I had this zone on USDJPY H1 marked out based on my understanding of SD zones before digging deep into your scoring system, so this zone hasn’t been scored yet. I just got filled on my limit order (demo) and thought it might make a decent contribution to the thread.
T-FX, thanks for the contribution and good luck on the trade! You can try scoring this level here and then I can comment on it, if you want. I am not sure if you were just close to being stopped out or actually did get stopped. If you look on the H4, there is a one bar level just below the one you used. It’s a case of “bricks upon bricks”, so for me, this lower one would have been higher probability, but I’d like to see your take on the level you traded before getting into that.
Cheers!
These should be the next residual demand areas if/when price absorbs the demand I traded: 1.3245-1.3265. We have demand stacked inside 1.3170-1.3200 and 1.3090-1.3117. You will often see residual areas of supply/demand at and around round numbers, like we have here (1.32, 1.31). I think I will pass on the 1.32 demand, because it doesn’t score very well and there isn’t much profit potential. The one near 1.31 should be good to trade. After we go below 1.3245 I am also going to be on the hunt for strong supply areas to lean on, on the way to 1.31 
Relativity said something about using volume with these principles. Above is a chart of the volume bars I use in my Brilliant Charts system. The price bars are coloured according to very low, low, average, high, very high and ultra high volume. The red bars mark ultra high volume activity and they are a quick way of spotting huge imbalances in the markets. Then we just mark the consolidation representing the origin of the move and we have our high probability residual energy areas. Of course, we still have to score them to make sure they are worth the risk, but this already filters out most of the weak zones already. You can use a regular volume indicator to spot this also or my free volume indicator, which gives you the same information, but on the bottom of the chart.
This one scores about 17 points if we get a fresh-obstacle-free test of the area. It’s just at the limit of our minimum 18 points rule, so I will monitor it and will either keep the pending order or remove it, depending on price progress towards it. Can anyone tell me why this would score 17 points?
Yep, I did get stopped out while sleeping. No big deal. I like this type of trading because I can do all my analysis BEFORE entering a trade. Then I just place my orders in the market and I’m either right or I’m wrong. I don’t HAVE to baby sit the trade. Anyway, here’s how I scored the level:
- Angle of original imbalance (max score: 3) 2 - not a gap but definitely a strong move
- Profit potential (max score: 3) 2 - initial move almost exactly 3:1
- Price-wise Absorption (max score: 3) 3
- Time-wise Absorption (max score: 2) 1 - 6 bars
- Fractality (max score: 3) 1 - H4 moving from supply to demand, closer to demand
- Fresh obstacles (max score: 2) - I wasn’t watching the market when price approached my level. Had I been watching I think I would score this a 2 based on those last two big red candles dropping into my zone
- Bricks upon bricks (max score: 3) 0 - no clear stacked levels on the H1, but I do see the stacked levels you mention on the H4.
- Freshness (max score: 5)5
Total Score: 14 (possibly 16 with fresh obstacles score added)
I have both these levels marked on my chart also. I’ll give the scoring the lower level a shot.
- Angle of original imbalance (max score: 3) 2
- Profit potential (max score: 3) 2
- Price-wise Absorption (max score: 3) 3
- Time-wise Absorption (max score: 2) 2
- Fractality (max score: 3) 1
- Fresh obstacles (max score: 2) 2
- Bricks upon bricks (max score: 3) 0
- Freshness (max score: 5) 5
In a bricks upon bricks scenario, do you ever consider scaling in with smaller position sizes as each level is hit with your overall stop behind the bottom(top) level? It’s something I’m considering experimenting with and I’d like to see your opinion.
Nick
Sure, that’s ok, as long as you keep your risk under control, so that the aggregate risk amounts to the same $$$ as per a regular entry. You also should make sure that the profit potential on the aggregate position is worth the risk 
Perfect! Keep it up
Ok, now I’ll tell you my take on this level. As you see, not even your scoring above makes it a decent level. It’s just a max of 16 points, so if I did want to take an entry like this, I would either scalp for a 1:1 or use half my normal position size. Now let’s go into the reasons why this wasn’t the perfect choice of a level. It is one of the trickier situations, but if you understand the logic here, you will save yourself a lot of stop outs. I got stopped out frequently before fully understanding this.
Let’s start with a picture, with the stronger level highlighted and the first profit target (which was hit):
(Click to enlarge)
First of all, the level you used wasn’t really fresh. Even though it wasn’t just a test of a previous demand level, but more an absorption of prior supply, there are about 21 candles in that area (not 6), which means everyone pretty much had their chance of getting on the train, either long or short, before the bubble burst. Secondly, price couldn’t go down to test that level I highlighted. It slowly chewed up the supply by moving up in a tight channel. That gives you an important clue that the real origin of the huge imbalance is below the gradual supply absorption. It’s hiding there and you fail to see it because you don’t see the high range candles. That doesn’t always mean that there’s no big imbalance. The reason why there are no huge candles there is because there was a big amount of supply to be absorbed. In spite of that, price still shot up from there to the core supply zone and slowly but surely sloped up, chewing every bit of it, which produced that big red bar up on ultra high volume above the supply. Let me know if this makes sense. When you score these kind of levels, you ignore that gradual chew-up of supply/demand, so the first target would be the same as for the upper level you picked. The angle of imbalance would be the same. Profit margin would be highly increased (in this case, you had 1:4), the level is fresh, price-wise absorption is 3, time-wise is 2, pretty much everything is improved.
Now, let’s look at H4:
(Click to enlarge)
There are three levels on the H4 and if you took the level from here, it would have reached the first target also. The second one I highlighted on H1 has a bricks upon bricks score of 2 on H4, so it’s higher probability than the upper one (plus smaller time-wise absorption).
I’ll end this post with another valuable piece of info. Residual areas come in 4 patterns, as you probably know from Sam’s materials:
- RBD - Rally-Base-Drop, i.e. Move up in price - Consolidation - Big move to the downside
- DBR - Drop-Base-Rally, i.e. Move down in price - Consolidation - Big move to the upside
- RBR - Rally-Base-Rally, i.e. Move up in price - Consolidation - Continuation of the move up
- DBD - Drop-Base-Drop, i.e. Move down in price - Consolidation - Continuation of the move down
RBD’s and DBR’s usually hold more energy than DBD’s and RBR’s. The level I picked on H1 is a DBR. The one you picked is more of a RBR. Let me know if you have more questions about what I said.
Good night (at least here)!
Errata: the top level has a bricks score of 1, not 0, as per the bricks upon bricks rules. Sorry for that
Awesome, thank-you for the great reply. Makes perfect sense to me.
I’ll post up more charts as they come. I prefer only to post charts after I’m already in the trade rather than before hand. The reason for this is if I post a chart before I take a trade, someone always posts some conflicting analysis and I begin to doubt myself. I want to make my own decisions without this outside influence, hence I prefer posting the charts after the fact and doing a post-mortem analysis of what I did right or mistakes I made.
Great! Yeah, that’s good. I will post some more charts myself today and see what good opportunities we have on the currency markets. I mainly trade EURUSD, but after your chart, maybe I should take a look at the others more often. USDJPY at least seems to have some nice ones.
Here’s a trade I’m in. I entered it with confirmation (I will discuss that in a bit), not with a limit order. It’s not a very strong level, but I am using confluence with classic trend lines, which is something I look at pretty often. Right now, there is nothing left to do but watch. It did go 1:1 in profit so far, but I am letting it hit either my stop loss, or my profit target, which is about 1:2.5. Let’s see what happens.
Looks like I might get stopped on this one. I could close it at breakeven now, but I’ll stick to the plan, just for the sake of discipline. We are building a little bit of demand here and the residual supply might not be able to absorb it all.
That’s a picture of demand building up below a supply level and eating up the supply. You can see it on the smaller timeframes. I’m still in the trade, as my stop is a few pips above the supply area I marked (to be safe from stop hunting), but it’s not quite the picture I like to see when I am short :). Also, there is too much time spent at the supply level.
Update: supply was absorbed, lost 12 pips.
I can’t quite make it out, is that the M15 time frame in your EU trade? Also, as I understand it a confirmation entry is when you let price enter your zone and then enter when it leaves the zone in your intended direction, correct?
Here is another USDJPY trade I’m in. I scored the H4 level at 17 and pinpointed my entry on the H1. Sorry if my images suck…
H4
H1
Daily
Yeah, that was an M15 trade I took. It bounced good at the next level on the way up. You win some, you lose some, I guess :).
Your USDJPY trade is good, the only problem I see is fractality is not so nice, since the uptrend on the daily’s still pretty strong and we’re going from demand to supply. The level isn’t fresh on H1 also, it’s a double top there, so you are trading a level that is a reaction to a prior one. If it doesn’t work out, I would start looking for good demand levels to buy at.
Good luck!
Profit margin doesn’t seem good on H4 either. Are you sure you scored it 100% based on H4 or did you mix H4 scorings with H1 scorings? If you want, let me know what your scores were, so we can discuss. Thanks
Update: Never mind. I see you tightened up your consolidation and took a higher entry, so profit margin seems pretty good on your chart. Should be ok if the daily trend decides to breathe a little before attempting to chew up that supply. Good luck!
Yes sir. 17 pip stop, 51 pip target for 1:3.
The double top on the H1 does concern me, so I moved my stop to BE at 1R. Looking pretty good at the moment.