The goal for most traders is consistent profits, life – long income from speculating in markets. The key word in that sentence is consistent. Anyone can have profitable trades here and there, but do they produce consistent income and profits from trading as most are looking for? Many people have a strong winning percentage but don’t make consistent income from trading. Sounds crazy, I know, but one loss tends to wipe out all the profits.

Now, we can’t argue with the importance of supply and demand, it tops the list. However, don’t focus so much on Supply and Demand for turning points that you fail to consider the second most important focus, Profit Zone. Without a clear and ideal risk/reward (profit zone) opportunity on the chart, there is no trading opportunity. What we are looking for are supply and demand levels that are far apart from each other with clear room in between for price to move. You see, often there are very quality supply and demand level on a chart but the problem is, they are too close to each other which means no trade due to a lack of profit zone.

S&P Futures – Income Trade

SP

What is Profit Zone?

Profit Zone is the area on the chart there is a high potential for profit. Let me explain through a recent income trade I took in the S&P Futures (ES).

Take note of the supply level and profit level (lower circled area) on the chart. The supply level is the origin of a strong decline in price and the profit target was just above a demand level not seen on the charts. The trade was to bet on a downside move, selling short at the supply level for a move in price down to the demand level.

Now, we need to measure risk to reward for this trade. To measure risk to reward, we need to do two things. First, we need to compare the distance from entry to protective stop against the distance from entry to profit target (the demand level). This opportunity offered around 3:1 according to the chart. Second, we have to adjust position size to make sure we are never risking more than we are willing to lose.

If you’re thinking you’d sell short at the supply level and take profits at the demand level, not quite. To ensure consistently profitable trades I suggest using the two strategies below.

  • When looking for trading opportunities that offer you 3:1, make sure the chart is offering you at least 4:1. If you want a 4:1 setup with a much easier time of attaining consistently profitable trades, make sure the chart is offering you at least 5:1, and so on… I think you get the point. When the chart offers you 3:1, actually getting 2:1 is much easier than if that opportunity offered 3:1 on the chart.

  • When taking profits at demand from a short position, don’t wait for price to come all the way down to demand to take profit, make sure you take your profit with your buy order just before demand. The reason is that there is competition to buy at demand, that’s why it’s demand. When we are taking profits on a short position, we are buying; so why would we want to buy at a price level where there is competition to buy? Why not buy when there is competition to sell which is right before the demand level, as price is falling. The same but opposite holds true for exiting longs just before supply levels.

By focusing a little more on profit zone, and all that goes along with it, you may just find and achieve the consistency you’re looking for. Never forget, in trading or many other things in life, those who know what they are doing typically get paid from those who don’t. I didn’t write this rule so don’t get mad at me… It’s how the world works.

Read the original article here - The Second Most Important Trading Topic Few Think About

Learn to Trade Now

This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms

Education feed

Editors’ Picks

EUR/USD tension remains elevated ahead of the Fed

EUR/USD is trading around 1.1050, confined to a narrow range ahead of the all-important Fed decision. Chair Powell is set to cut rates by 25bps but signal no further stimulus is on the cards.

EUR/USD News

GBP/USD recovers within range

The GBP/USD pair is posting a modest advance after Wall Street’s opening as demand for the greenback is limited ahead of the US Federal Reserve decision. Poor UK inflation figures contain advances.

GBP/USD News

USD/JPY holds on to recovery gains above 108.00 ahead of Fed

Not only upbeat trade numbers from Japan but upbeat trade/political headlines also help the USD/JPY pair to remain firm around 108.20 prior to Wednesday’s European session. Focus on FOMC decision.

USD/JPY News

Editors’ Picks

EUR/USD tension remains elevated ahead of the Fed

EUR/USD is trading around 1.1050, confined to a narrow range ahead of the all-important Fed decision. Chair Powell is set to cut rates by 25bps but signal no further stimulus is on the cards.

EUR/USD News

GBP/USD recovers within range

The GBP/USD pair is posting a modest advance after Wall Street’s opening as demand for the greenback is limited ahead of the US Federal Reserve decision. Poor UK inflation figures contain advances.

GBP/USD News

USD/JPY holds on to recovery gains above 108.00 ahead of Fed

Not only upbeat trade numbers from Japan but upbeat trade/political headlines also help the USD/JPY pair to remain firm around 108.20 prior to Wednesday’s European session. Focus on FOMC decision.

USD/JPY News

Top 3 price prediction Bitcoin, Ripple, Ethereum: Cryptos seeing multiple launches into the universe

The Altcoin market has quickly confirmed Tuesday’s analysis with flashing rises in the last 24 hours. The two eternal aspirants to lead the crypto market – Ethereum and XRP – are rising sharply against Bitcoin and increasing its value rapidly.

Read more

Gold climbs to daily highs near $1,507 as US T-bond yields extend slide

The souring market sentiment in the second half of the day seems to be providing a boost to the safe-haven gold.

Gold News

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology