Supply and demand trading course

Trading tactics
Trading tactics example 1

Supply and demand

Trading tactics example 1

LESSON 56 MODULE 11

You have probably just spent several days or

weeks reading through this price action trading
course, you have seen the various concepts I
put forward, I have disclosed my trading
mindset, all my wisdom and knowledge, you
know all my tools and all my price action entry
method. Now you have one of the most
powerful trading methods based on how banks
and financial institutions trade the market.

In this lesson, we will try to apply all the

knowledge that I shared with you, so you will
understand how to approach your trade step
by step by following rules and strategies we
discussed in previous lessons. Let’s start by
the first trade’s example below:

Look at the AUD JPY H1 chart above, as you

can see there is a very strong move that
attracts our attention, this move cannot be
made by retail traders, this move is certainly
the result of a bank or a financial institution
order. So, we are in front of a powerful
demand zone. The first thing that we should do
is to draw the zone. Look at the chart below:

As you can see on the chart above, we

identified the beginning of the move to spot the
basing candle, in this example, the tweezer
bottom was the basing candle.

So, we draw the proximal line which is the

closest line to current price at the close of the
bullish candle, and the distal line at the close
of the bearish candle. The result, we get a nice
demand zone.

This is not quite enough to take our trade, this

is only the first step, the next step is to
evaluate the zone and see if it is worth our
hard-earned money or not. Look at the chart
below:

This is the AUD JPY H1 same chart, as you

can see, we identified a good demand zone.
But we need to evaluate it and see if it is a
valid zone or not. These are the following
factors that we took into consideration:

-The beginning of the move: as you can see

the move was strong and quick, and the
market didn’t spend too much in the zone. This
indicates that the order was placed by a big
bank or a financial institution.

-The candle size of the zone: the candle size

is big and showed that the buyer invested too
much quantities to push the market to go
higher in a very short period of time.

-The breakout of previous resistance level:

the strength of the move was confirmed by the
breakout of the previous resistance level.

-The freshness of the zone: as you can see

the zone is fresh, and it will be tested for the
first time.

These factors help us evaluate the strength of

the zone, because we can’t trade any zone
that we find on our chart. But what about the
risk to reward ratio? let’s see how we calculate
our risk to reward ratio:

As you can see on the chart above, by

comparing the risk and the reward, we can
clearly see that the trade has a good potential
and provides us with a good risk to reward
ratio. This is only the first impression that we
got from looking at the chart. But to be able to
calculate the risk to reward ratio, we need to
wait for a confirmation pattern that forms in the
demand zone.

Another factor of confluence that makes the

trade setup more attractive is the 61.8 golden
ratio, if we use the Fibonacci retracement, we
can see that the area is a golden zone that
holds the magic Fibonacci ratio. See the
illustration below:

As you can see on the chart, by using

Fibonacci retracement, we found that the area
of demand is a golden zone because it holds
the golden ratio. So, this factor of confluence
will give us more confidence in this trade.

Now let’s move to the top down analysis and

see if the zone is in line with the trend or
against it, let’s see the daily chart below:

As you can see on the daily chart, which is the

higher time frame of the hourly, the market is
trading down, so the trend on higher time
frame is against our trade on the H1 time
frame. what should we do in this situation?

In this situation we have two options:

-To ignore the trade if the zone is not strong

enough

-To take the trade against the trend if the zone

is very strong, and we have an obvious
candlestick pattern signal.

In this case we should take this trade even if it

is against the trend because the zone is very
strong, look at the move and the candle size
the both shows the strength of the zone. And
the risk to reward is attractive as well. Besides,
the zone holds the 61.8 golden ratio which
makes it stronger. But we need to wait for an
obvious candlestick pattern signal to confirm
our entry. Let’s go back to our trade to see
what happened:

As you can see, when the market approached

the demand zone, we noticed that the price
was rejected from this area, this means that
sellers found a powerful level and couldn’t
break it. The tail of the both candlesticks show
us how sellers were rejected from the demand
zone.

-The first breakout of the demand zone was

another indication that shows us that sellers
were a victim of a bear trap. And this
manipulation or what we call it “false breakout”
is always made by banks and financial
institutions to trap traders, hit their stop loss
and then go in the opposite direction. This is
what happened in the chart above.

-We have a pin bar candlestick pattern that

formed in the demand zone and indicates the
beginning of a buying pressure. That’s what
we were looking for. This candlestick pattern
confirms our entry. See the chart below:

As you can see on the chart above, the

formation of this candlestick pattern confirms
our entry and encourages us to place a buy
order. So, we place our entry at the close of
the pin bar. The stop loss should be placed
below the tail of the red candle. And the profit
target is the next supply zone. See how we
calculate our risk to reward ratio below:

As you can see in the chart above, we use this

simple formula to calculate our risk to reward
ratio:

The risk = The Entry Value -The Stop Loss

Value

The Reward = Profit Target -Entry Value

So, our risk is 25 pips and our reward is going

to be 83 pips which represents 3:1 risk to
reward ratio. After you calculate your risk to
reward ratio, you need to adjust the amount of
pips that you are going to risk to the
percentage of your trading account that you
risk per trade.

Let’s say you have a 10,000-dollar trading

account, and you risk only 3% per trade. That
means, your risked amount of money per trade
is 333 dollars which is 3% of your trading
account.

Now let’s adjust the 25 pips risk to 300 dollars

to see how many dollars we will risk per pip, so
let’s do the math 333 dollar /25 pips = 13.32
dollars per pip. Let’s say 13 dollars.

So, in this case, you will risk 13 dollars per pip,

and in case your stop loss is hit by the market
you will lose 25 pips which is 300 dollars. That
means 3% of your account.

If your risk is more than 25 pips let’s say 100

pips stop loss, so you will adjust it to the 300
dollars, let’s do the math: 300 dollars /100 = 3
dollars per pip. So, if the market hits your 100
pips stop loss you will lose 300 dollars which is
3% of your account.

You need to adjust the number of pips you risk

to the 3% or 2% of your trading account that
you will risk per trade, this way, you will not
need to tighten your stop loss in order to avoid
losing too much, because your risk will always
be 3% no matter how many pips your risk.

Now let’s go back to our AUD JPY chart to see

what happens next:

As you can see in the chart above, the market

goes in our direction and makes us 83 pips
profit and provides us with 1:3 risk to reward
ratio. Let’s suppose that you have 10.000
dollars account, and you risk only 3% of your
trading account per trade. Let’s say you took
10 trades this month with 1:3 risk to reward
ratio.

That means when the market goes in your

direction, you win 9% of your account which
333*3 = 999 dollars. and when the market hits
your stop loss you lose 333 dollars.

Let’s say you took 10 trades this month, and

you lost 7 trades, you only won 3 trades, so
let’s do the math to see the magic of the risk to
reward ratio.

7 losing trades*333 dollars = 2331 dollars loss.

And 3 wining trade*999 = 2997 dollars profit.

As you can see, even in the worst scenario

when you lose more than 70% of your trades,
you finish the month with over 2997 profit
-2331 loss = 666 dollars.

This is the power of the risk to reward ratio,

and when it is combined with supply and
demand zones, the results will be just
amazing, because the win rate of this strategy
is more than 80%.

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