How to pre-plan a supply and demand trade in a mechanical way

2nd October 2013, 10:47 PM

There are certain variables you need to take into account when planning a trade, these variable's default
values differ whether it's a long or a short trade.

Remember we must PRE-PLAN,every single trade. A manual market execution order is probably driven by
emotions, this is why we have to make a thorough multiple timeframe analysis before planning a trade.
By doing so you will prevent the emotions from taking control of your analysis.

The variables we need to take into account to plan a trade are:

• Entry price. This is the SD level proximal line we plan to trade

• Stop Loss. This is the price that will protect our trade. Always protect your entry by adding a %
wiggle room to your SL (imbalance distal line)

• Targets. These are the price areas where you intend to lock in some profits or exit your trades
entirely

• Entry padding. Percentage of pips/ticks above/below our SD level's proximal line

• SL padding or Wiggle Room. Percentage of pips/ticks above/below our SD level distal line we
need to add to protect our trade from market makers and spread widening (slippage)

You must know where you will be exiting your trade before you open a new trade. By knowing where
to exit your trade before pulling the trigger, you will be making an objective and rational decision ; once
you are in a position you will lose objectivity

It's paramount that you take into account these variables, otherwise you might probably miss many
entries or fall short of reaching your take profit for a few pips/ticks. These variables will be the same for
all instruments since we will be dealing with percentages and not a fix number of ticks, pips or points.

As a rule of thumb use 25% the width of the level as wiggle room instead of a fix pips/ticks for any
instrument. Experience will tell you when to widen it.

This calculation should be done based on the average width of a level on that particular instrument and
timeframe. Remember each instrument is different so using a % rather than a fix number of
ticks/pips/points is more logical.

Below are the percentages you have to use to plan any trade on any timeframe and/or instrument.

These percentages are irrelevant to the markets your are trading, these percentages apply to all
markets, futures, spot Forex, ETFs, commodities, indexes and Stocks.

• Stop Loss Wiggle Room: 25% the width of the imbalance

We must protect our entries with a minimum of 25% padding to our Stop Loss (wiggle room). We
just can't place our SL at the distal of the imbalance we're trading. Often times the imbalance will
be overshot and price will move in your direction but you won't be in the trade if you don't protect
 your SL by adding some padding. If the imbalance is 100 pips/ticks wide, then your SL wiggle room
should be 25 pips/ticks, if the imbalance is 200 pips/ticks then your wiggle room should be 50
pips. The wider the imbalance, the bigger the wiggle room since this padding is a percentage.

• Entry Padding: from 0 to 5% the width of the imbalance + the worst scenario spread
The same concept applies to your entry, but it is optional. Often times price will retrace to your
entry but your broker will not trigger your entry. Why? Because of the slippage (difference
between the bid and the ask price). An imbalance has a range of attraction, an aura, it's advisable
that you add some padding to your entry + the worst scenario spread

• Take Profit (exit): from 5 to 10% off opposing level, unless you have a fix target. Target and Risk
Reward should include every you are risking including SL padding 25%. If your risk is 100 pips +
125 pips, a 3:1 target will be reached at 375 pips not at 300 pips
AUDNZD WEEKLY IMBALANCES
There are three demand zones marked on AUDNZD weekly chart. We must add 25% padding below the
distal lines. The red lines show where the stop losses should be placed approximately. Distal lines of
imbalances [1] and [3] were respected, however distal line of imbalance [2] was overshot AT [4] by a few
ticks and then went in the direction we expected.
COTTON DAILY IMBALANCE OVERSHOT
It's common to see levels overshot by a few ticks and then have price going in the direction we expected.
It's mandatory and crucial to add padding to your stop loss, at least 25-30% of the width of the imbalance.
Daily demand in Cotton chart is about 1.25 points wide, our stop loss should not be set at 76.27 but 30%
lower, approximately 0.36 points lower at the red line.