Supply and Demand and Profit Potential

I want to talk a bit about profit potential as it’s one of the most important things to consider when taking trades.

As I’ve mentioned before I like to see things clearly on the daily chart before looking at any of the timeframes below and recently there were some great examples of why I do this.

AU Daily

Take this AU for example. There’s a nice clear supply level which formed back in December 2013. This month we saw price rally up strongly with nothing but green candles heading up to the supply level. There was nothing significant on the daily chart to stop price from falling when it reached the supply level. This is exactly what I like to see. Odds are in favour of easy move down to demand when this happens.

The actual amount of profit available depends on the entry and that depends on price action on the lower timeframes for me.

A11 Image 01 AU Daily

H1

We are looking for a QM reversal pattern on the H1 chart away from the daily supply. The nearest H1 demand was engulfed pretty quickly which is a good sign and there was a great looking supply above which I marked up. In this particular example, price formed another supply level after engulfing the demand which is more visible on the 30 chart. Price hit this level before dropping right down to the daily demand.

A11 Image 02 AU H1

A11 Image 03 AU 30m

If the path is clear on the daily, price usually has an easier time going where you want it to. Another example can be seen on the GBPJPY

GJ Daily

On the GJ we have a daily supply which has been tested once already. The initial test resulted in a huge drop away. Price rallied back up with clear green daily candles indicating that it would have an easy time falling back through if the supply level held. As you can see that’s exactly what happened.

A11 Image 04 GJ D1

H1

After reaching the daily supply level, the nearest demand level on the H1 was engulfed pretty quickly and price fell away dropping hundreds of pips. I didn’t see a clear supply level on the H1 which I like to see, so there was no trade here for me. It’s a shame when the move you expect happens without the PA to get you in but this is trading at that happens.

A11 Image 05 GJ H1

The main point of this was to show what happens when you see great profit potential on the daily at a key supply or demand level. Setups like these are definitely worth waiting for.

I hope you found this useful.

Happy Trading

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2 Comments

  1. neville on February 24, 2016 at 16:27

    wasn’t therecacdrop basecdrop SL just below h1 demand engulf

    • Joe Wright on February 28, 2016 at 14:21

      Hi Neville,

      Yes there was, that’s correct

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