Brandon Wendell, CMT
Brandon Wendell
I wanted to continue with last week’s discussion on whether we should allow our trades to play out or exit them before the stop is triggered. I remember a discussion I had with Sam Seiden about price movement into supply and demand zones.
Sam and I were discussing trade entries and price movement into a supply or demand zone. For those of you who follow Sam regularly, you will know that he prefers “set it and forget it” type of entries to trades. This allows a trader to preset their orders, (entry, stop, and target), before the entry price has been met. It also means that the entry will occur when price just reaches the proximal line of supply or demand.
Sam chooses strong supply and demand zones for entry based on the rules and core strategies taught in our courses at Online Trading Academy. When the zones are that strong, price will not move into the zone deeply but will bounce just as it reaches it.
I take many trades in that same manner. But as an intraday trader, I have the ability to watch price action as it is happening. I will usually wait until price enters into the supply or demand zones before entering manually into a trade. This will let me enter at a better price that will do three things for me:
The profit will be larger as the entry is lower in demand or higher in supply
The risk will be smaller as the entry is closer to the stop
The trade has some confirmation due to visual confirmation of the trend change
One of the things that Sam mentioned is that if the level is strong, then price should not penetrate the supply or demand zones very deeply. This is a factor for me when analyzing my trades or even deciding whether to enter a trade. I like to enter trades inside the zone but want to see the price barely move into the zone before entry. The deeper it moves into the zone, the less likely I will be to enter.
Unfortunately, there is not a set measurement as to how far is too far for price to move into the zone. I generally do not want to see a penetration of more than 50% but that is a guideline and not a rule. The best thing to do is to get to know your securities that you trade and see what price movement usually leads to a reversal or continuation. Stocks will have certain “personalities.”
These are traits that occur on a regular basis and becoming familiar with them can lead to greater success in your trading.
Learn more about the core strategy at one of Online Trading Academy’s courses. Visit your local center today and see how you can improve your trading success.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD climbs to daily highs near 1.1820
EUR/USD now picks up pace and advances to the area of daily peaks north of the 1.1800 barrier at the end of the week. The pair’s decent move higher comes against the backdrop of a generalised lack of direction in the FX galaxy and the mild offered stance in the US Dollar.
GBP/USD trims losses, retests 1.3460
After briefly challenging its key 200-day SMA near 1.3440, GBP/USD now manages to regain some balance and revisit the 1.3460 zone on Friday. Cable’s pullback comes as the selling pressure on the Greenback gathers traction, reigniting some recovery in the risk-linked space.
Japanese Yen gives back half of early gains against USD ahead of US PPI data
The Japanese Yen (JPY) surrenders half of its early gains against the US Dollar (USD) during the European trading session on Friday. The USD/JPY pair rebounds to near 155.90 as the JPY falls back, but is still 0.15% down.
Editors’ Picks
EUR/USD: Fed calm, ECB steady, but the Dollar still leads Premium
EUR/USD is still struggling to find real traction. The pair has tried to stabilise, but momentum keeps fading, leaving the door open to further weakness.
Gold: Falling US yields, geopolitics help XAU/USD hold ground Premium
Gold (XAU/USD) gained traction and climbed above $5,200, ending the fourth consecutive week in positive territory. The next round of US-Iran talks and crucial macroeconomic data releases from the US will be watched closely by market participants in the short term.
GBP/USD: Will Pound Sterling defend key 1.3450 support ahead of US jobs data? Premium
The Pound Sterling (GBP) entered a bearish consolidation phase against the US Dollar (USD), after having tested critical support near the 1.3450 level on several occasions.
Bitcoin: Another month of losses, and it’s been five
Bitcoin (BTC) price is stabilizing around $68,000 at the time of writing on Friday, but the Crypto King is poised to close February on a fragile footing, marking its fifth consecutive month of losses since October and a rare start to the year with back-to-back monthly corrections.
US Dollar: At a crossroads; Fed steady, tariffs in flux Premium
The US Dollar’s (USD) upward momentum from the previous week seems to have encountered a tough nut to crack in the 98.00 region, as measured by the US Dollar Index (DXY).
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