EURCAD 1H Bearish Engulfing Trade - Win

EURCAD 1H

To be honest I'm quite disappointed with the outcome of this trade. In all honesty, my original plan was to just let the trade run as I was very confident it would hit the origin of the first compression. That would have been like 2.5R. I only decided to TP 1/3 at the S/R flip level because of my super hate to lose egoistic personality, it wasn't even a major S/R flip! In this case it worked out well but also revealed that my profit targeting skill is inadequate. I'll touch more on that in a separate post... Well I wouldn't know whether price will fall back down again but there was no way I was going to take my chances with such a strong rebound. We can only take what the market wants to give us regardless of where we think price should logically go. Here I would rather get out with my small profits first and reevaluate.

I want to just briefly describe the merits of this setup. I seriously think it is A+. Fake breakout + PA bar + Compression + Supply zone + BRN + Divergence + Double top, it is hard to beat that. When I was nearly stopped out by the triple top, I told myself this is a setup I would take 100 out of 100 times even if it ended up as a losing trade. When the triple top + pin bar formed, I was like oh man this is it, its like free money. This is something you see only once every few weeks or maybe months, and I'll be totally shocked if it failed. I discussed about this setup before here and it is one of my favorite setups. Shorting the triple top pin would have resulted in a better RR trade than mine, taking full profits at the S/R flip level would have resulted in a 1+R trade. This chart really demonstrates the potency of this setup.

EURNOK 1H Pin Trade - Loss

EURNOK Trade

Honestly I was royally pissed with the outcome of this trade. In summary, I moved my stop to breakeven once I was about 0.5R in profits. However I was hit by a broker spike overnight which took me out for a whooping 0.42R loss. A freaking 300 pip spike, insane slippage, worst I ever had. I checked with three other brokers and while some did had a mini spike, it was nowhere near 300 pips. Look at the FxPro MT4 1H chart above, notice that the spike wasn't even there!

It annoyed me big time and I was about to call up my broker when I remembered that such things happen very often and there is no way to win the argument against the broker because Spot FX is unregulated and they're protected by written agreements.

As such, all I could do was to simmer down, reflect about it, and come up with two conclusions. First of all, I'm going to switch broker. Let me first shame this broker's name, it is CMC Markets. I checked through many of their charts (particularly the exotic pairs) and was shocked to find that such ridiculous spikes are very common. It is very obvious that the market maker is trying to gun the stops of their clients, they can easily do so because our orders are on their books and they know exactly where the stops are. How timely it is that I already set up a new broker account and had planned to switch to it in June.

Secondly, I'm going to stop trading illiquid/exotic pairs. I gave some thought to it, and asked myself this question: If I had ten million dollars to trade, would I be trading illiquid pairs? The answer is no, simply because of the risk of such black swan broker spike events. When one is managing huge sums of money, risk management is paramount and there is simply no room for such crap at all. I need to think and trade like a huge account trader. The majors and main crosses should provide me with enough opportunities that I do not need to undertake unnecessary risks with illiquid pairs. I guess you could say that it is a blessing in disguise that this happened to me now than in future when I'm trading a larger account.

How I Monitor Charts

Thought I will just create a short post to describe how I monitor charts.

I'm using FxPro MT4 for my charting so I monitor almost all the pairs (60-80+ I think, can't rem) it provides.  I put them into 5 profiles, one for the majors, two for crosses, and two for exotics. I also watch the indices and commodities charts from FxPro but I seldom trade them. For the FX exotic pairs, I only trade them on the daily or weekly charts due to the large spreads which makes intraday trading on them unfeasible. As such I only need to monitor them once a day. I have my key levels and S/D zones marked out on all the pairs. I use this Alerter (http://www.forexfactory.com/showthread.php?p=233568#post233568) to alert me when price is near any of these levels.

I realized that a fast way to monitor the pairs without switching around like a mad dog is to have a snapshot of the majors. I set up another MT4 on a separate monitor to provide me with a snapshot of some of the majors. I use AvaFX for this because they provide the Dollar Index chart as well as commodity + bonds + indices charts.

Market Snapshot

So for example if I see that EURUSD is moving, I'll check out the EUR related pairs to see if there are any potential setups. Markets are usually dull during the Asian session so if I know from the snapshot that none of the pairs are moving, there is no need to painstakingly scroll through all the crosses because they won't be moving either. Exceptions would be SGD, SEK, or NOK related pairs which I still monitor if I know they're near major levels.

Hope it helps!

CHFSGD 3H BUOB Trade - Win

CHFSGD H1

Pretty much stated everything I wanted to say in the journal entry. Again do notice how sharply and quickly price shot up the compressed down leg to the origin of the compression. This is because pro money has removed all the supply on the way down and there was no supply at all until the origin of the down move. As such there is nothing to stop price from shooting up. In fact there're a few other compression examples in the same chart, can you spot them? :) Compression has changed my trading, seriously it is such a powerful tool to have. There are some more points I want to add but I think I'll mention them in my monthly review post as they are stuff I've been thinking a lot about which deserve a post of its own.

Some Demo Trades And Core Trading Rules

Ok this post is for me to brag a little, cut me some slack as I seldom have a chance to do so :P Few days ago I suddenly had this thought: Why the heck am I not demoing more? I really believe that there is a lot to learn from demo trading, and so I've started scalping and demo trading a lot more based on the lower TFs. The goal is to get consistent enough at it so I can start scalping on my live account. So my last 8 trades on two different demo accounts are all winners atm (Hopefully not a fluke)! Of course anything can change later, but I've secured profits on majority of the trades. And I did learn a lot. Every pro trader I came across on forums will preach the same thing: there is no way to get good at trading without thousands of hours and many years of chart time. And that is exactly what I'm trying to achieve.

I also noticed that I committed many common mistakes in my demo trades. As a note to myself, I want to list the core of my trading in three points:

1. Identify S/R and Supply/Demand levels
2. Wait for Price Action bar there
3. Ensure there is space for the trade (no nearby trouble area, good RR)

All three are absolutely important, most of the time when I neglect any one of the points I'll lose, and mind you that still happens A LOT even though they seem like simple points. Of course there is a lot more, higher TF trend, big picture story, chart pattern etc, but I realized that somehow those three are sufficient to make a profitable trader.

Compression Example On GBPCHF

GBPCHF M30

Just want to share another Compression example. I was watching the pink line for PA to go short on this one, pity price started free falling before even reaching there. Again notice how sharply it fell? This is because there was no more demand left to stop price. It is important to note that once price has reached the origin of the compression, there is no saying whether it'll continue to fall or rebound. As such it is important to take partial profits or move the stop then. I must say Compression is one of the most well kept secrets in the trading arena, its just amazing why books don't teach this.

Missed Trade On EURGBP

EURGBP 1H

Just want to post a setup which I spotted but chickened out from. This post will hopefully drill the potency of the setup even deeper in my mind. Basically we had a false breakout + bearish divergence + compression + 3H pin. I've seen this combo a few times and it is very deadly, especially if the false breakout is into a supply/demand zone. As you can see when prices broke down it shot through very quickly to the origin of the compression. This is very typical because there is virtually no more demand/buy orders left to stop the down move as the pros have already removed all the demand on the way up. The fake breakout at the top was the start of it all, it was where the pros gunned the buy stops of the breakout bulls and the stop losses of the bears. This gave them the liquidity to go short.

Of course all this is easy to say in hindsight. I chickened out mainly because the fake breakout wasn't into a supply zone and there was one just slightly above. I was worried that price would want to hit that zone first before turning down. Also, price was compressing down on the 5 mins chart and I didn't want to take the risk of it going higher.

EURGBP 5min

Oh well I guess the higher time frame story trumps lower time frame observations. I don't regret passing on this trade, one of my mantra is to never take a trade if I'm having that doubtful/unsure feeling. I know that I still lack experience, my goal now is to gain as much experience as possible so that with time I'll be able to nail trades like this with confidence and ease.

Reminder On Why I Quit Equities

Comfort Delgro Daily

The above chart is a good reminder on why I quit equities. To me the equity market is just a freaking mine field if you do not have insider information. You can be the best technical analyst and it will not save you from ridiculous unexpected events that can severely damage your account overnight. So take the above chart for example, supposed you manage to catch either of the breakouts. You decided to implement a trailing stop and as the stock climbed so did your profits. Your stop is far above breakeven and you know that profits are secured. All of a sudden, this news occurred. A major shareholder decided to offload its stake. The stock gapped down 12% overnight, erasing almost all of your profits if you were in since the first breakout and taking you out for a loss if you took the second breakout. $*!&%*??!!

Now what do you make of it? How could you have avoided it? Mind you this is not an earnings report kind of news which one can avoid because he knows the date. There is absolutely no warning! And if you were to say "Oh well shit happens, as long as your method is sound you'll make money over time", I say to you "If my method is sound, why the heck would I not use it on Forex, Futures, or some instrument where I do not even need to worry about such ridiculous events?!" If you can make money on equities, I really don't see how you cannot make a lot more on other instruments simply because you lose a lot lesser on stupid events. Overnight gaps suck big time, and no one deserves to be a victim of it just because of some totally unavoidable news. Sure the news might cause price to gap in your favor and if you love excitement and don't mind a spiky equity curve, go ahead stick to stocks. I prefer my equity curve to be smooth. Besides, I realized that when price gaps in my favor, I only feel good for a while, but when it gaps against me, I get really annoyed and my psychology/emotions get pretty affected.

If you think this is a rare occurrence, do some research and you'll realize it is NOT. Companies suddenly getting investigated for accounting inconsistencies, announcement of property measures (I got caught by this three times, yes I'm that unlucky), various sorts of rumors, you name it... The equity market is a mine field. Of course, it could simply be because I am not skilled enough to spot signs like hidden selling.

What Is The Best Trading Strategy?

I have read many forum threads and quite a few books, and as a result am exposed to many different styles of trading. However one thing I can never understand is people disagreeing with each other. I simply don't get it! First of all let me just list out some styles of trading:

1. Wyckoff/VSA
2. James16 PA Trading
3. Bob Volman (Tick chart scalping. 10 pips stop, 10 pips take profit)
4. Supply/Demand Trading (Sam Seiden, ReadTheMarket, Price Is Everything FF Thread, AceGazette)
5. Order book/Level II Trading

Of course there are thousands more. Fundamentalists, quants, arbitragers, spreaders, SonicR, MA systems etc etc. Here are two main points I want to make. 

First of all, even if one has found a profitable system, why on earth does he have to think that all other systems don't work?! Personally I have a very simple way of evaluating a system. Are the traders using it making money? If so how much? Btw when I say how much I'm referring to a time based return in terms of equity %. I find it silly when a trader boasts of making 1000 pips in one month. Heck he could be risking 2000 pips to make that 1000 pips and if his R is 2%, that is only a meager 1% increment on his equity. Back to my point, I love the quote "A man with experience is never at the mercy of a man with an argument." One can try his best to explain how awesome his system is but if his trading results does not reflect it, why listen to him? Should a PA trader scoff at a Wyckoff trader with remarks like "Har vol on spot Forex is only tick volume and is not accurate!"? No, because there are spot FX Wyckoff traders who are doing very well. Just because a PA trader doesn't know how to trade Wyckoff properly doesn't mean it doesn't work! Just because a trend trader doesn't know how to catch tops/bottoms doesn't mean a supply/demand trader cannot! And to take it further... Don't tell me that trading Forex is very risky when you haven't even heard of position sizing and all you've been doing is buying and holding equities for dividends! So... my quest is to continually seek out ways to improve upon my current knowledge/system, always demoing and proving to myself before implementing. And the sources I seek must be reliable with people who dare to post without hindsight and who are incredibly profitable.

Secondly, I am a strong believer that the best system is one that suits your personality. An impatient person trying to trend trade higher time frames simply won't find success with it. So just because you really believe in your system and feel comfortable with it doesn't mean it is the best system in the world. I've found that traders often scorn a system because they've tried and failed to find success with it. This could be because they haven't put in enough effort to really get good at it, or it could be because the system doesn't suit them. I really don't understand why such traders are so blind/ignorant to think that the system that works for them is the best in the world. And mind you these could be really good traders. I wish there was less pride and more open mindedness in the trading world.

I really like what one of my mentors told me: "Anything you believe you must prove. Once you prove it you'll never question it" And so my endless quest of demoing and proving continues... I really look forward to the day when I can find consistent success and immense profitability. When that day comes and anyone tries to argue with me and promote his holy grail system, I'll just say "Hey I'm growing my account at 30% monthly, how about you"? That should put any argument to rest pretty quickly, and in the event that he does make more than me... hey I've found a new source ;)

7 Signs You Know You're Maturing As A Trader

Just want to share a great article: 7 Signs You Know You're Maturing As A Trader

Points 2 and 7 speak a lot to me. I still feel anxious whenever I'm in a trade, and get pretty down when I lose one. The thing is, I'm a very meticulous person, and when I'm really into something, I feel a strong need to perfect every single aspect of it. Now this has been a double edged sword. Because of my nature, I think a lot and dig deep into many aspects of trading. I think about the psychology and reason behind price bars, how the various time frames blend together; I do thorough post mortem of my losing trades to make sure I learn from them, and I've discovered a lot of little intricacies regarding the markets because I bothered to find out more. The downside is that I get too tensed up when I'm considering a trade, and once I've made it I start watching it on the minute chart and freak myself out. Yes not healthy I know, I try to justify it by claiming that there is a lot to learn about the fractal nature of the market by observing the lower time frame charts. Indeed it is true and I've learned quite a bit, but it is also not aiding my mental and emotional state.

Will be going on a holiday next week, but once I'm back I'm going to make a conscious effort to work on my psychology to eliminate this anxiety thing. I'm also going to demo trade even more because I want to learn how to scalp (maybe 5 or 15 mins chart). Thing is, J16 is quite anti lower time frame trading but the guys at RTM are scalping very well and getting 3-5R trades pretty often. The concepts they use also seem very sound. As such I'm going to practice trading supply/demand concepts the RTM way and see how it goes; hopefully scalping will fast forward my learning curve. There will definitely be tonnes of failed trades but I hope to learn from them and gain experience. Looking forward to that!

USDTRY Daily Pin Trade - Loss

USDTRY Daily

Honestly this trade left me in shock. Normally when a trade fails, I'm able to identify the reasons during my post mortem. There is usually at least one reason, no matter how minor it is. However in this case I can't seem to figure out why. This is the best setup I've seen for many weeks, I absolutely loved it and was so confident that I didn't even wait for the break of the pin bar to enter it. I also risked 3% instead of my usual 2% on the trade because I wanted to try out dynamic money management - risking more on better setups. Needless to say that means I just lost 3% and I'm still feeling quite sore about it.

Price just shot up and broke through every single intraday resistance. In fact I saw many supply/demand setups as price was going up too. There was a nice Quadsimodo setup and a Sam Seiden setup that fulfilled all the Odds Enhancers. I really do not know what the heck happened, maybe exotic pairs just behave wacky. I know one thing though, lots of people got killed with me in this trade. I know because the moment price went above the pin, prices shot up like mad and the tick volume literally rocketed. This was the cascading of all the stop losses of the shorts like me who had their stops above the pin. I even suffered a 2 pip slippage due to the lack of liquidity during the spike. Oh well, gonna ask some guys for their critique on this trade so I can learn from my mistakes.

USDCHF Daily Pin Trade - Win

USDCHF M15 and Daily

I think this was a decent trade. Traders who chase overextended moves/breakouts into supply zones are often retailers, and retailers always lose. The plan was to ride on them being flushed out of their breakout long positions. I just wished I had managed the trade better, in hindsight I should have taken full profits at the major trouble area, especially when the lower time frames showed huge signs of reversal. I wanted to try out a trailing stop in case a miracle happens and the support breaks, but I guess that was too risky with such a strong move up.

And here is the thing, an experienced trader will be able to tell whether a support will hold or break, or where price is likely to go, or how to trail a position properly. Those are my weaknesses still and I'm trying hard to work on them. I've had the good fortune of getting to know a few RTM members, they've been very helpful and have taught me a lot. Every week the movements of the markets are becoming more logical and less random. In summary, price ALWAYS bounce off either a supply/demand zone or a S/R level.

USDCAD 1H BEOB Trade - Win

USDCAD H4

USDCAD H1

Right so with this trade I'm up about 4% so far with 8 wins out of 10 trades (though many are BE and some deserved to be losers), on track to my monthly target of 5%. Again I need to remind myself to be disciplined disciplined disciplined.... All I need is two stupid trades and I'll be back down to zero. That happened last month and taught me that I must never take any trade lightly, especially after a winning streak. I still feel there are a lot of market structure concepts which I don't understand, concepts that will enable me to have a much better understanding on how price moves. That is not something to be underestimated; a trader who has that knowledge is able to hold his trades through huge pullbacks knowing that they'll eventually hit his target which could be many Rs away. Right now at the very best I can only identify PA setups that I know have a high chance of hitting a nearby trouble area, beyond that I'm clueless. As such my profits are often less than 1R. ReadTheMarket is a treasure trove of quality information, I need to dedicate more time to studying and digesting its material.

CHFSGD Daily BEOB Trade - Win

CHFSGD Daily

So here is the first entry of my trade journal. I'm not very happy about this trade, for the reason stated in the screenshot. While it is not my fault that I failed to notice the S/R flip level until I'm in the trade, I still think that I'm not disciplined enough. The past few days have been very dull and I could feel the itchy fingers syndrome sneaking up. I need to be razor sharp focused, patient, and disciplined at all times. I have to trade like a sniper, I cannot afford to be hasty. I'm not a bad trader if I go for days without trading and everyone else is killing the markets, I'm a bad trader if I start taking sub optimal trades just to feel part of the crowd.

Pranti's PDF really reminded me of a lot of things, and I need to be even more determined to only take the very best trades with a good R:R ratio. I do believe that there exists a feeling of absolute confidence that a trade will go well. This feeling has only occurred twice for me this month - AUDNZD and GBPCAD trades. When I took those trades I was very relaxed and not anxious at all. It was as if I knew for sure the trades will work out, and they did. I need to only take trades which give me this kind of feeling. Such is the selectivity and discipline that is imperative to being a good trader.

Trading Price by Phanti - Fantastic eBook

Just want to share an eBook that was sent to me by a new friend (you know who you are, thanks a lot for it!). Really think it is a fantastic eBook that is worth more than 10k courses out there, and yet the author so generously wrote it for free. When I read it I couldn't believe it, because the eBook describes exactly the way I intend to trade! It clarified and reinforced a lot of concepts, taught me more, and convinced me that trading a combination of supply/demand with James16 does work and is in fact very powerful. Here are the links for the ebook:

Trading Price I
Trading Price II

So after reading it let me try to put in words a brief description of my entry rules:

1. Identify higher time frame S/R flips and supply/demand levels. Apply Sam Seiden's odds enhancers to ensure that only good zones are considered
2. Wait for price to approach these levels, set alerts to inform me when price is near
3. Identify the trouble areas, if there is one nearby do not take the trade
4. Watch for confluencing factors

• PA bars (Pin bars, Engulfing bars)
• Compression
• Round Numbers
• Divergence
• Fibs
• Trend Lines
• Chart patterns
• Confluence with other pairs/Dollar Index

I believe the method is very sound and proven. I really think the main thing that is standing between me and success now is discipline and patience.

Revamped Blog

I've been wanting to revamp my blog for a long time and finally got to it. Here are some of the main changes:

1. Removal of many old posts. A lot of my old posts were full of crap (Indicator hell etc) and erroneous analysis. No doubt these were all part of my journey, but I'm quite an anal/minimalistic person and really want to remove posts that don't reflect the way I trade now and might also be potentially misleading to newer traders who chance upon my blog. I retained article links, my reflections, and various ramblings though.


2. Change of template. Honestly I don't really like the new one either, will probably tweak it again when I have time. Just sticking to the default ones for now ;)


3. A Trade Journal section. This is something I've been wanting to do for a long time. After all I'm already journalling my trades so why not post the journal screenshots here so everyone can learn from my trades and mistakes together? I'll update this section with any trades from now onwards.


4. More conscious and intuitive labeling. I didn't really label my posts previously, and as such everything was very untidy and uncategorized. I plan to really categorize my posts from now on, and will also need to think of some main categories to label the posts under. If I have time and am feeling hyped up I might go label all my previous posts too.

Silver Short Trade - Barely Escaped

Silver 1H

Refer to my previous post on Silver. So I did short Silver on a breakdown, but man the moment I did it and zoomed in to the lower TF charts I knew it could be a mistake. Refer to the 1H chart above, while the demand zone has already been spiked, it doesn't mean that all the demand (buy orders) from that zone has been removed. Really strong zones can sometimes reject prices a couple of times. I was lucky on this trade because price formed a very obvious bottoming pattern on the 5 mins chart and hence clued me in to a pending reversal. I managed to escape with a meagre 0.05R profit.

I am posting this because I learned a few things from this trade.

1. When price is moving sharply towards a demand/supply zone, DO NOT chase the move!!! Just because a zone is no longer fresh doesn't mean it will not hold! A sharp move towards a zone is usually a trap by the professionals to suck in retailers and fill their orders. In this case you can really see how the pros happily accumulate at the demand zone. Once they've filled sufficient buy orders, price shot up like a rocket. You can really see this on tonnes of charts yesterday (Gold, Crude, NZDUSD, EURUSD, GBPUSD etc).


2. The 5 mins basing pattern in the inset above is also ingrained deeper in my mind. I've seen it a couple of times; I don't know what to call this pattern, neither do I see it in books, but you can really observe the decreasing momentum even as price was attempting to make new lows. This would appear as a bullish divergence on indicators. Price was also slowly rounding up, and in fact there was compression on the upside (price kept spiking up to remove supply in preparation for the big move up). These factors led me to close the trade for whatever profits I had. Indeed my stop loss was still far and the trade could still work out in my favor, but I hate draw downs and the risk over the week ends was not worth it.

A New Way Of Money Management - Trade Sequencing

Ok I'm super excited now. I just read an interesting money management strategy which I think has enormous potential. Here is the excerpt:


So during my Binary Options adventure, I started to use a money management system that initially was to overcome the negative R aspect of Binaries. Basically I compound in sequence of 3 or 4 - meaning i need to win 3 or 4 in a row!

But that's actually not that hard if you are patient and take only the best setups - mentally it's also easy as you know at the end of a 4 trade sequence you will have ~15R return.

This in turn helps with starting your sequence and not being over leveraged at the beginning, so you aren't risking too much of your trading capital to start. You just need to take the view that the accumulated profits mid sequence aren't your money yet until the end of the sequence.

Take a $5000 account - 2% risk per trade --> I do 2% per sequence so risk is $100 and I go for 1R trades only.

trade 1 - Risk $100 of trading account -> wins so I get $100 profit - 1R
trade 2 - Risk $100 of trading account + profit from last trade = $200 risk - wins $200 so total profits are now $300 - 3R profit on original $100
trade 3 - Risk $100 of trading account + profit from last trades = $400 risk - wins $400 so total profits are now $700 - 7R profit on original $100
trade 4 - Risk $100 of trading account + profit from last trades = $800 risk - wins $800 so total profits are now $1500 - 15R profit on original $100

after the 3rd trade you have a cumulative R of 7 and after the 4th a cumulative R of 15. How often can you pick a swing big enough to return 7 or 15R? compared to picking small 1R hops?

Conservative Trading - Aggressive Money Mangement. 

The above helped my psyche enormously. It still takes skill, but it makes you avoid taking marginal setups and waiting for the really good ones, because you know the pay off at the end will be worth it. That's how I nailed my discipline. Also, because the payoff is so good, but reliant on my trades running to target - i just let em run. It's also far easier to take the small 1R hops, than to find those 10R swings.

What happens if you lose on the 4th trade? well you only lose $100 of your initial capital - the rest was 'house' money and the potential return was worth it  You only need to pull of 1 x 4 sequence trade to fund another 15 attempts!

You can start of by just doing 2 at a time for a cumulative R of 3 - most people would be happy with a 3R trade 

I always thought if doubling down on losing trades was really bad - then the opposite must be true if you double up on winners! and it is!

OK actually I came across it somewhere else last week but couldn't understand it. In fact I think my understanding of it now is probably only half baked, but I can definitely see the tremendous potential in it. In short, the strategy involves adding the profit from individual trades to the risk amount. My initial thought when I came across it last week was that it is pointless because I could win 3 times in a row and  if on my 4th trade I lost, all the accumulated profits would be gone. What I didn't realize was that if I blew up one sequence, the most I could lose was 1R, but if I pulled off a sequence of 4 successfully, my accumulated profits would be 15R! Like what the excerpt mentioned, I only need to pull off one sequence to fund another 15 attempts!

Mind blowing fact: If a damn good scalper is able to be very picky and he is able to nail 2R per trade consecutively for a sequence of 4 (meaning 4 consecutive wins of 2R each), he would have more than doubled his account (260% increase). FREAKING UNBELIEVABLY AWESOME RIGHT?! In other words, all this scalper needs to do is to keep trying until he pulls off a successful sequence, and bingo 260% increase on his account. Each failed sequence would only cost 1R so the downside is limited.

Ok now here are my thoughts towards it. First of all, this management strategy is only for veterans. I'm talking years of experience in trading. Why so? Because the key to it is a very very high win rate, like 80-90+%. Well I suppose a low win rate with high win amount would also work, but that would require a tremendous (almost robotic) amount of patience and faith as it could be ages before one pulls off a successful sequence. This management strategy also requires a huge amount of discipline and mental strength. One might not be comfortable with an insanely large trade size on the 3rd or 4th sequence. He might also be tempted to take profits too early because the profit amount then is very huge and is not something he is used to seeing.

I will not try it on my live account because I've not proven my consistency and I know that I do not have the mental tenacity and patience yet. However it is definitely something I'll look into in future, and quite possibly is the Holy Grail to exponential account growth.

Supply/Demand Concepts On AUDNZD and USDJPY Chart

AUDNZD M15

USDJPY M5

Was looking at some charts and it was amazing to see how some Supply/Demand concepts played out. Notice that after breakouts, price doesn't always retrace to the classical S/R level and rebound there. It'll sometimes cut through the S/R level and reach for the demand zone which is the origin of the breakout. Why does it do so? We are taught that the definition for a breakout is price breaking a S/R level. That is true, but we do not realize that the origin of the breakout is not always at the S/R level, sometimes it starts below it as in the above two examples. We can identify these origins as levels where price burst very rapidly and sharply. From an order book perspective, there are still many unfilled buy orders there. As such, professionals will sometimes spike price all the way back down to target these levels and get the buy orders filled. Think about it, many textbook traders who bought the breakout will have their stops below the classical S/R level, I used to do so too. When prices drop below this level, these traders will have to cut loss (sell), propelling price further down towards the demand zone where the professionals happily get their buy orders filled.

Also, notice the regions of compression in the AUDNZD chart? See how price often cuts through compression regions very swiftly. Again this is because there is nothing left in that region to stop price as the professionals have already prepared their path and removed any supply/demand prior to the move.

Compression On Silver Chart

Silver 4H

Silver is showing an excellent example of Compression. I blogged about it in the previous post. Notice that price has been spiking up and down to remove the prior demand (Orange circles) and supply (White circles). Unfortunately I'm unable to tell which direction it'll break in, but I'm pretty sure that when price breaks on either side it'll hit either the Supply or Demand zone very quickly because there is nothing in the way to hold price back. Due to the recent sharp drop, I'm inclined to think that price is bear flagging (look at daily chart for a clearer view of the flag/pennant), and as such will short Silver if price breaks the uptrend line with a strong bearish candle. The first TP will be the Demand zone below. If it breaks up instead, I'll pass on the trade because I don't intend to fight such a strong move down.

I just want to add that Compression is not price consolidating tightly, nor has trend lines anything to do with it. I only added the trend lines in for visual clarity. Compression is about price making a conscious effort to remove prior demand/supply, it can appear spiky or squeezed. The key to a good compression is that there is a clear path without trouble areas to the next demand or supply zone.

The Concept Of Compression And Some Trades

I really want to talk about this concept called Compression. In fact this blog entry has been long overdue. First of all read about compression here as it is too much to explain in detail. In summary, it is a way to spot how the professional money is preparing for the next move. If price is compressing down to a demand zone, go long, if it is compressing up to a supply zone, go short. Really good traders will touch trade at these zones, but I'm still relatively new and so am combining this concept with the James16 PA setups. Here are some trades I took recently based on this combination.

AUDNZD 12H

EURGBP 1H

GBPCAD 1H

CP stands for Compression. There are more reasons as to why I took those trades, but the gist is that they formed a PA setup at a demand or supply zone (not shown in pics) and were compressing before that. Now notice one thing, if the analysis is correct, price can shoot to the profit target very very quickly. Why is this so? I'll try to explain using the EURGBP chart above. As price is moving up, notice that it keeps spiking back down before moving up again? This is because the professional money is deliberately spiking price down to consume the buy orders from any prior demand zones. They're trying to remove demand to prepare for a big move down. When price finally hits a supply zone and they get their sell orders filled, there is no more demand below to hold price up. As a result price will often just shoot through the entire area very quickly.

Isn't Compression amazing? I only posted three charts but trust me I've seen tonnes of examples on all time frames. And think about it, I made the above trades using conservative PA setups, which means my stop loss is a lot wider and position size smaller. Now imagine top notch traders (Many of them in ReadTheMarket) who are so confident in their levels that they touch trade using a small 20-30 pip stop. The above setups would have netted them more than 10R easily. On 2% per R, that is already a 20% increase on the account. Sounds ridiculous? I'm beginning to think more and more that it is highly possible. I mean, how does a person trade actively for >5 years and not get better and better at identifying the best zones/levels? He would also have a much better feel for the markets and know which are the best setups and which are the ones to avoid.

I'm really going to aim for the sky, yes I want to keep improving until I can consistently make a double digit % increase on my account monthly. I just need to fully understand and get comfortable with the supply/demand concepts so that I can start touch trading with a very tight stop. That I believe, will be the next level of my trading.

Example Of Supply/Demand On Crude Oil

Crude Oil Daily

I found a good example to illustrate why supply/demand theory trumps traditional TA. In the chart above, price broke down of a huge triangle pattern and has retraced back.

Question: Why did the retracement not stop at the pink level I marked? Based on traditional TA it is a highly confluenced level, how did price just shoot through it without the slightest hesitation?

Answer: There were no sell orders there to stop the up move. The sell orders were located further up in the supply zone (purple rectangle) where price previously started dropping hard. As observed, this supply zone did halt the up move.

Question: Why does price need to retrace back to the prior supply zone? What benefit is there for the professional money?

Answer: Lets imagine you're a market maker. You profit from commissions and by trading against your clients. Suppose crude was trading at 93.5 but suddenly some major event caused prices to drop rapidly. Think of what is happening on the order book. Prices shot down rapidly because there was a sudden influx of huge sell orders and inadequate buy orders. So what we have on the order book is a lot of unfilled sell orders at 93.5. This is known as a liquidity gap. Being an intelligent market maker, you know two things:

1. You know that if you drop price hard and fast enough, a lot of amateurish retailers are going to jump in and short the market. Also, a lot of prior bulls will capitulate and cut losses on their longs.
2. Because you can see your clients' orders, you also know that there are huge unfilled sell orders at 93.5. 

So what do you do? You spike the market down to entice amateur bears and shake out longs. Their selling will provide the liquidity for you to go long. Next you pump price up, this time round the amateur bears will get stopped out and add fuel to the up move. As prices go higher more and more late bulls will jump in, providing you the liquidity to take profits on your prior longs. These late bulls and shaken out shorts will also provide the liquidity for the prior unfilled sell orders to be filled, and that means more commissions for you because you're a market maker. See how it works? Prices move from zones to zones. Of course this is my own interpretation and I might only be partially right.

This is just one example, I see it over and over again in every chart in every time frame. I'm not saying that traditional TA doesn't work, in fact it does present a tradable edge. Fibs and trend lines etc do work, but from experience I feel that there has to be minimally some confluence and supporting price action for them to work. Also, to my pleasant surprise I noticed that many times when I find setups at S/R flip levels or confluenced levels, those that do work are often also at supply/demand zones.

I really really need to study the RTM forums more and put everything together. It is frustrating because I see a lot of things in hindsight but somehow fail to trade them effectively at the right side of the chart. Actually, it is more like I do pick pretty decent setups but end up sabotaging my trades by over managing them. Looking forward to a month of intensive study!