A deductive approach to chart analysis

[Pippatron]

EURUSD closed @ +73 pips at formation of higher low. EURGBP partially closed @ +74 pips, but keeping small position open over the weekend.

Closed a quick GBPUSD long @ +87 pips:

[yunny1]

Pretty good Pippatron

I am also long the Cable… but missed one of the entries. Here are my last three trades all in black now

[salimvp]

Yunny & Pippa, Awesome trades Guys. Congrats on the pippings.

[Satunya]

I’m an amateur chartist. I use clues left by price action to deduce future movements. I try to read order flow and spot important zones that may attract a large number of similar orders.

When entering a trade I consider the following in order of importance:

[ol]
[li]Directional bias: If this is incorrect, 2 and 3 are irrelevant.
[/li][li]Placement of Stop Loss: I place my stop loss defensively so that there is a very low probability of it being hit if my directional bias is correct.
[/li][li]Entry Zone: These are zones where I expect a large number of similar orders to be present. If I am correct this would cause an explosive movement in favor of my directional bias.
[/li][li]First Opposing Zone: This is the nearest significant zone where orders against my directional bias could be clustered. I will usually take partial profits at this level.
[/li][li]
[/li][/ol]

I rarely look at the news as it is my belief that large players position themselves well before any scheduled news. This leaves footprints on the charts (an example here: http://forums.babypips.com/forextown/52019-thoughts-trading-nonfarm-payrolls.html#post467200).

I manage my risk by setting a desired pip value (e.g. 0.02% of account balance) and then calculating standard position sizes for each pair that I trade. I set a cap on the total percentage risked by open and pending orders (e.g. 5% of account balance).

I prefer this method of position sizing over risking a fixed percentage on each trade as it gives me an incentive to focus on trades with the potential to earn lots of pips. Risking a fixed percentage per trade encourages shorter time frame trading with tighter stop losses, which, in my opinion, negatively affects consistency.

Currently, I am trading exclusively on the H4 time frame focusing on the majors, yen pairs and a few crosses.

I will be using this log to post before and after snapshots of my trades together with my reasoning.

All contributions are welcomed.

Hi Pippatron.

How do you construct the Entry/supply/demand zones?

[Pippatron]

@Satunya

Hi Pippatron.

How do you construct the Entry/supply/demand zones?

Hi Satunya,

The way I mark my entry zones has been evolving over time and I think this can be adjusted according to one’s individual style without having a major effect on profitability. I believe that setting the correct bias and having a defensive stop loss are more important aspects to this style of trading.

Having said that, there are some general principles that I apply in drawing my zones which I will try to explain through an example.

Imagine you are an institutional trader looking to go long on the GBPUSD during the current uptrend on the H4 timeframe. You are looking to place a buy order for a 100 standard lots.

Your first concern will be your bottom line. If you buy too high, you are sacrificing profits while increasing the size of potential losses. So you want to buy at a good (lower) price to maintain your bottom line.

However, due to the large position size, liquidity is also a major concern. If you place your order too low, other big players may suck up all the liquidity before price reaches your entry level, causing price to shoot up without giving you a chance to enter. If you enter after price has already started to move up, slippage will significantly increase yours trading costs.

So in an uptrend you would want to enter on a retracement at a level below the recent high. However, this level should be near enough to the current price to ensure that your order gets filled before the uptrend continues.

You might decide to break up your orders (Icerberg order), and place them at good support zones below current price. But the zone allowing the highest profit margin will be the one closest to the previous swing low. This is because, assuming the uptrend is still valid, price should not breach the previous swing low, so this zone would provide the last opportunity for entry before trend continuation.

According to this line of reasoning, I have marked the two best zones where I believe long positions will be clustered.

[Pippatron]

Continuing the story above…

Placed a Buy limit at the first zone

Entry was precise, but reaction was muted showing that demand on this zone was not strong.
Stopped out at break even so going to wait for the direction to be clear again.

[Pippatron]

Some pending and ongoing trades:

The USDJPY was triggered yesterday and is currently in profit.

[Pippatron]

Bad call on the GBPUSD. I set my bias using the immediate trend, not the obvious trend like I should. I believe this was at least partially due to the psychological impact of letting 60 pips profit drop to zero on my GBPUSD long earlier this week.

Missed buy limit on the NZDUSD

USDJPY approaching TP1

[Pippatron]

I set a sell limit on EURUSD yesterday:

Managed to enter at a good price:

Just speculating here, but the M5 structures seem to indicate some good selling pressure at this zone:

[Pippatron]

I’m copying two of my posts from Nikita’s thread over here as I think they are worth repeating in this log.

Nikita, I won’t presume to give you advice since you are a more experienced trader than me. But I have some thoughts on the subject that some might find useful.

I have recently realized that all financial instruments seem to have a ‘natural’ time frame where trend structures are dominant and support/resistance carry a lot of weight. Price action trading is much easier when the analysis is in sync with these time frames.

For example, look at the USDJPY chart on D1 vs H4:

Now look at how USDCAD is behaving:

[Pippatron]

Continued…

Continuing from my post above:

SP500 is a different kind of animal. To me the clearest time frame is the weekly chart:

Let’s throw in some stocks for good measure. See how price action principles are robust enough to work on Google and Apple charts:

If trading is getting hard, we should step back and question whether we are trying to swim upstream. Price action is adaptable, it is we as human beings that find it hard to adjust.

[Pippatron]

Well this is an ego boost. Hope it doesn’t get to my head.

Observe the reaction to the blue lines representing the core of my zones. Top two were drawn on 26th March and have not been moved since then.

@Pippatron

[Pippatron]

A bit of deja vu with EURUSD and EURAUD

@Pippatron

[SanJ]

Subscribing

[Pippatron]

@SanJ

Subscribing

Welcome to the thread SanJ. My schedule has been very hectic so I’ve been neglecting this log lately.

I’ve taken two trades this week. One was a small loss on an AUDUSD short, the other is a long on GBPUSD that I just closed in profit.

[Pippatron]

Nobody’s commented on this, but I know I’m going against the grain here by entering through limit orders. Almost every system I have seen triggers entries only after confirming criteria has been fulfilled.

Theoretically waiting for a confirmation should lead to a better winning percentage. But in practice, this also leads to wider or more vulnerable stop losses and less favorable risk to reward ratios. I prefer the bolder approach of entering via limit orders without looking for candlestick patterns, MA crosses, oscillator readings, etc.

[salimvp]

Nobody’s commented on this, but I know I’m going against the grain here by entering through limit orders. Almost every system I have seen triggers entries only after confirming criteria has been fulfilled.

Theoretically waiting for a confirmation should lead to a better winning percentage. But in practice, this also leads to wider or more vulnerable stop losses and less favorable risk to reward ratios. I prefer the bolder approach of entering via limit orders without looking for candlestick patterns, MA crosses, oscillator readings, etc.

I understand what you are saying. Your charts saying it all. Recently I trade on EUR/NZD short, from 1.5465 and closed it 1.5354 with a 110 pips. I saw similar setup on GBP/NZD also. But didn’t take to avoid double risk.

Keep posting charts, it surely helping people like me.

Happy trading.

[Pippatron]

Glad to hear that Salim. Charts are always welcome on this thread so feel free to post yours.

[salimvp]

Glad to hear that Salim. Charts are always welcome on this thread so feel free to post yours.

Thanks, Will post charts when I spot setups.

.

[SanJ]

Thanks for the welcome Pippatron… Ive only recently started getting into trading supply and demand and mixing it in as part of my other trading tools… Thought id share my trades for this week. I primarily only trade the cable and fiber on my live account - i demo trade various other currency pairs, testing new concepts and for other trades which i dont have full confidence in…

Actually had not a bad week - first time in a while, 2 trades, both winners (thrown all my trades up on clean charts for clarity sake):

Cable Long:
Entry - 5270
SL - 5190

I actually wanted an entry at 5245 - coming out of the demand zone noted but was away from my charts at the time. Took a London open long at the noted level as it didnt look like we would make it back down. Took 80% at 5410 - 140 pips - the next given supply zone, and actually looks as if i captured the high of the week! Remaining 20% is locked at +15 pips and will trail manually if we get further upside traction.

Fiber Long:
Entry - 3065
SL - 3025

Actually still in this trade with a stop loss a little above BE. I like to only take first profit once my trade has reached a R:R of 1:2 or above - but i’ll sometimes go to BE once my trade has reached 1:1…

:57: