On this GBP/USD daily chart, you can see two different supply zones marked
A and B. Supply zone A had a fast move away from it marked as 1, and a
fast move back into it marked as 2. This would lead us to believe that
when we left the zone again, the apparent supply imbalance would cause
a sharp move - labeled as 3. Since leg 2 took so little time to move
back into that supply zone, this would lead us to believe that very
few supply and demand zones could have formed on smaller time frames
to slow down leg 3.
Now, let's look at the difference at supply zone B. Notice how the angle
of departure is much flatter than the angle of departure from supply
zone A. Also, notice all the "waves" in the market as price moved away
in leg 4. Each one of those waves has its own smaller levels of supply
and demand associated with it. In leg 5, price action moved into the
supply zone, but again there were several waves that happened on that
move up. This would lead us to believe that the second move away from
zone B would be slow. Now, compare the distance of leg 3
versus leg 6. With the higher quality supply zone A, leg 3 moved past
the origin of leg 2! See how far leg 6 went down compared to leg 5? It
could only retrace about 50% of leg 5. Obviously, you could have still
made many valuable pips shorting at supply zone B, but we are focusing
on the quality of these two zones.
So, what are the take away from this lesson? First, define
zones far enough apart that fit your trading style and plan not
every zone is worth it to you! Second, choose the higher quality zones
by grading them by departure and arrival speed. This will allow you to
take the higher quality/probability trades, with lower risk and higher
reward. Always remember that we get paid on the quality of our trades,
not the quantity.
Risk is one of the most important parts of trading that we must master if
we are to have a long consistent trading career. A popular saying in
the markets is, "Take care of your losses and the winners will take
care of themselves." Unfortunately, this is often overlooked by the
masses as the statistics of successful trading are rather low. You
need to emphasize good risk management as much as
we show our students core strategies to give them a better chance of
success so as not to become one of these statistics.
Many traders start out investing in the stock market with a
cash account. This is very beneficial because in a cash account you
can only lose the amount you have in your account. With a leveraged
account, as in the Futures
markets, you can lose more money than is actually in your
trading account. For example, if the mini-S&P is trading near 1200.00,
then the contract is valued at $60,000. As Futures traders, we are
currently required to have $5,000 per contract in our account to hold
a position overnight. This means there is a $55,000 difference and we
as traders are technically responsible for any portion of that amount.
With today's technology and risk servers at the Futures Commissions
Merchants (FCM) where our funds are deposited, the odds are low for
having to pay the full contract value, but then again, anything is
possible with the chaos in the world today. By always managing your
risk first, you will have a much better chance of surviving as a
trader. One of the first things I look for when I enter a trade is
where I am wrong (my stop). This is the only thing I can control other
than my entry price. There is no way I am going to make the market go
to my profit objectives so I must first manage what I can control.
Then I can attend to setting profit objectives.
Forex web site that helps you trade the forex currency
market. If you trade the Forex markets or want to learn how to trade
you need a good web site that helps with forex news and information.
A good forex web site will provide you with daily news in the currency
markets since it is a 24 hour market. This will help you decide when
to place short term forex trades. One of the things I find helpful is
make a list of the news times that break each week. Most good forex
web sites will update daily on the news and when important news is
released. One such news event is the U.S. non farm payroll which has a
big effect on the forex market. Forex web sites will project what they
think the report will say and what trades will be effected but the
news.
Most Forex broker
sites have a news feed that comes along with the trading
platform. This is very helpful if your a short term forex trader. It
is important that the FX site has live updating charts in many of the
world's currencies. Remember that there are different time zones to
deal with in the market. Each site is different but most of the forex
sites will show the different time zones and when they are most active
in trading. The site should have a currency converter this can be very
helpful.
Another good resource to look for is a daily calendar that
shows the times of the forex news release and what time zone it is in.
The site should give FX news that is relevant to the FX market not
just news releases but general information on the world banks and
different forex brokers.
Most web sites also include charting tools to calculate pivot points and
support and resistance areas for different currency pairs. Sites such
as Bloomberg and fxstreet are excellent at helping the Forex trader
learn how to trade the currency markets. The forex site should have a
forum and live chat room with active traders to help in making your
trading decisions.
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