirmation type of trade

27/2/2014

Forex Factory

When do we consider a zone to no longer be valid

? When is it considered to be broken and needs to be removed from our charts

? The zone is no longer valid when it's been taken out by as little as 1 pip We don't wait for a close above or below the zone in order to consider a zone as a violation We don't wait for a full OHLC candle above/below the zone Sometimes,

we'll have zones overshot by a few pips,

others by quite a bunch or pips and we'll see it dropping/rallying after that,

most likely after our SL has been hit

If that is the case,

a brand new level might have formed confirming willing buyers/sellers,

which could be good for a trade once it pulls back to retest it by using the confirmation type of entry

Set & forget is got its pros and cons

! Sometimes levels will be overshot by a few pips,

this is why having a nice wiggle room added to your SL is key

Market makers are lurking in the dark like hyenas

Others your SL on a short will be hit and then price will drop like a rock

You will not want to short that pair any more because you had a loss the first time,

but what will most likely happen then

? The second entry was the good one and you didn't take it because the first one was a loss

? We need to add more wiggle room to the trades at the extremes,

we should not be scared to take a second trade if the first one was a loss

BUY LOW,

SELL HIGH (in the curve or range) Assessing when a trend has changed is one of the trickiest things a trader will face,

because every timeframe has its own trend

You may be trading in an uptrend on H1,

the first thing you need to do is to decide which is the timeframe you will be using for your trend,

Then choose the entry timeframe where you will be drawing your entry SD levels

define the timeframe to assess how high or how low you are in the Curve,

it will tell you if you are too high to buy or too low to sell,

so you will be more or less aggressive in picking up levels or your TPs (exits)

You can use the spreadsheet I created for Open Office Calc to manually add your D1 and WK levels,

by doing so you will always keep track if you are too high or too low in the supply and demand curve

If you are too high in the curve,

you should be thinking of exiting your longs and looking for supply zones to lean on your shorts if you think that are maybe a turning point in the current trend

You can see that spreadsheet in the following link,

levels are not updated (I do it every day for personal use),

but it's better like this because you will see all the color changes that will be helping you to assess if a level has been hit,

if its been penetrated 50% or it's been broken

?t=424894 Use the screenshot below as a guidance to mechanically know how high or low you are in the curve

Decide the % you will consider as too high in the curve (how close you are to higher timeframe proximal line),

and don't go long if price is higher than that %

Do the same for the low %

Decide upon that and don't break the rules,

you will avoid many losses by doing so

Attachment 1256160

MULTIPLE TIMEFRAME ANALYSIS

TOPDOWN ANALYSIS

What is multiple timeframe analysis

? Most technical traders in the forex and futures markets,

whether they are novices or seasoned pros,

have come across the concept of multiple timeframe analysis in their educations

However,

multiple timeframe analysis is often the first level of analysis to be forgotten when a trader pursues an edge over the market

Multiple timeframe analysis involves monitoring the same currency pair across different timeframes

While there is no real limit as to how many timeframes can be monitored,

there are general guidelines that a trader should follow

Using three different timeframes gives a broader view of any market

Using fewer than this can result in a considerable loss of data,

while using more typically provides redundant analysis and indecision

When choosing the three timefreames,

a simple method can be to follow the rule of four

This means that a medium-term timeframe should first be determined and it should represent a standard as to how long the average trade is held

From there,

a shorter term time frame should be chosen and it should be at least one-fourth the intermediate timeframe for example,

a H1 timeframe for the short-term time frame and H4 timeframe for the medium or intermediate time frame

Through the same calculation,

the long-term timeframe should be at least four times greater than the intermediate one,

so keeping with the previous example,

the Daily chart would be the third timeframe

It is imperative to select the correct timeframes when choosing the three periods

Clearly,

a long-term trader who holds positions for months will find little use for M15 chart,

H1 and H4 combination

At the same time,

a intraday trader who holds positions for hours and rarely longer than a day would find little advantage in daily,

weekly and monthly combinations

This is not to say that the long-term trader would not benefit from keeping an eye on the H4 chart or the short-term trader from keeping a daily chart in the selection

Putting it all together When all three timeframes are combined to evaluate a currency pair,

you will easily improve the odds of success for your trades,

regardless of the other rules applied

Performing the topdown analysis helps you trading with the larger trend,

what we call the bigger picture

This alone lowers risk as there is a higher probability that price action will eventually continue on the longer trend

The confidence level in a trade should be measured by how the timeframes line up in this topdown analysis

For example,

if the larger trend is to the upside but the medium- and short-term trends are heading lower,

shorting the market is not a good idea,

you should be cautious with your profit targets and stops if you decide to take a trade

Alternatively,

you may decide to wait until a higher timeframde demand area has been reached before you decide to joing the longer term uptrend

Another clear benefit from incorporating multiple time frames into analyzing your trades is the ability to identify supply and demand areas as well as strong entry and exit levels

A trade's chance of success improves when it is followed on a short-term

27/2/2014

Forex Factory

chart because of the ability for a trader to avoid poor entry prices,

Multiple timeframe analysis is paramount when trading any strategy,

supply and demand is not an exception

We can use a 2 timeframes or 3 timeframes combination for our entries

I will personally use a 2 timeframes combination,

because it is more stress free and it allows for more free time,

which prevents me from watching the charts like a zombie

SWING TRADING CONFIGURATION: Timeframe's combination for medium-term setups

BIG PICTURE timeframe: Weekly chart as our supply/demand curve and bigger picture direction EXECUTION and trade management timeframe: H4 chart

This is the chart where we should draw and pick our levels up,

where we will set our limit orders

If the H4 level is too wide,

we can drill it down by using either a fix number of pips (for instance a 40 pips on EURUSD for H4 charts) or a third timeframe to fine tune our entry

I will not zoom in and look for levels on lower timeframes above or below that area because it's the H4 area that interests me,

if the level itself is on H4 then I have to base my decisions on this timeframe,

the one I use for my entries as defined here

Otherwise we'll end up chasing the trade and finding what we want to see on the charts,

not what the market has to offer us at that particular area This is also the chart where we will manage our trades,

we'll use technical SL to move our SL above/below new H4 SD areas

This is explained on another lesson FINE TUNING timeframe (optional): H1 or M15 chart

I never use this third timeframe,

will never go lower than H1 to locate fine tune my entries,

but maybe you will feel comfortable adding it

POSITION TRADING CONFIGURATION:

If we choose to focus on the D1 SD levels as your entry timeframe then switch to this longer term combination BIG PICTURE timeframe: Monthly chart as our supply/demand curve and bigger picture direction EXECUTION and trade management timeframe: D1 chart

This is the chart where we should draw and pick our levels up,

where we will set our limit orders This is also the chart where we will manage our trades,

we'll use technical SL to move our SL above/below new D1 SD areas

This is explained on another lesson FINE TUNING timeframe (optional): H4 chart

INTRADAY TRADING CONFIGURATION:

If we choose to use H1 levels as your entry timeframe,

then we will swich to this timeframe combination: BIG PICTURE timeframe: Daily chart as our supply/demand curve and bigger picture direction EXECUTION timeframe: H1 chart

This is the chart where we should draw and pick our levels up,

where we will set our limit orders This is also the chart where we will manage our trades,

we'll use technical SL to move our SL above/below new H1 SD FINE TUNING timeframe (optional): M15 or M5 chart

I never use this third timeframe,

will never go lower than H1 to locate fine tune my entries,

but maybe you will feel comfortable adding it

NOTE: H1 timeframe can also be used for swing trading as long as you use this chart to drill down your entry at a higher timeframe supply demand area

It all depends on your style of trading

H4 levels will give you more time

VERY IMPORTANT: CONCENTRATE ON ONE SINGLE TIMEFRAME COMBINATION Choose only one of the combinations described above,

Swing or Position trading,

AND stick to it

Hide the timeframe buttons you are not going to use on Metatrader's top toolbar,

only be aware of those you choose,

You will see that in short you will start improving because your mind will not have to take into account so many timeframes and information

Normally there will be D1 SD areas within a Weekly SD area

So concentrate on at least 2 timeframes,

choose the combo you like the most

D1/H1 for intra-swing trading,

and WK/H4 for longer term swing trading,

and don't even look at the other timeframes Use the trendline idea you can watch on the videos,

use the Supply and Demand spreadsheet I created,

as well as the rectangle extender indicator,

that should put you on the right track in a few weeks And the most important thing,

JUST DO IT

! Don't find excuses not to do it,

hide those TFs you are not going to use and concentrate on those you use only,

the D1/H1 is a VERY powerful combination,

start with that one and HIDE all the other timeframes,

that should help you and others with your same problem a LOT

You MUST have very strict rules or you will be lost in a loop,

the entries are not the problem,

27/2/2014

Forex Factory

And that can be solved by having very strict set of rules and following them

The key to be consistent is by being consistent

SUPPLY AND DEMAND IN CONTROL WHAT DEFINES AN UPTREND OR A DOWNTREND AT ANY GIVEN TIMEFRAME

? Each timeframe can have a different trend

Let me define my idea of a trend

Remember it's just my idea of a trend,

it makes sense to me so I'm using it

Does it make sense to you

Since we are primarily working with supply and demand imbalances,

making a higher higher or a lower low does not necessarily mean we continue on the existing trend

UPTREND: demand areas are being respected,

supply areas are being taken out

A higher high SHOULD remove previous supply to validate the demand zone You must ask yourself: has the previous supply being removed

? If previous supply is not taken out,

I won't validate the origin of a higher high as demand 2

DOWNTREND: supply areas are being respected,

demand areas are being taken out

A lower low SHOULD remove previous demand to validate the supply zone You must ask yourself: has the previous demand being removed

? If previous demand is not taken out,

I won't validate the origin of a lower low as supply

You can use trendlines (these can help to assess trend if you have the right rules)

I am not using any lagging indicator to assess the trend,

since the only non-lagging indicator I know of is Price itself

I'm doing something much much simpler than that

Ask yourself this question: what type of trading are we doing

? Aren't you trading the supply and demand imbalances you see on a price chart

? We want to trade at those areas where the institutions left a trace,

where smart money is lurking to hunt you

So if we're trading Supply/Demand (SD) imbalances,

shouldn't we use the higher timeframe's SD areas to assess our trend

What defines a downtrend or an uptrend

In a downtrend: supply areas are consistently being respected and demand areas are being taken out In an uptrend: supply areas are taken out,

while demand areas are being respected THAT SIMPLE

Just look at your D1 or your WK chart and see what is going on with the SD areas in control and decide which direction to trade

Once you know what direction you want to go,

locate lower timeframe SD areas with a strong departure,

and a minimum of 3:1 profit margin (3 times or more the risk in pips of the zone you've taken)

What tells you if a downtrend or an uptrend has started to change or even consider there might be a reversal

? Since we're doing SD trading,

once you supply or demand in control is taken out,

it will be showing weakness in that currency pair's timeframe

We will consider a trend at any given timeframe has ended IF the trendline that connected the last 2 obvious valleys (uptrend) or peaks (downtrend) has been broken

If 2 SD zones have been taken out,

then we will most likely have the possibiity of drawing a brand new trendline for our new direction,

thus looking for trades in this new direction,

only if there is enough room to the opposing higher timframe SD area and we are not too high/low in the curve The break of a trendline does not necessarily mean that restest of a SD zone near or at the retest of the broken trendline will be valid

We need to make sure that price has arrived or is very close to a higher timeframe area,

ELSE we'll have to make for a brand new direction to the opposite side Do not trade the break of a trendline just because it's just been broken,

we need to assess location in the curve

HOW TO VALIDATE A LEVEL The only reason why price moves in any and all markets is because of an imbalance in supply and demand

The greater the imbalance,

A strong move in price away from a level indicates that not all orders were filled

For example,

at the origin of a demand level,

there are not enough sell orders to fulfil the total amount of buy orders

This is why price moves away in such a strong fashion

When price returns to these levels,

the novice traders (those who don't know about supply and demand) are selling into an area where institutions (professionals) have their buy orders

Institutions and professionals buy to the novices,

then there are no more sell orders so price must rise again

The opposite holds true for supply levels

In both cases,

the novice traders provide the liquidity the institutions need to get their orders out in the market

The best opportunities are where we can buy at the cheapest price possible and sell and the most expensive price possible

This is the same in any market

Supply and demand levels on a price chart show all these levels,

you just have to learn how to draw them

Open a price chart,

you will see a multitude of supply and demand levels on every timeframe

That doesn't mean we are interested in trading all of them

Certain levels are more likely to hold than others,

you need to have a rules based mechanical methodology as well as making a top down multiple timeframe analysis before you choose the levels you want to trade

These are some common factors to consider when choosing levels to trade from are listed below:

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Strength of the move (departure)

This is the way in which price left the level

Ideally quickly with large ERC candles 2

Risk/Reward

A decent risk/reward ratio will help to ensure you have enough risk/reward for price to move to your take profit 3

The big picture

Choose to trade with the higher time frame's trend

Know where you are in the Daily and higher timeframes,

Number of pull-backs or retests

Is the level fresh and/or original

? Has it been tested more than once

? Fresh levels are best for trending markets,

the fresher the level the higher the probabilities 5

Time spent at the level

The less time prices spends at a level,

This indicates a greater supply and demand imbalance 6

Arrival to the newly created level

Arrival into a level is key to set & forget your trades

Basing before a level is not a good sign

Opposing levels near your entry level subtract profit margin from your area

Look for a smooth rally or drop into your entry level

But you don't want to spend the whole day staring at the charts,

you have to trust your levels and analysis 7

Dollar index

The US Dollar Index (DXY) is an index of the value of the United States dollar relative to a basket of 6 major currencies

How do you think such an index can affect forex

! If the $ index is at a higher timeframe supply and the euro is at a higher timeframe demand,

there is no other thing we should be thinking

NIKKEI index

Use it with the Yen pairs

If Nikkei index is in an uptrend,

don't short on yen cross pairs like EURJPY,

GBPJPY,

S&P 500 index

Use it to assess US Dollar strength as well,

If US index is in an uptrend,

buy euros The variables above are some of the main factors that should be taken into account when deciding which levels to trade

I personally use these variables to fine tune the level picking process

Remember that trading is a game's number,

When the Strength of departure (imbalance) is not that "important"

The strength of departure is what defines an area of supply or demand

The stronger and more explosive the departure,

When we are bouncing off higher timeframes the departure (imbalance) I mean,

strong and explosive imbalances are great,

but if those strong imbalances happen at a higher timeframe area,

price will most likely not return to that area in short,

days or weeks for a retest If price is printing new CP (continuation patterns) off a higher timeframe area,

that means there are willing buyers/sellers

Imbalance will not be that crucial when that happens and we are still quite low in the curve to buy at demand,

or high in the curve to sell at supply If the imbalance is great and price returns to the area shortly after,

price needs to consolidate away from the level and not return to it in the next couple of candles

Why is it not that important

? Because we want to be riding that zone as soon as possible,

those are accumulation/distribution periods,

big imbalances can happen but not always

There will be times when we will have losses,

that's taken for granted and they are welcome,

but overall we will have an edge,

and that's the most important thing

SUPPLY AND DEMAND IN CONTROL 1

On every timeframe there is an area of supply and demand in control,

sellers/buyers will be likely in control and price will most likely have some reaction

We're always talking about odds,

we can't assume or predict that something is gonna happen

If the zone is fresh and good,

price will likely drop quite fast and no kind of confirmation will work

If the zone has been touched once or more times,

then it will probably not bounce that fast or even break that area

That territory is where sellers will probably fill their orders again

supply is control when price is high in the SD curve

What is a supply or demand in control

? It's the previous fresh or unfresh SD area which has not yet been broken (taken out)

If a supply zone has been hit 10 times and the distal line (furthest away price from current price) of that zone has not yet been broken,

that zone is still the supply in control

You can't,

you shouldn't assume or predict that you can buy that high in the curve on the assumption that it will be broken

The market will show you when that zone has been broken,

Once it's solidly broken,

you will be looking to go long at a good and fresh demand area,

but don't buy into a supply zone in control until it's been clearly and solidly broken,

it's higher odds and we want those odds in our favour

A zone can resist 1,

Only trade when it's solidly broken 3

Buy low in the curve

Sell high in the curve 4

Don't diddle in the middle

If the levels are in the middle of the curve,

then price can probably go both ways,

skip those levels to avoid unnecessary losses 5

The higher the timeframe,

That is,

even if that zone is not fresh and has been hit 5 times,

it's still a higher timeframe supply,

it will probably hold more than a M15 or a H1 zone

will be looking to position themselves on higher timeframes

They will probably not be looking at M5 and M15 to fill 100 million euros on the EURUSD

Maybe some might,

but most likley they just don't care much about lower timeframes,

RSI or MACD,

most of them are not scalpers but swing and position traders,

so why should they care about filing orders in the middle of nowhere

they don't diddle in the middle

They are market makers and they know what you are doing,

They buy low and sell high in the SD curve

Trade with the trend for higher probability

The trend is not a straight line,

SD levels will work in both directions at any given timeframe,

with the traend and counter trend,

but the higher odds is to go with the trend until it ends

But where will it end

? Near or at a higher timeframe supply/demand area

Avoid unnecessary losses trading against the trend in the middle of the curve,

you will increase your % success quite a lot if you do it that way

You will miss many trades for sure,

but you will filter out many losses as well

You decide,

and that's not good So behave like a robot 7

Decide if you want to be a hero by trading counter trend high/middle/low in the curve,

or you just want to go the safe way by buying the dips and selling the pullbacks with the current higher timeframe

See the 4 setups graphic above for clarification

First of all let's go through 2 important statements:

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higher high does not necessarily mean a new demand area was created higher high could be "just that",

that rally could be the final thrust to hit a strong supply area on higher timeframes lower low does not necessarily mean a new supply area was created lower low could be "just that",

that drop could be the final thrust to hit a strong demand area on higher timeframes

Attachment 1274581

THE CURVE or THE RANGE

Let me show you a couple of examples of supply and demand in control in higher timeframes,

Remember,

for higher odds we want to buy low in the curve and sell high in the curve

So these are the steps you need to take: 1

Decide which kind of trader you are: are you a scalper,

Once you know what kind of trader you are (not that easy because your mind will want to trade on all timeframes,

you will see SD levels on all charts,

with the trend and counter-trend,

decide which is the timeframe for your curve

Use the WK chart as the curve for your swing trading

D1 can also be used

Use the D1 chart as the curve for your intraday trading 5

Going lower than that will be placing more odds against you,

you can use H4 or H1 for scalping,

But each trader will decide,

forward test it hundreds of trades

Don't backtest,

you will see what you want to see

If price is at a higher timeframe supply (D1,

WK or Monthly),

Wait patiently for a short setup,

either set & forget at an original and fresh supply level on H1/H4,

OR wait for a brand new level of supply to be formed and sell the pullback

Opposite for higher timeframe demand

SET AND FORGET versus CONFIRMATION TRADES Set and forget trading is as simple as its name implies,

you just set the trade up and then forget about it for a period of time

This way of trading has two major benefits: 1

It makes it far easier to remove your emotions from the equation

Emotions are your worst enemy when trading 2

It also allows you to enjoy your life as you normally would,

because you will not be spending countless hours staring at of your computer over-analysing the markets Unfortunately,

traders become lost with the huge amount of data that available over the internet and TV

It is extremely easy to experience analysis paralysis while trying to trade forex or any other financial market

It can be overwhelming to try and make sense of all this information and create a forex trading plan based off this amount of information

Once you do a certain amount of analysis on any instrument,

any further time spent analysing this data is likely to have a negative effect on your trading,

the outcome is usually the same,

The believe that more is better,

is a psychological trap that often keeps us from consistently profiting in the forex market,

and is the reason why many blow out their trading accounts and eventually give up all together

I've gone though this process and I believe that all traders have and should go through it,

it's part as your evolution as a trader

Less is more: Set it and Forget it How can we achieve consistent profitability trading forex if it looks like we have been coded to make things more complex than they are

? The very first step in this process is accepting the fact that you cannot control the markets,

you don't need to feed your ego

The markets do not care what you have done in your life before

it has no emotion and it is not a living entity

The forex market It is an arena where human beings express their beliefs about the exchange rate of a certain currency pair

People that over-complicate their analysis are providing that predictability for the professionals to take advantage of,

the money flows from the people who don't know what they are doing to those who know what they are doing (professionals)

An ironic fact about trading forex is that spending less time analyzing the markets,

trying to find the perfect trade will actually cause you to make more money faster because you will be more relaxed,

and thus less likely to over-trade or over-leverage your trading account

This is why swing trading using an intermmediate timeframe like the H4 chart will help you improve your results and enjoy your life much more

When to set & forget

? Use only fresh levels of supply of demand when the market is trending

The first pull-back is the safest and has the highest odds of working out Use original AND fresh levels if you want to go counter-trend

Make sure your trade has a proper location

Location is key,

your trade should be located very high in the curve for selling and very low in the curve for buying LOCATION IS KEY

Knowing how high or low in your curve timeframe is paramount to allow you to set & forget or wait for clues of willing buyers or sellers to enter based on confirmation Continuation patterns (CP) against the entry timeframe trend

Do not set & forget on these areas if they are against the trend,

When not to set & forget

Knowing when not to set & forget is even more important than knowing when to do it

It will prevent you from having

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unnecessary losses that will increase your account's draw-down

Stop buying when you are too close or right at your curve timeframe supply area,

opposite for selling If your curve timeframe is not fresh (D1)

Wait for a confirmation trade,

don't set & forget unless If your curve supply and demand zone is right in the middle of an even higher timeframe like the Weekly or Monthly chart

Remember,

it also applies to higher timeframes since price is fractal If your curve timeframe is used-up,

it's had more than 2 retracements Continutation patterns (CP) at the higher timeframe curve

Set and forget works better at the extremes on U and inverted U levels (valleys and peaks)

Use rally base drops (peak) and drop base rally (valley) levels to set and forget at your higher timeframe curve

WHEN TO PLAN A CONFIRMATION TRADE INSTEAD OF A SETTING AND FORGETTING

There is not such a thing like a confirmation trade really

There is no way that you will have 100% certainty or confirmation that your trade is going to work well,

the confirmation trade just adds some more odds to your side,

Trading is about statistics,

you just have to play the games number

Maybe you are not comfortable with setting and forgetting your trades or you haven't gained the confidence to do so yet

Don't worry,

waiting for confirmation before you place your trade is fine as well,

it's just another way of trading supply and demand imbalances

You just need to find your style and stick to it if it works for you,

that's key to becoming successful at anything in life,

not to say trading the forex markets

What is a confirmation trade

? If we are sure about out entry or we're not confident enough with our set and forget trades we can wait for certain patterns to happen at our entry level

Waiting for a brand new supply level if you are looking to go short at a D1 supply area (if the area is not used-up,

read below on when not to take them) Waiting for a brand new demand level if you are looking to go long at a D1 demand area Brand new levels on your entry timeframe will be a clue that there are willing demand or willing supply at that area Always wait for price to reach the fresh higher timeframe curve zone you have spotted before you start waiting for brand new areas of supply and demand on lower timeframes Choose your curve timeframe and your entry timeframe,

D1/H1 or WK/H4 and go ahead

When to wait for confirmation At higher timeframe supply and demand areas

If waiting to short on a D1 supply area,

you have to wait for the D1 supply proximal line to be hit,

do not try to go short before the zone is reached,

If it doesn't make it to the D1 supply and price starts dropping,

what for previous demand to be taken out on your entry timeframe At continuation patterns (CP) located near ot within a higher timeframe supply and demand area

Since set & forget is not higher odds at CP against the trend,

we should wait for brand new levels being formed off a CP at a higher timeframe supply and demand area Level on top of level

When your entry timeframe has several levels stacked on top of each other,

you can wait for brand new lower timeframe areas (H1 or H4) to be formed

Sometimes it's difficult to decide which level to take,

use confirmation to filter out the levels and concentrate on the brand new one created at present time at those stacked areas

Either that or choose the level further away since price will reach the area "exhausted" and your trade will have higher odds When higher timeframe area has already been retested

If the D1 supply zone has been retested,

don't only wait for a brand new area of supply to be formed on your entry timeframe,

but also wait for previous opposing entry timeframe demand to be absorbed

You don't want to trade a restested D1 supply area without that confirmation

You can do it but it's not higher odds,

remember the first retest has always the higher odds of working out

When not to wait for confirmation In the middle of the curve

No diddle in the middle

Wait for confirmation when you are at a higher timeframe supply and demand zone

Look at the charts,

price almost always makes it to those areas,

why would you want to outsmart the markets

? Hold back your ego At a used-up higher timeframe zone

An used-up area (retested several times) is not high probability,

neither plan a confirmation trade nor a set & forget on these areas,

or you will know what blowing up an account is In order to trade off an used-up higher timeframe area,

we'll need a new direction confirmed with the possibility of drawing a valid trendline connecting two peaks of valleys,

or an important support/resistance and/or supply/demand taken out in a very clear and obvious way

Small summary of all these rules,

they apply to any timeframe Trade only fresh levels when you are in a trending market and room to opposing higher timeframe area Trade original AND fresh levels at higher timeframes areas if you want to go counter trend Do not trade non-fresh levels on set & forget Always wait for confirmation at non-fresh higher timeframe areas

If used-up,

wait for confirmation with a clear new trend in the opposite direction Higher timeframe areas are D1,

Weekly and Monthly Wait for confirmation AND/OR trendline break if the higher timeframe level is not fresh and not used up (more than 2 retests) NOTE: sometimes it's not a trendline OR a SD area that needs to be absorbed,

but a classic and obvious support/resistance area

If that you find such an area,

An example of this can be seen at Post #2844 http://www

?p=6986554#post698655 4 If a higher timeframe area is used-up,

neither trade it on confirmation nor on set & forget,

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Attachment 1274578

USING TRENDLINES AS DIRECTION,

AS WELL AS FILTERING OUT LEVELS IN A MECHANICAL WAY Trendlines will be drawn on our entry timeframe to assess direction,

the timeframe where your orders will be placed 2 OBVIOUS valleys (uptrend) or peaks (downtrend) are needed in order to draw a trendline Use the last 2 obvious valleys and peaks in order to draw a trendline

If there is a third obvious peak/valley that matches the previous 2 ones,

we would extend the TL to it CP will NOT be taken into account to draw a trendline A Buy setup with an ascending trendline will be invalidated when we have at least 1 full candle (Open,

High and Low) below the trendline A Sell setup with a descending trendline will be invalidated when we have at least 1 full candle (Open,

High and Low) above the trendline Trendlines will no longer be valid once a higher timeframe has been reached

Higher timeframes supply and demand areas are potential turning points in the market,

so the Trendline is no longer useful or valid at these areas If price hits a higher timeframe SD area and starts rebounding,

the new trendline can’t be painted until we have 2 peaks,

we’ll be selling like a robot on brand new supply areas formed on H1/H4 charts (specially CP) If our entry within a higher timeframe supply and we get a loss,

if we want to sell within that supply area again,

Unless price drops lower and forms new areas of supply absorbing demand Do not sell when price is very near or at a higher timefrrame ascending trendline (D1 or higher),

The same logic that applies on your entry timeframe (H1 or H4),

applies on higher timeframe trendlines The break of a trendline does not necessarily mean that restest of a SD zone near or at the retest of the broken trendline will be valid

We need to make sure that price has arrived or is very close to a higher timeframe area,

ELSE we'll have to make for a brand new direction to the opposite side Do not trade the break of a trendline just because it's just been broken,

we need to assess location in the curve A trendline break is not a MANDATORY rule

A TL break is just a way of filtering out certain zones in a mechanical way,

a simple way to mechanically and consistently filtering out levels

You can decide not to use TLs to filter out levels,

I do use them because I've tested them and even though I will miss some nice opportunities,

I know that it will keep me out of lots of losses

I placed all that on a balance and I decided that I prefer to use the TLs for these 2 reasons: 1

TLs allow to filter out levels in a very mechanical way 2

The use of TLs practically remove all of the emotion when picking up a level If these reasons are not enough for you,

then you can skip the use of Trendlines

Each trader has to find what it fits him the best to his style

You can use whatever varaible or methodology to filter out SD levels

I am using TLs and the curve

But be careful with what you use or stop using

Before adding a new rule to your set of rules,

you first need to test it over and over and over for a decent period of time,

with a minimum of 500 samples per new variables

TRADE MANAGEMENT,

BREAKEVEN AND EXIT TACTICS A TRADE SETUP IS COMPOSED OF 5 STAGES: 1

PRE-PLANNING Do not take any trades if it's not pre-planned Analyze the market and decide if you have a valid trade as per the rules,

following your trade plan Set your limit order and wait for the setup to be triggered 2

TRADE EXECUTION The trade is executed by your broker

Now you are in the trade Control your emotions at this stage

You risked a % of your equity,

it's a number's game Don't touch it if the rules still apply Walk away from the charts 3

MOVING THE SL TO BREAKEVEN When to move your SL to Breakeven to protect your trade 4

TAKE PROFIT AND TARGETS Which are your targets

? Will you exit at an opposing SD area

? Will you trail your SL above/below new SD zones until price reaches a HFT SD zone

? We've already covered the first 3 stages,

now it's time to cover 2 key aspects of any trade setup

WHEN TO MOVE STOP LOSS TO BREAKEVEN + SPREAD (and/or commission) Quote

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For example: Long entry triggered at 1

our SL is set 25 pips below at 1

THEN we'll move our SL to BE at 1

our SL is set 35 pips above at 1

THEN we'll move our SL to BE at 1

your trade is either a win or a loss You don't care what price does,

you want your trade to move far away from your entry price before you touch your SL PROS AND CONS OF MOVING YOU