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.
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.
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.
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:
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.
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.
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.