How To Trade Long From Demand

Here’s a trade I took last week on the NZDUSD pair, my first trade for 2014. I took a long trade from a demand level I identified last month. What follows is a breakdown of my analysis for the trade.

Daily Analysis

The main analysis chart for me is always the daily chart. In this case a demand level was identified and so I marked up the level on my chart and set a price alert on my iPhone.

One of the big positives for this level was how price left. When price leaves in a strong fashion that is always a great sign as it indicates that there was a great supply and demand imbalance, more demand than supply here.

This is normally shown in the form of large candles leaving the level. In this example, price gapped away from the level. Gaps also indicate a great supply and demand imbalance.

A typical demand level will have the drop base rally pattern which wasn’t present here. Supply and demand levels don’t always look perfect but they can still be traded if you can see the imbalance. The gap here was a great plus for the setup.

2014-01-02 NU Long D1

The Approach

The approach back to the demand level is always very important. I don’t like to see any opposing levels standing in the way of my trades and there were no supply levels or other trouble areas on the daily chart for this setup. Just pure red candles which is a great indication that price will rally straight up.

Confirmation

Sometimes even the best looking supply and demand levels don’t hold and that’s fine. You can’t win them all and there will always be more levels to trade from. I still like to tip the odds a little more in my favour by waiting for further confirmation that the level will hold and for this I drop down to the H1 chart.

The confirmation I look for is an engulf. I want to see an engulf of the nearest supply level on the H1 chart. Price must completely engulf the supply level in a strong fashion. This indicates that the daily demand level is indeed a solid one. I set a price alert for just above the opposing level, again on my iPhone and wait for it to trigger.

Once the price alert triggers I open the chart to see how price broke the supply levels and if there is a decent looking demand level present. In this case there was a nice looking demand level on the 30m chart.

The next thing I did was set a price alert for the 30m demand level and wait. Please see the charts below for the engulf and demand level:

2014-01-02 NU Long h1

2014-01-02 NU Long 30m

Entry

When the price alert triggered I opened the charts again to see how price came back to the demand level and observe price action on the 5m chart. Price dropped sharply back to demand which can be seen on the H1 and 30m charts. This is another plus for the trade.

For a 5m entry the confirmation I look for is the same as for the H1 chart; an engulf of the nearest supply level. This happened pretty soon after the 30m demand was hit. Price engulfed the 5m supply, retraced and then closed higher so I entered.  My stop was behind the 30m demand.

Exit

The target was daily supply so I set an alert and waited until price reached it. After price hit the level the following day I exited I the trade.

It really was a simple as that. Price doesn’t always move to target as quickly as this but that’s trading.

2014-01-02 NU Long 5m

You’ll notice that there was a bit of a retrace before price moved higher and that’s to be expected. The target was based on the daily so there’s not much to do until price hits the stop or target.

This didn’t require much screen time at all, just a few things to look for when the price alerts triggered.

I hope you found this useful.

Happy Trading

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5 Comments

  1. Gokeplus on January 19, 2014 at 13:44

    Excellent piece! Thanks for sharing.

  2. Haji zul on September 20, 2014 at 05:38

    Wow.. Nice top down analysis

  3. BasilB on August 27, 2015 at 17:24

    Joe, thanks again for interesting article! Could you be so kind and explain the following moments:

    1. Why didn’t you use demand level with strong departure (RallyBaseRally type formation) for you Entry that appeared on 60min. chart after first supply was Engulfed (the level formed slightly above 0.81700 and red box that you draw)?
    This level is also obvious on m30 chart with strong departure by 2 Exciting Green ExtandedRangeCandles and by the time price retraced this level was 100% fresh… It gaves some reaction but didn’t hold.

    2. How to define currency pairs that requires multi step approach described above and more simplier approach like you described in EURAUD trade, when you Long just from m15 flip/swap level?

    3. What service do you use for alerts? Do you recieve ’em by SMS or Mail messages?

    Thank you in advance for your answers.

    • Joe Wright on August 27, 2015 at 21:00

      Hi Basil

      1. That level didn’t look great to me on H1. Granted on 30m it was better but the initial move was from the level I took. It was also at the base of a daily momo candle which is also a good sign. In addition to that, I don’t believe there was confirmation on the 5m anyway.

      2. It mainly use the multi step approach for this method now.

      3. My fx broker is Dukascopy and they have an iPhone app that I use for alerts. It works great. There’s one for android too but that didn’t seem to work too well when I tried it

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