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 rises toward 1.0800 on USD weakness
EUR/USD trades in positive territory above 1.0750 in the second half of the day on Monday. The US Dollar struggles to find demand as investors reassess the Fed's rate outlook following Friday's disappointing labor market data.
GBP/USD closes in on 1.2600 as risk mood improves
Following Friday's volatile action, GBP/USD pushes higher toward 1.2600 on Monday. Soft April jobs report from the US and the improvement seen in risk mood make it difficult for the US Dollar to gather strength.
Gold gathers bullish momentum, climbs above $2,320
Gold trades decisively higher on the day above $2,320 in the American session. Retreating US Treasury bond yields after weaker-than-expected US employment data and escalating geopolitical tensions help XAU/USD stretch higher.
Addressing the crypto investor dilemma: To invest or not? Premium
Bitcoin price trades around $63,000 with no directional bias. The consolidation has pushed crypto investors into a state of uncertainty. Investors can expect a bullish directional bias above $70,000 and a bearish one below $50,000.
Three fundamentals for the week: Two central bank decisions and one sensitive US Premium
The Reserve Bank of Australia is set to strike a more hawkish tone, reversing its dovish shift. Policymakers at the Bank of England may open the door to a rate cut in June.
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