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 holds firm near 1.1850 amid USD weakness
EUR/USD remains strongly bid around 1.1850 in European trading on Monday. The USD/JPY slide-led broad US Dollar weakness helps the pair build on Friday's recovery ahead of the Eurozone Sentix Investor Confidence data for February.
GBP/USD holds medium-term bullish bias above 1.3600
The GBP/USD pair trades on a softer note around 1.3605 during the early European session on Monday. Growing expectation of the Bank of England’s interest-rate cut weighs on the Pound Sterling against the Greenback.
USD/JPY keeps the red below 157.00 on intervention risks
The Japanese Yen sticks to its modest intraday recovery gains against a broadly weaker US Dollar on the back of speculations that authorities will step in to stem weakness in the domestic currency. In fact, Japanese officials stepped up intervention warnings and confirmed close coordination with the US against disorderly FX moves. This, in turn, triggered an intraday USD/JPY turnaround from the 157.65 region, or a two-week top, touched in reaction to Prime Minister Sanae Takaichi's landslide win in Sunday's election.
Editors’ Picks
EUR/USD holds firm near 1.1850 amid USD weakness
EUR/USD remains strongly bid around 1.1850 in European trading on Monday. The USD/JPY slide-led broad US Dollar weakness helps the pair build on Friday's recovery ahead of the Eurozone Sentix Investor Confidence data for February.
USD/JPY keeps the red below 157.00 on intervention risks
The Japanese Yen sticks to its modest intraday recovery gains against a broadly weaker US Dollar on the back of speculations that authorities will step in to stem weakness in the domestic currency. In fact, Japanese officials stepped up intervention warnings and confirmed close coordination with the US against disorderly FX moves. This, in turn, triggered an intraday USD/JPY turnaround from the 157.65 region, or a two-week top, touched in reaction to Prime Minister Sanae Takaichi's landslide win in Sunday's election.
Gold remains supported by China's buying and USD weakness as traders eye US data
Gold struggles to capitalize on its intraday move up and remains below the $5,100 mark heading into the European session amid mixed cues. Data released over the weekend showed that the People's Bank of China extended its buying spree for a 15th month in January. Moreover, dovish US Fed expectations and concerns about the central bank's independence drag the US Dollar lower for the second straight day, providing an additional boost to the non-yielding yellow metal.
Cardano steadies as whale selling caps recovery
Cardano (ADA) steadies at $0.27 at the time of writing on Monday after slipping more than 5% in the previous week. On-chain data indicate a bearish trend, with certain whales offloading ADA. However, the technical outlook suggests bearish momentum is weakening, raising the possibility of a short-term relief rebound if buying interest picks up.
Japanese PM Takaichi nabs unprecedented victory – US data eyed this week
I do not think I would be exaggerating to say that Japanese Prime Minister Sanae Takaichi’s snap general election gamble paid off over the weekend – and then some. This secured the Liberal Democratic Party (LDP) an unprecedented mandate just three months into her tenure.
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