Supply and Demand Targets: Knowing When To Exit

Entering trades is often the easy part of trading. You conduct your analysis, wait for your signal then enter. Where some traders fall down is when it comes to the exit. In this article we’ll look at a recent trade I took and why I decided to exit at the location I did.

Daily Analysis

In the image below you will see the daily chart of the NZDUSD, taken last week. Daily supply is marked in red but I have also included another line in purple. Now if you look to the left, you’ll notice that back in May 2013 there was major resistance at that level. Price dropped sharply from the area and continued to fall over 800 pips. This is also resistance from August 2011.

2014-03-31 nu Short d1 v00

2014-03-31 nu Short d1 v01

If you move up to the weekly chart you will further see the significance of the previous rejection at the purple line.

2014-03-31 nu Short w1

The supply on the daily is also clearly visible on the weekly too. Staying with the weekly chart, you can see that a big green weekly candle closed above purple resistance line last month which indicated to me that this resistance level at the purple line had now turned to support. Whilst I was quite happy to short from the supply above, this was the first point on the chart where I anticipated a possible big change in direction.

H1

As usual when price hit the daily supply level I dropped down to the H1 to see the nearest demand. When this was engulfed, I identified the supply which I believed to be the source and waited for a retrace.

2014-03-31 nu Short h1

Entry

Now there where two possible entries for this setup, both on the 5m chart. The one which I took is below.

2014-03-31 nu Short m5 v00

I wanted for the same QM setup that I always use for shorts. Next there was a fake out just like I talked about in my previous article. Price broke the H1 supply and came back down engulfing the nearest demand levels in quick succession. If you weren’t already in the trade, this was your second chance. (the better setup to be honest). Next a supply and demand swap zone formed which was the entry point.

2014-03-31 nu Short m5 v01

My stop was above the H1 supply by a few pips or so. Now price did come very close to my stop but it did not kick me out. The prices with my broker are slightly different to those on Trading View.

Trade Management

Price continued to fall and I was out by the previously identified purple line. Price did fall another 50 pips or so but I had 100 safe pips and I was happy.

After my exit price did indeed turn and rally from the area I had marked and it has shot back up way past my initial entry. As I write it looks like it definitely going to continue heading north. Time will tell.

2014-03-31 nu Short w1 v02

2014-03-31 nu Short d1 v02

The key point here is that it’s a good idea to consider the weekly as well as the daily when looking at targets which is not something I have always done in the past. Higher Timeframes are king

I hope you found this useful

Happy Trading

Like what you see? Share it here:

4 Comments

  1. Lamar on April 13, 2014 at 15:10

    Hey joe,
    When price came back to your purple line wasn’t the purple line also a swap level?

    Also, it seems that if there is a trend, up trend lets say, that demand zones are likely to be the biggest trades. Yes? No?

    One more note on your trade above, the fact that price had been to this level multiple times already. This also increased the likelihood of this trade working out yes.

    Thanks

  2. Joe Wright on May 29, 2014 at 07:36

    Hey Lamar. Yes the purple line was also a swap level, good spot. Trading with the large time frame is always good yes. With your last point about multiple touches of a level, which level are you referring to?

  3. bobyv87 on August 19, 2014 at 16:28

    is there the same method with RTM? thank you

    • Joe Wright on August 24, 2014 at 13:17

      Hi Bobyv. The way I trade is different to those at RTM. I know that they talk about the engulf a lot so there is a similarity in that regard but there are many different styles of trading there from what I can see and my approach is different.

Leave a Comment





Want to improve your trading? | Download your free Traders Checklist

x

Learn To Read The Market

Your guide to consistent trading profits:
  • Identify high quality setups
  • Learn to read price action
  • Trade with confidence
x