supply demand guide

8/18/2019 Supply Demand Guide.

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The Holy Grail of Trading 1/2

You may have come across the subject of the Risk Management under different names,such as Money Management, Risk Management, Trade Management, Order Managementand so on. Call it hatever you like but one thing is indis!utable, it"s the essence oftrading. The most im!ortant as!ect of trading. #t"s almost the holy grail of trading.

#t"s ironic though, that for ne traders, Risk Management is the least im!ortant as!ect oftrading. $verybody ants to learn about best entries and such first. They think that"shere the money is. #t"s human nature% e usually tend to look for the easy ayregardless of hether it"s the correct ay or not.

#"m a big fan of old Martial &rt movies. 'ot the ones here they effortlessly jum! on to!of ( storey buildings, but those here young !eo!le go to a Martial &rts master to teachthem his craft. Once the master acce!ts them as his student)trainee, he sets themmundane tasks such as cleaning the floor, moving certain items from one !lace toanother etc. day in day out. $ventually most students get really frustrated ith e*tremedisa!!ointment. &fter all, they anted to be the best kung+fu fighters, not handymen or

cleaners.

Most dro! out. The ones that stay the course, hoever, start to realie that Martial &rtsis a life style !ractice, not a fighting one. They also come to understanding of masteringthe art takes time and hard ork.

$s!ecially after hearing and reading all those stories ho so+and+so made lots of moneyby trading currencies. -ild est gold rush begins... ooking into it a bit further thendonload some trading !latforms and start trading !a!er money. -atching !ricemoving.. seeing all those dollar !i!s rolling fast on most likely M1 and M/ charts. 0uree are e*cited by no and thinking the !ros!ect of making a lot of money ithout anyhard ork. &lready e start to imagine)dream about rich life style. &t this stage ourreasoning logic should be telling us hang on, this looks too good to be true, but hocares about sensible reasoning here. #t"s all blocked by our greed. That devil in usstarting to take control.


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Then e discover all those onderful indicators and oscillators.Magic...

#t looks so easy... $ven using sim!le M& crosses can make a lot ofmoney. # don"t have to do anything. 3ust atch the crosses and enter.One thing, the deadly im!ortant as!ect e overlook here is that these

indicators are shoing the !ast, not the !resent.

&ll indicators are lagging. # have not seen any orking non+lagging or non+re!rintingindicator to date. # su!!ose once time travel is invented it"ll be !ossible to make non+lagging indicator.

-hen e discover the lagging as!ect of these indicators e mostlikely ill have some noticeable disa!!ointment but at this stage estill are e*cited.

These onderful indicators are much like a chea! hooker.

That"s fine e say, #"ll go for classy e*!ensive hookers. -e imagine e can find a finetuned, !erfect indicator or system that !roduces inners consistently.. Then e startsearching for that magical indicator or system, donload and test many of them, try tofine tune them, buy some systems, enrol in some courses and so on.

0ome of us end u! asting considerable amounts of money on theseuseless systems and courses. 4y the end of this stage most traders getasted or give u! on trading. On the other hand some decide to goback to the draing board and re+start from scratch ith the

understanding that learning to trade may take a lot more time thanthey had antici!ated at the start.

#"d like to make it clear that # am not against using certain indicators for information!ur!oses such indicators that shos !rice, highs, los and so on. The key is not to baseyour trading decisions on any indicator other than your main indicator5 the chart itselfand !rice u!on it. Try not to !ollute your charts ith useless indicators until tradingbecomes your second nature. &t this level it doesn"t matter hat indicators or ho manyof them are dis!layed on the chart% you"ll ignore them and look for the !rices and levelsautomatically, instinctively.

#f you are ne to trading, !lease do yourself a favour before buyingany magic system or enrolling in !aid courses, by asking these sim!le6uestions5

7 #f these bullet !roof black bo* systems are as good as their vendors claim to be, hyare they selling it instead of using it for themselves8 #f # had such a magic system, #ouldn"t sell it, at least not to the !ublic. They"d be orth millions rather than this fe


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hundreds bucks. # myself don"t kno the e*istence of any magic system that orks sofar.

7 #f those mentors and teachers ere so great, hy don"t they teach it for free8 # don"tbuy the argument that they get greedy and ant to make more money. Think about allthe time and effort they !ut into those courses. 0urely it could be utilied in trading, amuch more rearding career. 9oever, # do buy the argument that some !eo!le are

good at teaching but not so good at trading, so they are making their living from thegreater talent. 'othing rong ith it. # only recommend to ne traders choose carefullyand choose the best ones if you don"t ant to end u! asting your time and money.

Out of the last grou! :Traders ho ent back to the draing board rather than give u!;only the ones ho get to gri!s ith a sound and disci!lined risk management illsurvive.

#n my vie, the first thing to teach to a ne trader is risk management. &t least the greatim!ortance of it.

& ne trader may not take risk)money management seriously as he or she may bethinking hat the heck, # have only a /< account and # kno hat"s there. # kno hatis a loss and # kno hat"s a in.. 0o hat"s to manage there.. # need to im!rove myentries first.. Money management ill take care of itself as long as # have great entries.9oever, in reality, the first thing to be mastered is sound risk)money management.

Risk Comes From Not Knowing What Yo !re "oing = Warren Buffett

-arren 4uffett !ut it short and seet as to the source of a risk. Risk is heavily associatedith uncertainty here e do not fully kno the outcome of a certain situation.Consider someone orking on a com!le* !roject. 9e has a much harder task identifyingand managing !ossible risks than a trader has. &s traders e have a much sim!ler taskhen it comes to identifying the risk)s and managing them. There are only fe variablese need to take into account. 9oever, e have a harder task sticking to !re+defineddisci!line, due to the !ersonal as!ects of trading. >reed and ?ear kick in and startmessing ith our !sychology.


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Trading !sychology is the end !roduct of ho e manage our fear and greed ithin theframeork of risk management.

The fear !art is easier to understand and dealith. ?ear originates from the unknon, the risk%e can manage to control it by avoiding stu!idityand a!!lying certain rules based on !ractical

knoledge. On the other hand, greed is a totallydifferent kind of beast. #t"s not so easy to control.

#deal traders ould be those that are bored, don"tcare about material things in this orld and don"tget on emotional roller coasters easily. ?orgetabout 9ollyood stuff. They are just movies.

# ill try to illustrate belo that even a mediocretrader ith sound risk)money management canbe a consistently !rofitable trader over a !eriod ofa time.

ets say, as a ne trader you just learned the basics of su!!ly and demand ones)levels.Alus engulfing candle !attern. :0ee here for detailed e*!lanation of englfing #andle$attern;. You can identify here to dra your su!!ly and demand ones. #f you find itdifficult to s!ot the ones at first instances, then use 0u!Bem indicator hich dras itfor you automatically. #t"s not !erfect but it does the job. # still use 0u!Bem indicator.-hy8 Can"t # s!ot them8 0ure # can but there are certain situation hen farther leftones are easily not visible unless you kee! scrolling your chart. #f the 0u!Bem indicatordoing it for me hy should # do it manually8

&s a ne trader. #"d suggest you start trading on higher timeframe :9T?s; charts such as

9@ or 91. -hy is that8 #s it easier to trade on 9T?s charts8 ?rom a technical !oint ofvie there is no difference. You"ll have the same !rice movement, and the same!rinci!les a!!ly both higher and loer T?s. The main difference is relative s!eed. Thereare other as!ects, but that ould be a subject of another article and not needed here.$ven though, for better entry o!!ortunities, looking at loer T?s is a good idea but let"sleave that until e learn and understand overall !rice action and structure ithin onesbetter. This ay you"ll avoid immature !anic and fear to a certain degree. That"s all.

# as thinking to use sim!le illustrations but for the sake of realism and clarity lets useactual charts. &s most ne traders ill likely choose $R)0B to trade, #"ll also stick toit in this e*ercise. Once you learn to read charts !ro!erly after 1DDDs of hours of screentime, you"ll come to understand the saying &ny !air, any time frame.

T9$ R#0< ARO?#$

?irst e need to define our risk !rofile in line ith our account sie.Bon"t overlook T9$ R#0< ARO?#$. #t"s the heart of the matter.$*tremely im!ortant.


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#f it doesn"t make much sense at the beginning, take your time until you gras! theessence of it. Bo it right... Bo it isely.

'ever, $ver !ut your real money in any trading before you fully understand the riskmanagement, and can define your very on R#0< ARO?#$.

nderstanding and defining it is just the beginning. You M0T a!!ly it to your trading

ith disci!line as if your life de!ends on it.

What do we in#lde in Risk %rofile&

1. -hat levels of Risk5Reard :R5R; ratio ill e be orking ith82. -hat"s the ma*imum !ercentage of our account e are illing to risk on any one ormore trade)s8(. -hat"s the ma*imum !osition sie e can use8@. #n terms of !i!s value hat"s the ma*imum sto! e"ll be using8/. &re e going to use break+even and trailing8E. -hat time frame ill e be trading8

1' (inimm R)R *Risk)Reward+ ratio e"ll ork ith is 1 to 2. This means that forevery !i! e risk e ant to gain 2 !i!s.

2' We don"t ant to live fast and die young and !retty. We will not risk more than 2,of or a##ont in any one or more trade)s. You may have come cross similar !hrasesbefore in books and articles. One thing is some of them don"t make it very clear5 Boes2F is a!!ly to an individual trade8 #f so, can # o!en other trades simultaneously as longas # don"t risk more that 2F of my account on any one of them8 Of course not.Remember, e are talking about our total available account value, not the count of o!entrades at any one time. Be!ending on your account sie, !osition sie and sto! value youmay only be able to o!en one trade if the trade risk value is close or e6ual to 2F of your

total available account value + available margin.

9oever, you can still o!en more than one trade even though hen you o!en the firsttrade it"s risk value may have been 2F of your available account value. 9o8 0im!ly bylocking your first trade hen it"s moving in your favor as long as you take into accounts!read and sli!!age. -hat this means is you have decent distance beteen your entryand current !rice so that you are able to move your sto! at least break+even to G1D)1/!i!s. Trade is locked and the risk is reduced almost to ero. Be!ending on your availablemargin you may be able to enter another trade. &n im!ortant !oint to remember is thatmarkets can ga! in either direction over the eekends. #"d strongly advise never leavesuch trades o!en over the eekend. &s a beginner, #"d say do not leave even a singletrade o!en over the eekend. &dditionally, kee! in mind that an une*!ected big incidentcan cause ga!s too, such as natural disasters etc. nfortunately, e cannot do muchabout these.

-' %osition si.e e can use ill de!end on the account sie. $ven H/k ill !rovide youith enough margin to trade a standard :std; lot if your broker gives 151DD leverage.sing this kind of account setu! and trading it ith std lot ill most likely kill youraccount in no time. #n my o!inion a suitable relationshi! beteen account sie and!osition sie as follos


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o 1DDkG for trading in std lots + 1 std lot :1.DD; !er !i! value I H1Do 2DkG for trading in mini lots + 1 mini lot :D.1D; !er !i! value I H1o /kG for trading in micro lots + 1 micro lot :D.D1; !er !i! value I HD.1D

Ps/. Please note the above lots values refers to certain instruments such as EUR/USD etc.Some other instruments have different lot values. While 1 standard lot value of EUR/USD pair is equal to US1!" 1 standard lot value of Silver is equal to US#!.

' We will se a ma0imm of $i$s sto$s' 9oever, e ill try to s!ot entryo!!ortunities ith less than @D !i!s sto!s too but e ill not take entries ith morethan @D !i!s sto! value. Therefore e"ll be taking on trades that offers JDG !i!s hereentry re6uired @D !i!s sto! :minimum 152 RR e already defined;. -ell, ho do ekno if the entry offers minimum of tice the our sto! value8 &re e magicians orhat8 -e of course don"t kno the outcome in advance, but su!!ly and demand onesgive us some idea. #f e are buying in a demand one ith @D !i!s sto! and e see @/!i!s above su!!ly one the most likely there is not enough room to get our minimum JD!i!s.

Alease understand that, not all offered !ossible reards are realied at all times. Aricemay turn at any time against us before reaching our !re+defined target. This is hereusing break+even sto!s becomes handy. -e shouldn"t let a inning trade turning into aloser.

' We will se 3reak4e5en and Trailing. -hen !rice moves in our direction. &round/DF of our target e ill move our sto! to break+even. Alease note, break+even meanshere% e ill move our sto! to entry !rice G s!read. #f the s!read for the !air e aretrading is 2 !i!s and our entry as at say 1.@22/ then e"d be moving sto! to 1.@22K. #f!rice is moving nicely in our direction, instead of closing the trade after it reaches ourinitial target of 251 e"ll consider trailing it by moving our sto! to initial target hen!rice advanced further in our favor.

6' 7et say we #hoose to trade the horly #hart as e are ne and bit nervous. #t"s alsoim!ortant to decide on timeframe as our sto!s and !osition siing ill vary according tothe time frame e decide to trade on. -ith higher time frames, e ill need bigger sto!sand smaller !ositions de!ending on our available account value + available margin.

0o, e have orked out our Risk Arofile as follos5

o -e ill use minimum of 152 Risk Reard ratioo -e ill not risk more than 2F of our total available account :available margin;o &s e have only 2Ek account e ill only trade using mini lots as our ma*imum

!osition sie !er tradeo

-e ill ork ith ma*imum of @D !i!s sto!so -e ill be using break+even and trailing as defined above.o -e ill trade on hourly charts only.

&s long as e can stick to the above risk !rofile defined, e can enter 1D trades, have Elooser and only @ inners but still end u! ith !rofit overall. 'o, this is not one of thosetoo good to be true systems. #t"s a sim!le reality and can be !roven ith numbers.


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For instan#e8 say e used ma*imum of @D !i!s sto! for all 1Dtrades and used the minimum 152 reard to sim!lify thee*!lanation here.

-e had E loosing trades hich translates into E*@DI2@D !i!s loss-e had @ inning trades hich translates into @*JDI(2D !i!sgain

0o after 1D trades e have gained JD !i!s overall

#t"s a sim!le fact but many ne traders overlook such !robabilities. #t can do ondersfor your trading !sychology, es!ecially if you are suffering in the hands of fear. 9oever,for the above to ork you must strictly follo the rules. The rules that you have definedyourself in your on risk !rofile. #f you move your !re+defined sto! against yourself, ore*it trades before reaching the initial target it ill fail miserably.

Alease kee! in mind, the above may vary in terms of trade count in reality. ?or e*am!leyou may have E loosing, 2 break+even and 2 inning trades. #n this case after 1D tradesyour account ould be shoing JD !i!s loss. The !oint is, in certain circumstances itmay take more than 1D trades to hit the !lus as long as you do not !anic and avoid doingsilly things. -e may also avoid such outcomes by taking trades hen !rice is only instrong ones and ignoring eaker mid ones.


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The Holy Grail of Trading 2/2

#n the folloing !ractical demonstration of Risk Management, # have scrolled $R)0Bchart back to Oct 2D1D as the starting !oint of this e*ercise. Chart contains only Chaos0emafor indicator for shoing ( levels highs and los. Aurely for information not forour entry and e*it decisions.

Time to get on ith our 1D e*ercise trades.

Trade 1 L1)E

Trade 1)

-e have one fresh su!!ly one and one demand one. The fresh ord here refers toones are not been visited by !rice yet. Then e have some mid su!!ly ones hich eill ignore unless e see some decent o!!ortunity. 'o e ait and see hat !ricedoes.

'4. $ use an alert indicator %hich pla&s a sound %hen price is approachin' %herever $ place the alerter(s hori)ontal line. $ don(t have to sit and %atch the price on an& particularchart. Please see end of this article for the indicators mentioned/used in this e*ercise.


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Trade 1 L2)E

0ee ho !rice sliced through the first mid+eak one. -e cannot see any decent A& hereto !rom!t us to sell, es!ecially considering demand at bottom as established ith anengulfing candle. 0o e ignore it. #f u!!er su!!ly orks and !rice turns don toardsdemand then so be it. -e"ll ait for the ne*t o!!ortunity. Bo not orry about missedo!!ortunities. Markets !resent no ends of entry o!!ortunities on a daily basis.

Trade 1 L()E


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&s e*!ected all eak ones are taken out. &fter !rice touched the main su!!ly one ehave been atching, it !roduced a juicy bear engulfing candle. 'o e are looking foran entry o!!ortunity that fits in ith our Risk Arofile. #t comes first and second candleafter the engulfing one. 0ince e are all e*cited and cannot ait e enter as soon as!rice hits our sto! range. 'o e have to ait and see ithout doing anything stu!id inthe meantime.

Alease note that this entry doesn"t fit conventional su!!ly and demand trading.Te*tbook entry ould have been hen !rice travelled further u! ithin su!!ly one sothat e can have our @D !i!s sto! just outside :above the u!!er border; the su!!ly one.9oever, after !rice hitting su!!ly one then seeing such a nice engulfing bear bar edecided it"s orth taking the risk and entered at first !ossible o!!ortunity.

Trade 1 L@)E

The !rice hit our first target. Becision time. Bo e close or let it run8 Obviously, e don"ttake a long time here to think about closing or not. -e should already have a !retty goodidea by no hat e"d be doing hen !rice hit the T>1.

-e already kno that best !ossible signal e ho!e to see on charts is a nice engulfingcandle on right !lace. Meaning in and around strong ones. -e have a nice engulfing and

a decent A&. #n this occasion e decide to move our sto! break+even G, define T>2 andlet it run.


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Trade 1 L/)E

0ince !rice sliced through our T>2, e decide to move our sto! to T>2 and let it run.ooking for the !rice to hit the bottom demand or at least come bit more close to it.

Trade 1 LE)E

-e ere !roven to be right on this occasion. -ith !atience and ithout unreasonablefear e have managed to ma*imie our gain by sensible trailing. -e !ut our third and


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final target just off the demand one to ensure 6uick e*it. Often !rice can mess aroundbefore hitting the actual one.

0ome may ask hy that bull engulfing candle !attern on the ay don didn"t ork.ook at here it formed8 Bo you see any decent one around there8 4esides, e !ut offfrom our entry radar levels beteen the su!!ly and demand ones e decided to trade.Alease note that not all !rice movement as straightforard as the above one. That"s hy

it"s very im!ortant that hen e catch a nice o!!ortunity e don"t aste it ith!remature e*its.

Trade 1 is #losed with 29 $i$s gain'


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Trade 2)

#n accordance to our Risk Arofile and dirt sim!le trading !lan e take the buy in thedemand one. Our sto! orks out to be just outside of the demand one hich is ideal.

'o, there are various a!!roaches on entries in and around su!!ly and demand ones.0ome enter hen !rice hits the one, some ait and see if the the candle makes it intoone, closes inside the one, or goes through therefore invalidate the one. There areothers ho ait to see if !rice is going to be contained in the one by atching A& togive them some clues.

$ach a!!roach has it"s on advantages and disadvantages. -aiting for A& confirmationmay take some time and it"ll most likely ill ha!!en outside the one thus increasingsto! !i!s count. Of course it"s still not guaranteed it"ll ork. On the other hand taking thetrade hen !rice hits the one ill reduce our sto! !i!s count but e do not have anyindication or clue if it"ll be contained ithin the one or not.

#n my case # do not subscribe to any !articular one. # use all of them de!ending on theone and ho !rice travels, the s!eed !rice hits the one. The above is a good e*am!le offor the first a!!roach. -e have a fresh fairly strong looking one hich is establishedith an engulfing bull candle and hitting the one ith fairly big 91 candle.


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Trade 2 L2)@

&s you can see !rice hit our T>1 nicely. #nstead of closing e e*!anded our T> to aboutfrom JD !i!s to 12D !i!s and moved our sto! to break+even G 1N !i!s. Our T>2 is almosthit but not 6uite. 0ince e moved 4$ to !lus 1N !i!s e can afford to ait and see.

&ll looking good so far. -e locked our trade. -e are fairly safe. -e on"t be taking anyloss on this trade unless something une*!ected ha!!ens or e leave this trade like thisover the eekend and market ga!s don to ell belo our entry !rice.

Trade 2 L()@


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T>2 also hit ith a nice big bull candle. #nstead of closing e decided to trail. Moved T>further u! and moved our sto! to break+even G 122 !i!s.

-e could have moved our T> further u! but notice the left bo*ed dirty !rice action one.-e don"t ant to get involved in any dirty !rice action. #t"s best to take hat e have:once hit the dirty one; and run. #f T>( hit e"d be achieving over @51 reard ratio. 'o!oint getting greedy. #f it slices through the dirty one so be it. -e"ll ait for the ne*to!!ortunity.

&s this trade is fairly secured, e may go ahead and look for another trading

o!!ortunity on another instrument.


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1E

Trade 2 L@)@

T>( is hit comfortably and Trade 2 #losed with 1: $i$s gain'

There is a nice bear engulfing candle in dirty one hich established a ne su!!ly one.-hy didn"t e take a sell order around there. -ell e already decided e"ll only tradeclean and strong ones.

-hat about that current bull engulfing candle then. &re e not going to trade it8 Yes eould consider this buy after a good engulfing bull bar around !revious s!ike.

&dditionally, !rice has been bounced from fresh demand and not reached any serioussu!!ly yet. 9oever, e cannot take this buy trade as sto! ould be bigger than ourRisk Arofile allos us. -e need to ait for the ne*t candle and see if it"s going to come toithin our @D !i!s range.


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1K

Trade ( L1)1

nfortunately, !rice didn"t come don enough to allo us enter ith a ma*imum @D!i!s sto! as defined in our Risk !rofile in fresh demand one. 9oever, e took a sellorder in fresh su!!ly one ithout aiting candle finish or A& config. &ll as good otherthan amount of time !rice took to reach su!!ly one.

&s you can see it hit our sto! and this Trade - #losed with $i$s loss'


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Trade @ L1)/

& ne one established at ne high ith an bear engulfing candle. #f the risk is small,nely established one looks attractive, looks a orth try. -e ill have to ait and seehat kind of risk level it"ll offer on the ne*t candle.

Trade @ L2)/

-e have our entry ith bit loer than our ma*imum sto! of @D !i!s


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Trade @ L()/

#nstead of closing e decided to trail as the candle folloing the one hit the targetorked out nicely. 0o, e moved the sto! to T>1. ocked our JD !i!s gain and movedthe T> further don.

Trade @ L@)/

&gain instead of closing e decided to trail. 0elling !ressure looks 6uite !romising.&lready sliced through a minor ranging one and gunned into bigger one. Becided to gofor the full monty by moving target all the ay don. 9oever, this doesn"t mean eill not kee! trailing at reasonable distance.


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2D

Trade @ L/)/

Target hit on eaker demand one. Trade #losed with $i$s gain'

&re e going to buy here8 'ot as yet. #t"s a eak demand one and e don"t see anyconvincing A& as yet. 0o, e ait and see.


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Trade / L1)(

'o e have our bull engulfing candle. Only donside is it"s on a eak one. -e can nottake the entry as yet. Arice is ell out of our sto! range.

Trade / L2)(

$ven though A& and levels have some arning signs for buyers e ent ahead andbought it. Managed to reduce sto! sie to 2K !i!s. 0ometimes e like to go against allodds. #ts just !art of our self destructive !sychology. Commonly knon as devil in us.


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Trade / L()(

0to! is hit. Trade is #losed with 2: $i$s loss'

oer main one hit. -e have to remember it"s no longer fresh one. This is the secondvisit. -e cannot enter a buy. #t"s outside of or sto! range.

0ince the loer demand as not fresh e decided to ait and see the finish of the bigbear candle. $ventually, it took out loer demand. $stablished ne su!!ly one andselling !ressure is still on.


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Trade E L1)(

$ven though it"s a minor su!!ly e take the sell trade almost ithin the one. -e couldhave sold bit higher and therefore reduce our sto! amount but e anted a bit of A&confirmation. & eak but some indication that sell is still on. -e had better indication asto here !rice may be heading on the near left. 'ote those big engulfing bear candlesithin)around the su!!ly one.

0ome call it !revious demand one turned into su!!ly one. That"s a bit too techie forme. The fact is that sellers are in charge as e can see on the chart. &ll the remaining

buyers from the origin of the demand one already used their buying !oer andremaining ones are asted at subse6uent visit.

&dditionally orth noting that e see on the charts ne loer highs and to demandones are taken out ithout much difficulty. $s!ecially the loer main one taken outith such a eal that e need to take notice of heavy selling !ressure. -hat this meansis that selling the !eaks may be better o!tion than buying in minor demand ones.

Trade E L2)(


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-hen T>1 is hit, e moved our sto! 4$GN and T>2 to 11J !i!s. -e let it run% trustingour analysis about heavy selling. -e could have taken ell over 12D !i!s ith furthertrailing but let it run and it"s almost hitting our sto!.

Trade E L2)(

On this occasion e got back !revious lo, but sometimes !rice takes the sto! by acou!le of !i!s or so. ?or those ho cannot handle frustration hen such thing ha!!ensbest to trail more closely or close the !osition hen T>1 is reached.

Trade 6 #losed with 29 $i$s gain


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2/

Trade K L1)@

-hy e took this long entry hen e ere convinced there are heavy sellers and eresaying best to sell !eaks. Arice created a form of ga! and hit the rejection !oint. Thisknoledge may be out of the beginner"s domain. 0o, lets just say e see heavy selling u!to a certain !oint then rejection. 0ince it fits to our sto! range e ant to try this nelyestablished one.

Trade K L2)@


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2E

3ust short of our T>1. #t looks turning against us. -e don"t ant the inning trade toturn into a looser so e moved sto! to 4$G1D.

Trade K L()@

0ince e have a nice bull candle it ould be shame to close here rather than trailing. 0oe move the sto! to T>1 and T> e*!anded to T>2 for 1ED !i!s.

Trade K L@)@


27/43

2K

T>2 is hit and decided to close due to !rice structure on the left. Trade : #losed with16 $i$s gain'


28/43

2J

Trade J L1)K

0ince e already have a su!!ly one just above, e have decided to go ith the nelyestablished su!!ly one just belo the e*isting one.

Note: +onventional suppl& and demand tradin' method advises us to %ait for the price tovisit the established )one before enterin' the trade. ,he reason for this is that establishin' )one usuall& ta-es more than a couple of candle. o%ever" in this e*ercise %e have beenta-in' trades ust after a )one created. We 'o in earl& if %e see attractive P0 %henestablishin' a )one. 0nd of course %e al%a&s -eep left of the chart under constant

observation. We loo- at left and trade the ri'ht .

Trade J L2)K


29/43

2N

Trade is develo!ing nicely. T>1 is hit. #nstead of close e have moved sto! to 4$G2N!i!s and e*!anded the target all the ay don to near demand. 'o e are targetingjust over 2/D !i!s. #t ould be real nice if e get it. That ould be over 15E reard ratio.

Trade J L()K

-hat the heck.. 0ince !rice moving nicely in our direction e have the o!!ortunity tomove sto! to our T>2 and let it run. 9eavy selling !ressure. -e kno overall marketdirection is south :don;. The donside is if it turns from here e"d be loosing a buyentry in demand one.


30/43

(D

Trade J L@)K

Bemand is taken out ith ease. -e have locked 15K reard ratio by moving our sto! bitfurther don. 'o e can sit and rela*. et the !rice do it"s thing. 0ee hat else it mayoffer. &t this !oint it doesn"t matter a bit if it turns and hit our sto!. #f it doesn"t then emay be onto something bigger here. 9oever, e ill still trail it at a reasonabledistance.

Trade J L/)K


31/43

(1

Run is still on. -e have no rush to e*it. -e just have to kee! our greed in check here andlet the !rice do it"s thing. &fter all e don"t catch such moves every day.

Trade J LE)K

Traders ith enough screen time ill kno that once !rice hits an im!ortant!sychological level it"s bound to react. -e are trading $R)0B and it hit sub 1.(D. etsassume e are ne and not familiar ith such stuff. 0o e leave our trailing as it"s atE/2 !i!s.

Trade J LK)K


32/43

(2

&s e*!ected bounced from ne territories of 1.2N. Our sto! is hit. Trade ; is #losedwith 62 $i$s gain'


33/43

((

Trade N L1)@

-e have missed the loer demand hile aiting for our !revious trade. Becided toenter a long on u!!er demand. Couldn"t take !revious hits as it as not in range of oursto!. &s you can see our initial T> is already hit. 'ot closing it. Moving sto! to 4$G ande*!anding the T>.

Trade N L2)@

-e ill start trailing here as e don"t ant to give back most of our gains.


34/43

(@

Trade N L()@

0ince it took out !revious highs e kee! trailing it. &lready secured about 2J2 !i!s. etsee if market is illing to give us more.

Trade N L@)@

Closed here manually after seeing rejection and es!ecially engulfing bear candle. Trade9 #losed with -: $i$s gain'


35/43

(/

Trade 1D L1)(

-e couldn"t take the sell order as it as just outside our sto! range by 1 or 2 !i!s. -ejust cannot say hat"s 1 or 2 !i!s. -e could take that sell. ook ho it orked fine. Yes,but e cannot com!romise on our Risk !rofile. Once it"s defined e must kee! it"s rulesto the !i!s, until e decide to ork out a ne one. -e just cannot ork out a ne RiskArofile to fit in our current trade. 0o best is too kee! it if it"s orking until it doesn"t overa !eriod of time. Bisci!line must be there at all times.

-e enter a buy order in nely established demand one ith smaller sto! than our

ma*imum.

Trade 1D L2)(


36/43

(E

#nitial T> is hit. &gain instead of close e started to trail by moving sto! 4$G(/ ande*!anding the T>.

Trade 1D L()(

nfortunately, on this occasion !rice didn"t go in our direction. #t hit our sto!. Trade 1is #losed with - $i$s gain'

Now that we ha5e finished or 1 trades8 lets ha5e a look or $i$s and time

in5entory'


37/43

(K

0tarted on 1/ Oct 2D1D?ished on N Bec 2D1D'early 2 Calendar Months

o Trade 1 is closed ith 2ND !i!s gaino Trade 2 closed ith 1KD !i!s gaino Trade ( closed ith @D !i!s losso

Trade @ closed ith @D/ !i!s gaino Trade / is closed ith 2K !i!s losso Trade E closed ith 2DN !i!s gaino Trade K closed ith 1ED !i!s gaino Trade J is closed ith E/2 !i!s gaino Trade N closed ith (DK !i!s gaino Trade 1D is closed ith (/ !i!s gain

Gained $i$s #ont) 222;

7ost $i$s #ont) 6:

444444444444444444444444444444 rail of Trading.


38/43

(J

Risk %rofile

Creating yor own Risk %rofile

Ris- +omes rom 2ot 3no%in' What 4ou 0re Doin' 5 Warren Buffett

# already have tried to highlight the im!ortance of Risk Management in The Holy Grailof Trading 4 Risk (anagement article !art 1. 'o !oint to re!eat it here but allo meto re!eat just a bit. The first task of any new traders mst 3e to master riskmanagement , not ho to identify best !ossible entries. 0ure, it"s im!ortant too butbefore having full understanding and a!!lication of sond risk management , it"s !rettyuseless.

#t may be beneficial to build a clear understanding of R#0o on and make bit of research andreading about risk. -hat is it8 9o can e identify !ossible risks8 9o can e managerisk8 'othing serious or detailed. -e are not trying to rite an academic AhB !a!erhere. 3ust trying to build a clear understanding of Risk

The most im!ortant !art of your trading !lan is Risk Management. There are manybooks have been ritten about the subjects, but at the starting !oint you don"t need togo into too much details. nderstanding basics of Risk Management and im!lementingith disci!line ill go long ay.

Risk management itself is a general subject. 9o do e use it. 9o do e im!lement itso that it"s a!!ro!riate for our !ersonal situation8

We define a ?Risk %rofile? of or 5ery own'

-hat the heck is Risk Arofile8 # thought it"s called Money Management in trading.

Money is just a tool. #n order to gain more money, e need to do something. Thatsomething is not straight forard. -e may do !lenty something but still end u!loosing money even though hen e are trying to gain. That"s hen the Risk comesinto the e6uation. $verything e do involves a certain degree of risk. Then the key for again + achieving our objective + is ho ell e identify and manage risks. &re e goingto jum! over a fence ithout knoing hat is on other side of the fence just because ecan do8 On the other side may be a cliff, shark !ool and so on. Bo you still ant to jum!8


39/43

(N

ets carry on ith our fence e*am!le. #f e are unable to see hat"s on other side of thefence and e really like to jum! over it. -hat e should do8

1.

?irst thing to gauge ould be, if e are able to jum! that fence. -hat"s the heightof the fence8 #s it ithin our ca!abilities8

2. &ssuming the fence height ithin our ca!abilities of jum!. -hat"s ne*t8 -e can

just take risk and jum! ith the feeling of being lucky.

(. -e can try to find hat might be on the other side by !erha!s throing !iece astone and listening the sound, trying to find a little hole to see the other side,trying to find ladder or something similar to claim and see the other side and soon. #f and hen all our attem!ts to gain information about the other side fails,then best course of action ould be not to go ahead ith the jum! and findanother fence to jum! here e are able to gather information about the otherside to minimie our risks. The fen#e that@s #om$ati3le with or ?Risk %rofile?

The above item 1 refers to our !ersonal Risk Arofile hile item ( em!loying our RiskArofile in a !ro!er manner + knoing basics of trading such as su!!ly and demand,!rice action and screen time. -ithout having the 1st item in !lace majority of ourattem!ts of jum!ing likely to fail. >oing ith the item 2 ill save us from some collateraldamages but small damages adds and they can translate into big one eventually. 0o, edefinitely need the item ( to com!lete our !ule.

Risk Arofile is like any other !rofile. -e detail our ca!abilities in realistic manner andact ithin our ca!abilities. #n terms of trading e define the ca!abilities of our account +ca!ital and restrict our trading activities ithin defined ca!abilities.


40/43

@D

What do we in#lde in trading Risk %rofile& How do we define $t in a#tion or

own trading Risk %rofile&

1' "e#ide and define what le5els of Risk)Reward *R)R+ ratio will yo 3e

working with&

?or every H e risk in a trade ho many dollars do you ant to gain. # use the ord gaininstead of in as e on"t be !laying lottery or black jack. # like to think that there arebit more to trading com!are to gambling. The more risk factors e take out from ourtrading activity, it becomes less of gambling. Your risk reard ratio should be at least 1to 2. Means every dollar you risk you ant to gain 2 dollars. 0ome may ask hy so high8There are many successful businesses o!erating on say 2DF return.

Trading is not like any other ordinary business. #t"s very high risk business. ?or e*am!le,you may be in business of buying and selling used cars. -hen you buy a used car for 2<ith e*!ectation of selling it for 2./< you"d be risking 2< to gain D./estion # tend to get hen talking about risk reard ratio. #t"s all finedefining defining risk5reard ratio but ho do e kno our entry has enough room tocom!ly ith !re+defined R5R value8 -e don"t but if e have some basic knoledge of


41/43

@1

reading charts, using su!!ly and demand e ill have some idea about !ossibilities.&gain, !lease note, not absolute but !ossibilities. et me try to illustrate5

Alease understand this, the area marked as clear distance on the e*am!les abovedoesn"t mean !rice ill alays travel to ne*t demand or su!!ly one hen e take thetrade. #t may sto! and turn before reaching our desired destination or it may go throughour destination. -e are only orking ith !robabilities here. &ll e can do is toim!rove !robabilities in our favor ith knoledge and e*!erience e have. 'othing issure in highly s!eculative financial markets. #f e add the mani!ulation as!ect into thismi* our task of trading successfully become even more harder. #f you ere thinkingTrading in ?inancial markets is an easy ay of earning a living and !erha!s more, then!lease allo me kindly warn you by saying Think again.

2' What@s the ma0imm $er#entage of or a##ont we are willing to risk on anyone or more trade/s&

'e*t thing to define is to risk !ercentage. #n other ords your ma*imum e*!osure tomarkets. #t"s strongly advised to kee! the F risk value 6uite lo. 0ure, nobody forcingyou to kee! it lo. You can have very high e*!osure. You can risk /DF of your accountca!ital if you ant to. #f you take such a high risk in a high risk business it"ll only taketo consecutive loosing trades to blo your account. #t"s acce!ted and !racticed bymany successful traders ma*imum amount risked at any one time should be /F or


42/43

@2

loer. A wold strongly ad5i#e to new traders to kee$ risk $er#entage 2, or$refera3ly 3elow. Order of the day is to !reserve your trading ca!ital so that you canhave chance to fight another day.

-' What@s the ma0imm $osition si.e we #an se&

' An terms of $i$s 5ale what@s the ma0imm sto$ we@ll 3e sing&

&nser to the to 6uestions above ill be !rovided by our defined Risk5Reard ratioand Risk !ercentage. -e do not take an subjective value. ets try to ork out our!osition sie sto! values ith an e*am!le5

ets assume e have a 1D< round figure account and it"s in 0H. ?or this e*am!le letsassume e have defined our Risk5Reard ratio as 152 minimum and trading ca!ital risk!ercentage as ma*imum 2F -ith these definitions e can easily find our !osition sieand sto! values. 2F of 1D< is H2DD. #n terms of monetary value e cannot take any tradere6uiring more than H2DD risk at any one time.

'e*t thing is to translate it into !i!s so that e can easily identify our risk in terms of!i!s hen e !ut our sto! loss. #n $R)0B !air H2DD is about 2D !i!s less s!readcharge. :1 $R)0B !i!s I H1D; 0ay our broker s!read charge is 2 !i!s on average. Thenhen e take a trade ith standard lot e can only take 1J !i!s sto! loss. nless, youare scal!ing ith tight sto! loss, 1J !i!s sto! ill not be sufficient enough. That"s hy #advice traders ith such small account ork on your !osition sie, use mini lots ratherthan standard one.

This brings us to !osition siing. -ith 2F risk, using 1D< account, 1J !i!s sto! ill notbe sufficient enough to trade using standard lot sie. Consider this, you s!ot a nicelooking entry o!!ortunity but it re6uires (J !i!s. -e cannot take this trade usingstandard lot sie, if ere to stick ith our Risk Arofile.

-e still can if e anted. -hat e do is, e adjust our !osition sie. #nstead of using 1standard lot sie e use half lot :D./ !i!s I H/; (J !i!s * H/ I H1ND. 9ang on, e said ourma*imum risk value e6uals to H2DD. Yes e did but e also said our broker"s s!readcharge is 2 !i!s hich e6uals to H1D in case of using D./ lot sie. Remember, as soon asyou o!en a trade you start ith minus figure as broker charge their s!read in advance.

&s you can see anser to the 6uestion number @ above can be fle*ible as long e areilling to adjust our !osition sie. What we do not adBst is our defined risk$er#entage. #t ould not be 6uite correct to have a rule in our Risk Arofile such as # illuse ma*imum of (D !i!s sto! and so on unless, e !refer to ork ith fi*ed sto! valueas long as our sto! value ithin our defined risk !ercentage.

ps/ $ have used a fi*ed ma*imum 6! pips stop in 9,he ol& :rail of ,radin' ; Ris-


43/43

#t"s alays a good idea to use break even :4$; 'othing orse to see letting a !ositivetrade turning into a negative one. -hen e move our sto! to 4$8 The anser illde!ends on our trading style and !rice action. -e need to avoid getting our 4$ hit6uickly by moving our sto! hen !rice is fe !i!s aay from our entry. Trailing isalays a good idea. -e may end u! leaving some big or small !i!s on the table but if it"sdone correctly, it"ll save us some e*tra !i!s and enable us to ride most of the move inour favour.

6' What time frame will we 3e trading&

#t"s not im!ortant for e*!erienced trader. 9oever, for beginner, it is best to stick highertime frames such as 9@. 'othing rong checking loer time frames to identify A&structure and better entry !oints but best to base our entry decision on higher timeframes. Regardless, e trade or not on them but alays need to check daily and eeklycharts to have a better vie about overall sentiment of the market.

supply demand guide

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