Forex Supply and Demand: Plan Your Trade, Trade Your Plan - ForeXposed

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Wednesday, February 22, 2017

Forex Supply and Demand: Plan Your Trade, Trade Your Plan

This time we are trying to make the trade plan based on a number of criteria in order to assist in decision making. If you have a good planning, you can focus on the trade setup that has a most potential and most attractive, and that means ignoring the setup which is not profitable.
The good trade plan must have an Entry/Take Profit/Stop Loss criteria, also based on a set of supporting factors.
We will generate all of this factors, to produce a scoring system as a reference in making the decision to doing a trade.
Forex Supply and Demand: Plan Your Trade, Trade Your Plan

This is the supporting factors on forex supply and demand:

1.Strenght.

On the trading, we are looking for a high probability of each trade to generate profit. Here, we observe how the behavior of the current price is lifting his supply and demand area. Is the price moving with strong moves? Or is moving slowly (gradually)?

2. Profit Margin.

Here is where we talk about the risk-reward in taking a position. You should be able to measure the extent of support level (demand) and the resistance level (supply) compared with the entry position. Measure Stop Loss placement from the entry point, and then measure the distance and also the profit margin from the entry point. As an example, you want to take a buy position, the further of supply area distance the better a quality of entry, and better on the risk-reward.

3. Big Picture.

Even though you're an intraday trader and use small time frame such as H1 or below, you should consider the areas of supply and demand on a larger time frame, such as D1. For example, if you want to ‘short position’, keep your short closer to the supply area in the daily time frame, or the demand areas in the daily time frame are still far enough underneath, thus giving space for the price to move, if your analysis is correct.

4. Retracement

Retracement here is the price that backs to the support/resistance area after a breakout, in other words, it’s called ‘pullback’. This relates to the entry that will be done. In my opinion, the first pullback is the best compared to the second or third pullback, as written in the trading literature. Why? Like people who are cutting down the tree, the more often the AX swung, more likely the tree was uprooted. Also, the same in this pullback, more frequent the area is tested, the possibility for these areas can withstand the fierce price is small.

5. Time.

How long the price in an equilibrium position prior to breakout? The shorter time to get out or shifted from the balance area, the more obvious to us that there is a significant difference between the supply and demand.

6. Arrival.

Whether the current price is at the "fresh" support (demand) / resistance (supply)? For example, on the uptrend/ up move, demand level that has never been tested ensure the greater opportunities for profitable trade.
All of these above factors were given a grade. The higher a scoring, the better to setup. Below, I attach tools in the form of excel files, which may help you in setting up the trade plan. As you can see, these simple criteria can make a difference in the trade quality. Make sure that you have one set of rules that support trading decisions. If not, then you are going to compete with those who have a set of rules, and your winning chance in this war is small.
This is the Trade Plan