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: US Dollar to remain pressured until uncertainty fog dissipates
Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.
GBP/USD softens to near 1.3600 as BoE hints further rate cuts
The GBP/USD pair loses ground to near 1.3610 during the early Asian session on Monday. The Pound Sterling softens against the Greenback amid growing expectations of the Bank of England’s interest-rate cut. Traders will take more cues from the Fedspeak later on Monday.
USD/JPY drops back below 157.00 on Japan's verbal intervention
USD/JPY has come under moderate selling pressure below 157.00 in the Asian session on Monday. The Japanese Yen lost ground to near 157.70 following Japan’s ruling Liberal Democratic Party's outright majority win in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi. However, JPY buyers jumped back and dragged the pair southward on FX verbal intervention by Japan’s Finance Minister Katayama.
Editors’ Picks
USD/JPY drops back below 157.00 on Japan's verbal intervention
USD/JPY has come under moderate selling pressure below 157.00 in the Asian session on Monday. The Japanese Yen lost ground to near 157.70 following Japan’s ruling Liberal Democratic Party's outright majority win in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi. However, JPY buyers jumped back and dragged the pair southward on FX verbal intervention by Japan’s Finance Minister Katayama.
Gold eyes acceptance above $5,000, kicking off a big week
Gold is consolidating the latest uptick at around the $5,000 mark, with buyers gathering pace for a sustained uptrend as a critical week kicks off. All eyes remain on the delayed Nonfarm Payrolls and Consumer Price Index data from the United States due on Wednesday and Friday, respectively.
AUD/USD: Buyers eyes 0.7050 amid upbeat mood
AUD/USD builds on Friday's goodish rebound from sub-0.6900 levels and kicks off the new week on a positive note, with bulls awaiting a sustained move and acceptance above mid-0.7000s before placing fresh bets. The widening RBA-Fed divergence, along with the upbeat market mood, acts as a tailwind for the risk-sensitive Aussie amid some follow-through US Dollar selling for the second straight day.
Top Crypto Gainers: Aster, Decred, and Kaspa rise as selling pressure wanes
Altcoins such as Aster, Decred, and Kaspa are leading the broader cryptocurrency market recovery over the last 24 hours, as Bitcoin holds above $70,000 on Monday, up from the $60,000 dip on Thursday.
Weekly column: Saturn-Neptune and the end of the Dollar’s 15-year bull cycle
Tariffs are not only inflationary for a nation but also risk undermining the trust and credibility that go hand in hand with the responsibility of being the leading nation in the free world and controlling the world’s reserve currency.
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