Market Stalkers- Price Action Tra(z-lib.org)

Market Stalkers by: Deeyana T. Angelo Disclaimer The information in this ebook is for educational purposes only. Leveraged trading carries a high level of risk and is not suitable for all market participants. The leverage associated with trading can result in losses which may exceed your initial investment. Consider your objectives and level of experience carefully before trading. If necessary seek advice from a financial advisor.

Copyright Notices All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other non-commercial uses permitted by copyright law. For permission requests, email the publisher: [email protected] ©Copyright 2015 • Blahtech Limited • www.blahtech.co.uk 2

Market Stalkers by: Deeyana T. Angelo Table of Contents Disclaimer ............................................................................................. 2 Copyright Notices ............................................................................................................... 2 Introduction ......................................................................................... 4 Two Ways of .......................................................................................................... 4 Chameleon, the ambush predator ........................................................... 5 Supply and Demand Basics .................................................................... 6 S/D Formation Types ........................................................................... 17 The Right Zones ................................................................................. 25

Trading

Scoring Table .....................................................................................................................27 Filters .................................................................................................................................29 Odds Enhancers ................................................................................................................42 Trends and How to Read Them ............................................................. 50 Swings and .........................................................................................................50 Topdown Approach ..................................................................................................53

Quartiles (TDA)

Rule of Fours .....................................................................................................................61 Risk Management ............................................................................... 67 Risk Model .........................................................................................................................68 Summary .......................................................................................... 70 ©Copyright 2015 • Blahtech Limited • www.blahtech.co.uk 3

Introduction There are many trading books out there, some good, some bad. Most of them will promise that their system can make anyone into a trader. I tend to disagree.

Trading is one of the most mentally difficult jobs you could possibly imagine. It’s almost like telling people that anyone can be a professional footballer. While trading can be a lot of fun, it can also bring about a lot of stress. Learning how to trade isn’t an easy road. Even if you’re given the most profitable system in the world, results will vastly vary from person to person. So I will not promise to make you into a super-trader, but I will attempt to demystify misleading concepts of trading that have plagued the traditional trading books and courses for decades. In this ebook I will explain, from a professional traders point of view, what I see when I look for trades. Over the past year I have worked with a software architect to develop an algorithm based on my skills, firmly believing that my way of trading is systematic. However, what I have learned is that my way of trading is quite a bit discretionary. And extremely difficult to explain to a computer. Luckily, this ebook is going to be read by humans not computers and humans should find it relatively simple to grasp the techniques described here. Without further ado, let’s sink our teeth into some new knowledge.

Two Ways of Trading When you break it down, there are really only two ways of trading styles: chasing price or stalking price. What do I mean by stalking? I wait and I wait, until the price comes to my desired level and then I pounce. Like a puma or a chameleon. Second way of trading is to chase price and be more like the lions, aggressively chasing after the gazelle ie price, once it already moves away. That way of trading works for a very few select people. I’ve only met 2 traders who have become successful doing that. So let’s stay away from gung-ho trading! ©Copyright 2015 • Blahtech Limited • www.blahtech.co.uk 4

Chameleon, the ambush predator You may have noticed our little chameleon mascot on the front cover. The reason I chose the chameleon is because a chameleon’s nature is very shy and mild. It’s quite a sweet, non-aggressive creature and yet its hunting style is one of an ambush predator. Camouflaged, it sits hiding and waiting. Until a fly goes by and then BAM! One flick of a tongue and the fly has met its end, whilst our chameleon is happily munching away. No fuss, no drama. Pure patience and discipline. And that’s the kind of trader that you should strive to become. Let me tell you a little bit about myself. I used to be an accomplished musician until the after effects of recession started

to rain down on my industry. Eventually I decided that my time is worth more than the student-rate gigs I was being offered after 20 years in music and I decided to turn my attention to something else. I have always been interested in the markets. But not enough to learn anything about them at that point. I was too in love with music. Actually I’m still in love with music, but today I am happy to say that I am equally in love with the markets and trading. I’m one of the lucky few who have found their second dream in life. Nowadays I trade my own account as well as working remotely as a professional prop trader for a Chicago-based company. I am known in the trading circles as “Doggette”. My trading style is indeed one of an ambush predator. I wait for the price to come to my levels and then I expect a certain behavior at those levels. I use a price action concept of supply and demand, along with consolidation areas to get in on the moves. But I never chase price. Ever! 5

Supply and Demand Basics In order to start grasping price action concepts, a lot of professional traders use supply/demand to find their levels. They are clearly visible if you know what to look out for. S/D analysis comprises of looking at the chart horizontally, which means you will always be looking to the left of the current price to see what came before. But first, let us remind ourselves exactly what supply and demand is. What is supply? Supply means providing something that people need or want: səˈplʌɪ/

verb make (something needed or wanted) available to someone; provide. And demand is: dɪˈmɑːnd/ noun desire for something, a service, product, item, etc… As traders, we will be using technical analysis to determine when supply is plentiful and prices are too high – ie when to start selling. Or opposite – when demand outweighs the supply, when prices are too low and we want to start buying. Market is an auction that works based on balance and imbalance of supply and demand. On any given day, there will also be a fair price, as determined by price action from the previous day. But more on that some other time. How do we transfer this to trading various asset classes? To do this, you need to start looking to the left of the chart, to find previous 6

swing highs and lows where price turned. While it might seem that we are only looking for traditional support/resistance lines, bear with me while I explain that S/R is NOT quite the same as supply/demand. S/R is usually represented as a single price, one key level that you’re supposed to use to execute a trade. Trading from S/R as your guide in reality is extremely difficult and doesn’t offer great profitability, right off the bat. Reason for this is that markets are rarely that precise in hitting these levels. Most of the time, price

will either fail to completely reach the level or might pass it by quite a few pips/ticks, making it very difficult to consistently trade the same level. To top this off, traditional books will tell you that the more times price hits a level, the stronger it is. Nothing is further from the truth! Let’s have a look at a chart to illustrate this. I will use a long term AUDUSD chart. Long term levels are more accurate and “cleaner” looking, with very little noise purely because of the amount of trading that went into them.

Figure 1. AUDUSD Weekly Chart with traditional 7

Support/Resistance key level On Figure no.1 you see a key level in AUDUSD. Looking at this it should be really easy to trade right? Let’s analyse this in a slightly more detailed manner.

The first green bubble numbered 1 is when the support line gets created. When the price first tests the support, its gets massively broken, needing a 200 pip stoploss to survive the “test”. In all likelyhood, no 2 is a loss. At bubble no 3 price fails to even reach it, so no fill. At no 4 the level gets broken, so another loss. Now that the price went well below the support level, traditional books tell us that support, once convincingly broken, turns into resistance. So let’s try and trade that idea: At no 5 once again a stoploss of over 225 pips would have been necessary to work out – another loss. Finally, at no 6 once again a trade wouldn’t get a fill. Hmmm. So that’s loss, no fill, loss, loss, no fill. Not great is it? What is going on then? Clearly we have a key level and it’s definitely reacting with the price but a trader is unable to catch these moves. It looks messy, impossible, difficult, gambling etc. Enter supply/demand analysis. Let’s have a look at the same chart but this time using the boxes that will highlight s/d levels. 8

Figure 2. Same chart, with the first demand level When price first created the support and proceeded to move away from it, price created a DEMAND level. This kind of a demand is defined the minute a candle fails to advance in direction and starts to go sideways. Remember this part. Sideways action. Even if it’s for only 2-3 candles that consolidate, whatever happens next will potentially be a demand or a supply level. In this case, price consolidated then moves away upwards, creating a DEMAND. This move would have been very noticeable even on much lower timeframes, way before this weekly demand was created. Once the price returned to the level of consolidation, ie sideways action, now that a trader knows there is potentially some demand here, he/she now has a clear trade direction. By recognizing that and going long once the price was inside the demand, swing trader could have banked 1400 pips by simply holding on to the trade for a less than 2 months then exiting once he/she noticed a bearish engulfing pattern once the weekly candle was done. Even if you only used a mini lot size, you’d be looking at roughly £890 with the rollover costs included. That’s an extra £445 a month. On a mini lot size. So far so good. Once you’ve played a demand level once, caution is always advised on the second test of the zone. This is because the level isn’t fresh 9

anymore and contrary to what popular trading books tell you, a level actually gets weaker and weaker with each test. Think about it like chopping down a tree: everytime an axe hits the tree, a little piece falls off, until there’s no more wood to support the tree and it eventually falls down. So after the first trade, a trader would simply watch the price action for confirmation on the second test of the zone. Since the trader never gets that confirmation, price goes straight through the level and then retraces, creating a brand new zone in its place. To clarify this part: once price busts through the bottom/top of the zone by more than about 12 pips, the zone is broken. Consider it wipes. Price might continue to create a brand new zone in its place, which we now treat as a brand new demand. So once the level was broken, price proceeded to go on another trend up, creating a new demand. With that in mind let’s have a look at where the second trade would be located: 10

Figure 3. New demand is created After the move up, once the price started to come down, it actually hit the first available supply level – a zone where price turned. Now that there is a demand and a first obvious supply in place, we have a trade direction, trade location and trade exit. Purely by trading what is already on the chart – no need for guessing. Once the demand is reached, a trader would enter a trade and hold it until the first obvious opposing supply. This trade was worth 700 pips. Even on a mini lot, that’s again a nice chunk of £440, in about 9 weeks. When second test of the demand comes, again caution is advised – I never put limit orders on second tests. I desire my levels fresh and virginal – untouched. Second tests can work on confirmation entries (more on those later), but practice safe trading and wear a condom. Because second tests are a bit slutty and dirty and might trick you into thinking a trade is working out and then simply crash straight through. Also minimize your profit expectations for the same reason. In this case tough, a trade does work out and banks another 750 pips. Now that I’ve given you a rundown of what S/D zones can do, let’s look at a way to find these zones on the chart. Here’s a Monthly chart of EURUSD:

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Figure 4. Locating highs and lows To look for zones, first locate your highs and lows. Oh and before I forget, later on we’re not going to be using monthly and weekly charts to get in on the trades, but larger timeframes are cleaner looking, so these are still only for education purposes. Back to the highs/lows. Mark highs/lows and then notice whether there were consolidations prior to the moves away from highs/lows. Go ahead and mark little rectangles around all those areas. Try looking to the left of the chart when you see an obvious swing highs/lows. These swing highs/lows are not allowed to cut through candles. You’re looking for originating points of moves and once price trades through the high/low they’re no longer valid. Now extend those rectangles TO THE RIGHT, like this: 12

Figure 5. Some of the rectangles overlap Some of the rectangles are overlapping. What does this mean? That they have been tested before, therefore no longer untouched. Treat with caution. Wear a condom. Or just don’t touch! Just say no! But seriously – overlapping rectangles also show you which zones are currently reacting and this can give you a really good sense of direction from a birds eye view. So the overlapping zones, aka previously tested zones are REACTIVE zones. Look to the left of the chart finding obvious swing highs/lows that don’t cut through candles. You’re looking for originating points of moves and once price trades through the high/low, they’re no longer valid. Let’s clean up the chart a bit and remove the overlapping zones, zones that dip into previous, older levels: 13

Figure 6. Clean picture with REACTIVE zones, birds eye view, EURUSD monthly chart To learn how to correctly draw the zones, the little boxes, the lovely rectangles filled with profit potential, let’s use two lines of different colour:

Figure 7. Drawing zones correctly

To avoid confusion, I will call the lines differently, to distinguish between top and bottom of rectangles, kind of like port & starboard on boats so that there is never a confusion on what the entry line is called, whether it’s a supply or a demand in question. First line, the green one, should be drawn where price first started to stutter and where price had trouble advancing the trend. Even if it’s only for one candle or two candles. By the way, these zones will always be looked at in hindsight – we’re trying to read the chart and look for fresh zones, not guess where the price will go. 14

Figure 8. Demand zone conterminous line & border line Back to the green line. The green line is called a CONTERMINOUS line, because it will always have a common price point with the candle/candles that succeed it.

The absolute edge of the zone I’m naming a BORDER line or STOP line, since it usually only has one high or one low. On Figure 7, we have a SUPPLY zone. For DEMAND zone, the opposite is true: Here are a few more examples of different looking zones:

Figure 9. Two candle demand zone This one is still a demand zone, albeit comprised of only two candles. So I draw my conterminous line where the first candle opened, because that is a common point of both candles, representing a halt to a further move. 15

Figure 10. Two candle supply zone So in other words, conterminous line will ALWAYS be your ENTRY. Border line will ALWAYS be your STOP. Simples. In conclusion to Chapter 1 on S/D basics, I will say that there are several S/D formations to watch out for and we’ll go through these in the next chapter. - End of Chapter 1 16

S/D Formation Types Hopefully by now you’ve practiced to locate S/D zones on your chart. Now that you can find them, it’s time to take a closer look at how they have formed. This will give us the first clue on whether to include or exclude the zone as a potential tradeable area. There are 3 types of each. Two of these names have been given to us by Sam Seiden, but I am adding some more. SUPPLY FORMATION TYPES: 1. Rally – base – drop aka The Devils Tower 2. Drop – base – drop aka Staircase 3. Normal formation Let’s go through these first. Rally – base – drop (RBD) aka The Devils Tower

Figure 11. Rally - base – drop aka The Devils Tower formation 17

Rally – base – drop is characterized by HOW the price arrived there. I decided to name it The Devils Tower because the formation looks like the Devils Tower from that movie “Close Encounters of the Third Kind”. In case of the Devils Tower there is an uptrend prior to price consolidating. Once it consolidates, after some time the price aggressively leaves the level, creating a potential supply. Here’s another example of a devils tower:

Figure 12. Devils Tower, once again, very similar to the previous example Drop – base – drop (DBD) aka The Staircase This type of supply doesn’t look at how price arrived at the level, but rather how it left it. And here’s what it looks like on the chart:

Figure 13. Drop - base- drop aka Staircase. Price leaves a level quickly, then consolidated, then drops aggressively again

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When looking at Staircase formations, be very careful trading the consolidation area on any timeframe lower than Daily chart. Otherwise, the base isn’t really a valid enough area. In Staircase formations, you are interested in the originating supply above a particular consolidation which is the parental, originating zone. So only top parts of Staircase formation on lower timeframes, please! Normal formation (NF) Final formation supply type is a normal formation. These are usually comprised of only two candles and have no discernable base or consolidation to speak of. They look like this:

Figure 14. Normal Formation Supply. No consolidation in sight, just two candles

Figure 15. Similar story as figure 14, no consolidation.

Generally normal formations are to be taken with caution. You will come across these areas quite frequently. There is a way to trade the normal formations, however they are NOT suitable for set-and-forget limit orders. In order to validate the normal formations as tradeable area, other things have to be taken into consideration, such as: 19 1. Strength of primary trend taken off higher timeframes

2. Time of day 3. Actual candlestick pattern of the two candles 4. Strength of the move away 5. Profit margin of the zone, ie how far did price move away Or any combination of the above conditions. Trading normal formations should only be attempted once you’ve managed to successfully analyse and profitably trade from at least a 4-hour chart. With normal formations you might want to go to lower timeframes to investigate whether there is a Devils Tower formation nested inside it. If you find one, then the whole area is tradeable. DEMAND FORMATION TYPES: For demands, there are exact equivalents but turned upside down: 1. Drop – base – rally aka Bucket Formation 2. Rally – base – rally aka Staircase Formation 3. Normal formation Drop – base – rally (DBR) aka Bucket Formation

In a downtrend, price consolidates, creates a little “base” then turns around and rallies the other way. 20

Figure 16. Drop, then an inverted hammer, followed by a very strong rally

Figure 17. Drop base rally. Completely different chart, similar looking

Figure 18. One more example of drop base rally, this time with a 2 candle

base before a turn in direction 21

Rally – base – rally (RBR) aka Staircase RBR is exactly the opposite from drop-base-drop. Price goes up, then consolidates, then continues to go up. Also looks like a staircase, hence the name.

Figure 19. RBR demand

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Figure 20. And another rally-base-rally demand

Normal formation NF demands are created exactly as their supply counterparts. They are a 2candle formation zones and should also be treated with caution and NOT used for limit orders, unless you can find a Bucket Formation on lower timeframes.

Figure 21. Normal Formation demand from a bullish engulfing candelstick pattern 23

Figure 22. A weak normal formation demand. More on why it's weak in the next chapter

Original zones One final thing to remember is that there is a 4th type of formation – an original zone. Original zones can be created at any time and at any point, regardless of other zones that already exist above and below it. Once an original zone potentially starts for form, it will end up looking as one of the formations mentioned above. Original zones can sometimes be traded intraday but only if they form consolidation for at least 3-4 candles on lower timeframes (usually m15 or m30). - End of chapter 2 24

The Right Zones Strong zones/weak zones Filters and odds enhancers S/D zones technically might work in both directions. However I see way too many traders who simply see any zone coming up and take the trade off it. After attempting to trade several of the S/D zones in both directions, these traders will proclaim that S/D zones don’t work. Hold on grasshopper! You’ve only just scratched the surface. If trading was THAT easy, everyone could just pick up a copy of any S/D indicator and randomly hit trades as the zones get in the way. Analysing what PRICE ACTION within the zones is doing and then also what happens AFTER the zone was reached is the secret in becoming fluent in price reading. Just like you wouldn’t be able to read a book without first learning the

alphabet, likewise you won’t be able to trade until you learn S/D language. Just like letters in the alphabet represent the basic building blocks of words that need to be arranged in a particular way to form words and sentences, likewise S/D grammar comes in the shape of filters and odds enhancers that will help you sift through the zones that have a low probability and those that historically have a high probability. Just like letters in the alphabet are the basic building blocks that need to be arranged in a particular order to form words, likewise S/D grammar comes in “ the shape of odds enhancers and filters to help you choose the right zones Choosing the right zones with the highest probability has to include a bit of planning and trend analysis. Let’s see what constitutes a strong zone vs a weak one. To break this down, there are 6 conditions that need to be satisfied before a trade can take place, whether it’s a limit order or a market order. 25

3 are filters, 3 are odds enhancers. If ANY of the filters are not satisfied, the zone is immediately EXCLUDED from points of interest. If SOME of the enhancers are not there, depending on the overall score and a few other things, like time of day, strength of primary larger trend, consolidation at level, you might decide you want to go in after all. FILTERS: 1. Strength of move 2. Profit Margin, aka Risk/Reward 3. Presence of a base, ie consolidation at zone

ODDS ENHANCERS: 1. Birds Eye View aka Primary Trend 2. Retracements 3. Arrival at zone Before I go into detailed explanation of what each one does and exactly why a level is weak/strong, I’ll explain how to score these. Some of these conditions have more significance that others, therefore they are adequately scored with either a max score of 2 or a max score of 1. 26

1 Clean arrival – 1 Congestion prior to zone arrival - 0 27

Hopefully the table above is pretty clear on the max scores. How the scoring works is like this: Zones that score 9 and 10 can be set-and-forget limit orders, if they fit into your risk model (ie the stop loss required isn’t massive). Zones that score 8 are always only confirmation entries. Zones that score 7 or less are automatically excluded from points of interest. This concept of zone scoring is still somewhat new to most S/D traders. I know that Online Trading Academy also has some kind of a scoring system, but I can’t comment on this since I’m not a former student of OTA. For me, the way it came about was out of a need to decide whether a zone is tradeable or not. I wanted a more systematic way to determine if I should be going in. This need grew even more when I started working on our algorithm that uses S/D to trigger trades. It has proven quite a challenge, however what came out of the process of working with a software architect on the algorithm is a wonderful S/D indicator that actually has the scoring system hard-coded inside it already. However, a trader still has to decide on the trade direction and sometimes even to decide whether or not to take the trade from a less strong zone. Usually when there is a really strong imbalance in the market, this means a relentless trend that offers very few pullbacks into old levels. So by having one of our S/D indicators, you still can’t simply blindly follow the levels.

Now that we have the basics of the scoring system, let’s go through each of the filters/odds enhancers and explain what a trader should be looking for when deciding to trade a level. Starting with filters. 28

Filters To remind ourselves, filters are: 1. Strength of move 2. Profit Margin, aka Risk/Reward 3. Presence of a base, ie consolidation at zone STRENGTH OF MOVE Remember how earlier in the book I said to look for large moves away and then look to the left of those to look for consolidation? By now, you should be able to spot a consolidation on the chart, even without the large moves. Sometimes a zone has a decent move away but it’s not quite violent/large enough. However it’s still a move away. So STRENGTH OF MOVE looks at how price LEFT the level. Generally, rule of thumb is that the BIGGER the initial move, the STRONGER the zone. Gradual moves imply that there wasn’t enough interest there, so the price slowly meandered away as time went by. Gradual moves can happen AFTER violent moves have finished, usually because people might be taking profits or the price might be going back to its median average. What do I mean by that? Well, think of prices as elastic bands. Price generally moves in a fairly

predictable blocks of certain number of pips: 15 pips up, 5-7 pips down, 12-15 pips up, 5-7 pips down. The “blocks” will vary from instrument to instrument, depending on volatility and liquidity but generally once you get a feel for the instrument you can pretty much expect how it’s going to look once a trend starts intraday. But, if we get a new piece of information – like a new economic number or news of something major that’s happened, markets will immediately reprice themselves to match new data. Markets are very efficient that way, especially today when most of the trading is algorithmic when it comes to large institutions like banks and hedge funds. So once the markets reprice, generally if they overshoot the median averages price will eventually start meandering towards its mean values. 29

Figure 23. Example of strong move away

Figure 24. Same chart, with Risk/Reward points In Figure 23, there’s a pretty strong move away that would score a 2 on the table. In two candles price moves away more than 3.5 times the size of the initial zone. If your entry is at the conterminous line of the demand and your stop just underneath the border line, you would need to use a 14 pip stop. If you multiply 14 by 3x, which should be your MINIMUM risk/reward on ANY trade you decide to take, you get 42 pips. Add that number to your ENTRY price to get the price where the move away is 3x your stop loss. On the chart that price would look like this: 30

Figure 25. Relatively good move away but nothing to write home about. Score for Strength of Move is 1 So from this example we can conclude that Strength of Move and Risk/Reward filters are closely interconnected. So why is the strength of move so important? Because the large moves are created by large volume – it shows that there was a lot of interest to either buy or sell at so-and-so level. Once this moves has happened (and only once it’s happened!), that area becomes an area of interest to us. Moves that were ok but not particularly violent are also of some interest, especially if they eventually ended up between 3x and 5x our required risk/reward price. Like this one: Here there’s a supply with a wobbly consolidation of about 3 candles, but price then proceeds to fall much further than between 3-5x r:r. How do I know that? Because I calculated it, as shown below: ©Copyright 2015 • Blahtech Limited • www.blahtech.co.uk

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Figure 26. Same chart, with 3-5x price points As you can see, price went much further than 5x r:r. Although the initial move away wasn’t violent, the trend took care of further decline in price. Once the price comes back to test this area in the near future again, I know I would be watching this as a potential area to look for consolidation at or just below this level. The score wouldn’t be quite high enough for a set-and-forget limit order, but it would definitely be a possible area for a confirmation trade. Here are a couple more examples of a strong move away: 32

Figure 27. S&P500- 4-hour chart. Strong supply

Figure 28. GBPUSD Strong move away on a 30min chart, demand created after GBP inflation release. I traded this level about a couple of weeks later for some very nice profit ©Copyright 2015 • Blahtech Limited • www.blahtech.co.uk 33

Figure 29. Another reason why strong moves are important To sum it all up, strong moves away are the first clue that the zone you’re looking at is a STRONG zone. STRONG MOVE = STRONG ZONE. There is a little more to the strength of zones but in most cases, strong move indeed equals a strong zone. Enough on the strong and medium moves away. What about gradual moves? Honestly, I tend to stay away from zones created by gradual moves. Mainly because like I mentioned before, they are a result of a LACK of interest, rather than INITIATIVE buying/selling activity. Automatically, zones resulting from GRADUAL moves are WEAK. 34

Figure 30. Two weak zones created during overnight trading in EURUSD. Both demand and supply seem reactive. Even overnight, price simply went through the demand.

Figure 31. Same chart few hours later, upon London open, weak overnight supply gets obliterated. 35

Figure 32. Here's EURAUD chart with a strong supply, but a weak demand.

Figure 33. Same chart, a while later. Weak demand doesn't hold 36

Market Stalkers by: Deeyana T. Angelo PROFIT MARGIN AKA RISK/REWARD

Second filter is risk/reward. I’ve already touched upon this but now I will elaborate further. A lot of traders try and guess how far the price will go once they are already in a trade. But why guess when everything is already on your chart? All we have to do is read. To get the profit margin aka risk/reward for our area, all a trader has to do is see how far the price moved away from the level. So if something moved away 4x the initial zone THAT is your PROFIT MARGIN also known as your REWARD for your trade. Trading profitably is all about putting numbers on your side. These numbers are not horribly complicated and you don’t have to be a mathematician to understand them. Remedial math is all that’s necessary. Trust me – I am not that great at maths and yet I’m a decent trader. In my career so far, I’ve broken some trading records at prop companies I’ve worked for and I’m also known as “the one who had the most perfect TST Combine stats”. For those who don’t know what I’m talking about, a TST Combine is a simulator process that a trader has to go through if they wish to trade a funded account for Patak Trading Partners, which is a fairly well-known prop trading company in Chicago. Keeping numbers on your side is ultimately what makes successful traders profitable. If you keep your risk/reward to above 4-5x, you can remain “ profitable even if you only win 30% of the time. So believe me when I say that math skills are not that important in this job. In fact, looking for perfect equations in chaotic markets that are sometimes driven by pure emotion, splattered on our screens in the shape of candlesticks, is probably a fools errand. Markets are pattern-based, however there is still a math component of trading that is quite important and makes things hell of a lot easier: and that is PROBABILITY. Keeping numbers on your side is ultimately what makes successful traders profitable. If you keep your risk/reward above 4-5x, you can be profitable even if you only win 30% of the time. Eventually you can aim for 50% or even 6070%, but still keep the risk/reward high and voila! You can live your life however you want with the cash you make. 37

Figure 34. A potential demand level

Figure 35. More follow through. Now I'm interested The biggest trick to my way of trading is to wait until the price moves far enough away, in order for the zone to be worth my time and money. For swing trades, I look for at least 5x r/r move away. From a practical point of view, once I see a big move, I then wait until it goes 5x my required number of pips for a stop before I consider a limit order. Here what it looks like on charts: Here you see a potential demand level that was formed after price moved somewhat aggressively away, creating a bullish engulfing candlestick pattern on the last two candles shown. Price continues to move up, piquing my interest in the newly formed demand zone. I then calculate my 3x, 4x & 5x price points that I want to see reached. To quickly do this, these days I actually use a modified Fibbonacci tool from Metatrader 4 – but for years I was calculating these manually. So on the next chart, here the modified Fib tool with price points automatically displayed:

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Figure 36. Price reached 5x risk/reward price point. Now I can place my limit order Price continues to move up, eventually hitting my 5x r:r price point. Up until now, all I’m doing is watching the developing price movement. Once my r:r condition of 5x has been satisfied, I will quickly go through my scoring table and decide if the trade will be a limit order or perhaps a confirmation entry. For this trade, this is a limit order, because ALL 6 conditions, filters & odds enhancers have been satisfied. This technique works both for swing and for intraday trading when combined with multi-time frame trend and zones analysis. But generally the only difference is that in intraday cases, you are able to watch the areas developing in a course of a day, whereas for swing trades you have to go back in time, look to the left and check for all 6 conditions on older levels before making your mind up.

I always suggest starting from higher timeframes and trading off 4-hour charts until you become profitable and consistent on demos before moving on to trading from lower timeframes. I will explain how higher timeframes react with lower timeframes in the next chapter on Multiple Timeframe Analysis. That should cover the Risk/Reward filter condition. Moving on to consolidation/bases. 39

EXISTENCE OF CONSOLIDATION/BASES The final filter is the existence of some kind of a consolidation before the move away. When you’re looking for your levels and you find large pops of price, the next thing to look out for is the whether prices consolidated beforehand. This filter condition ties in with the zones formation: rally-base-rally, rally-base-drop etc. Remember that? It’s extremely important to remember to look for a BASE prior to the move away. Why? Because existence of consolidation or a base represents an agreement in price. In fact anytime you see consolidation at previous level or consolidation that creates a new level, these areas represent TRUE SUPPLY/DEMAND areas that all have a potential to be profitable, highly probable trading areas. Agreement in price could also be looked at as price having trouble breaking through an area – especially when you’re looking at a previous level. You might notice a previous zone that might not have all the conditions for a limit order, but once price reaches it, suddenly after about 2 hours of looking at a 30 minute chart, you see a uniform consolidation in the shape of a rectangle:

Figure 37. WTI Crude oil H1 chart In this example price was trending up, then started to pullback, but then failed to advance any lower. What happened next? This happened: 40

Figure 38. Price continues with the trend up, creating a demand

Figure 39. Here is our demand, highlighted in all its glory, waiting for a limit order to be placed 41

So anytime you see a rectangle and then a bullish/bearish engulfing, calculate your r:r price points and wait. Like a chameleon… Whenever there is a base, it will score a maximum of 1 point on the scoring table. Either there is a base or there isn’t. Simples.

Odds Enhancers So we’re done with the filters explanations. I shall now move on to explaining how to use Odds Enhancers. There are also three of those. The first one is called: BIRDS EYE VIEW AKA LARGE TIMEFRAME PRIMARY TREND Like the name says, this is an odds enhancer which is going to determine the direction of the majority of trades you’re taking, particularly concerning swing. I was toying with the idea to make the primary trend condition a filter, however because there are traders out there who trade intraday as well as swing, I decided against it. Because it’s entirely possible to find a counter-trend trade intraday that will work. You can even find one on a 4-hour chart. Especially once the primary trend has been in force for a while. So how do we determine primary trend? I will cover this in depth in the next chapter, but for now I will reveal that you have to start from a Monthly chart then work downwards. Topdown approach, like foreplay. Start from the top and work your way down. Yes guys, markets are like women, you need to do a bit of prep before they let you score. A lot of the time, a yearly trend is clearly defined on the Monthly chart. Sometimes, it’s not so clear so you’ll have to go down to Weekly and Daily charts and decide what’s going on. I usually look at 2 years on Monthly chart, then I look at last 12 months, also on Monthly. I will then also have a peak at Weekly and Daily to make sure that the trend isn’t turning or consolidating. 42

“ Here are some examples of Monthly trends and what to look for:

Figure 40. Multi year monthly chart of GBPUSD. Since July 2014, its been in a downtrend 43

Figure 41. USDCAD monthly chart. Firm uptrend, started on 1st March 2011. As I’m typing this, it’s Sept 2015. Uptrend still in force The way I look at the primary trend – it’s in force until proven otherwise. If something has had a multi-year trend, why do most traders think that once THEY start trading, they will suddenly catch a TURN in the trend? Isn’t it much simpler to assume that on most days, the primary multi-year trend will still be in force? ON MOST DAYS! So why try and fight it? I think these days, trading “with the trend” has taken on a bit of an ambiguous meaning. Lots of newer, less experienced traders read the trend as something that has been going up for 2 days, therefore they will now try and buy into it from a completely random point with a teeny-tiny stop. Then the market knocks them out and the new trader won’t let go of his/her ego trip that they have to be right. Trader then puts another trade with a MUCH LARGER stop then they have ever used before, or even worse, they REMOVE the stop?!!!! Firmly believing that the market will turn. Because you know… it has to?! Let me assure you, the primary trend will eat you alive if you are not aware of it.

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This kind of inexperienced thought process where a trader doesn’t have a clear trading plan and where eventually the survival instinct of the new, emotionallyunprepared individual kicks in, removing the rational mind from the process and leaving an animalistic side of us to press buttons in a deluded state of trying to “stay alive” is exactly the kind of mindset that you can avoid by knowing what the primary trend is. Knowing when you’re going against the trend, knowing what to do and how to manage trades that are counter-trend. The way I approach this: in an uptrend, I expect all supplies to eventually budge and fail. So if I decide to trade countertrend, I will make sure that my positions are smaller and the stops are taken off smaller timeframes. Even when a countertrend position works out, the most r/r I expect from it is my minimum of 3x what I risked. Likewise, in a downtrend I expect all demands to ultimately fail. BUT! That’s not to say that demands won’t be reactive in a downtrend. Both supplies and demands can be reactive if they are strong enough, however you have to have an expectation of the primary trend to do its thing and take the price in the prevailing multi-year direction in the end. Looking at the “Birds Eye View” will allow you to see the whole picture. Having said that, there is a time when you should be aware that a larger timeframe opposing zone is coming – that is the time to treat the trend with caution, because it might indeed turn. More on that later. Enough about the trend, let’s move on to the next odds enhancer. 45

RETRACEMENTS Let me start by saying that contrary to popular belief, when a level is hit more than once it is NOT stronger, in fact it is weaker and weaker, each time price visits it. The most number of tests/retracements/pullbacks (all mean the same thing) you can expect is 2. After something has been revisited twice, you can pretty much forget about it. The reason for this lies in the inner workings of institutional orders and their order books. Once a market event causes the price to strongly move away, a lot of institutions will place their orders right at the originating point of the large move. Why? Because they need the liquidity pools with enough units available at a particular price where they can execute their massive orders in as few orders as possible to limit their execution costs. Of course most traders trade mini and micro lot sizes and execution costs never even come into the equation. But think about this scenario: a stock broker gets an instruction to buy 2000 standard lots of eurusd from a client. The trouble starts when the broker attempts to simply fill the order at any price, without checking how many units of eurusd are actually available to buy. So what happens, he hits the buy button, but sadly at the current price there’s only 234 lots available. The system fills 234 lots and charges commission. 1766 lots left to fill. So the price starts to fall further, picks up another 100 or so at the next price and continues to hit the broker with commission costs each time a new set of orders is filled. > 46

Eventually, the broker might end up with a mind-boggling costs of execution that can go into tens of thousands of pounds/dollars that he’ll have to explain to the customer. To some degree brokers are allowed to use multiple orders to execute positions. After all, that is how they make their money, but the execution costs still have to remain reasonable. So now it becomes important to save on execution costs – you want to execute orders in as few fills as possible, ideally at once. But you first have to find areas that have a lot of contracts available. And guess what? That’s where our lovely fresh, untouched supply/demand zones come into play. These puppies enable large lot traders to execute their positions in a cost-efficient way. Big institutional orders sitting at levels of previous large price moves act as protectors of the level and each time these orders get filled, the level has less and less support, becoming weaker and weaker with each test. Which is why the zones typically become weak after 1 or maximum 2 tests. 47

Figure 43. Fresh supply, no pullbacks yet. Zone scores 2 on the table Practical application of the Retracement Odds Enhancer consists in finding fresh zones created after the large moves away but are still free of pullbacks. An

untouched, virginal zone will score a 2 on the table. As soon as it is touched/tested, the score will go down to 1. Finally on the 3rd pullback, the score is 0. As a general rule, any zone that has been touched twice, I exclude as a point of interest.

Figure 44. Demand zone with 1 pullback. Zone now scores 1 on the table 48

ARRIVAL Last of the odds enhancers but certainly not the least is Arrival Odds Enhancer. Up until now, all the other filters and enhancers were looking at how the price CREATED the level. Arrival, on the other hand looks at how the price ARRIVED AFTER IT TRIGGERED YOUR LIMIT ORDER. Specifically, when you are looking at price action prior to your trade getting

triggered, you don’t want small opposing zones close to your entry point. You want the arrival to your order to be congestion-free and clean:

Figure 45. Clean arrival that scores 1. No opposing supplies created on the way down to your limit order And if there is congestion right at your zone, watch price action for candle patterns for clues: is it hitting the opposing, congesting zone and immediately reacting to it, having trouble breaking through it by consolidating, etc? Or is it pushing through it with minimal reaction? - End of chapter 3 – 49

Trends and How to Read Them

Trends Many of us have heard that old saying: trend is your friend. While this is true to a certain degree, there comes a time when a trend might be exhausted or nearing an opposing zone where a trend might turn. While it can be an art form to keep up with these trends, I will provide a very simple, useful way of monitoring what is going on with the trend and how to apply that in your trading. Up until now, I’ve dealt with ins and outs of Supply/Demand zones, which is all about reading subtle clues on which zones are MOST likely to work out. However it’s useful to fill in the gaps of analyzing charts with the basic technique of where to look for trades that will be a price turning point. For this I’ll be using Supply/Demand too, in a different way, but first let’s take you back to a more basic concept of swing trading.

Swings and Quartiles What is a swing in trading terms? It’s the most recent move from A to B, from the highest high to the lowest low. What I like to do when I see an obvious low and high in place (ON ANY CHART) is to find the top quarter and a bottom quarter of that swing. Why would I do that? Because those two areas will represent the best risk/reward opportunities from a pure, remedial math point of view. Markets are actually very logical once you know where to look for a trading location. Does this work every time? No, not every time, but for me it works about 70% of the time, when coupled with locating strong S/D zones within the quartiles. And as always, the higher the timeframe, the more accurate the Quartile areas will be. Another reason to look at the Quartile areas is because I see a lot 50

of prospective traders attempting to trade middle points of the swing. Trading in the middle of a distribution curve is one of the worst things you can do for your trading. You’ll be baffled why the S/D zones don’t work, you’ll get frustrated, annoyed and eventually you might throw in the towel, believing that S/D and price action is some magical lost art that doesn’t work anymore. But really what you should be looking for is the natural high risk/reward areas in a swing. It’s all there on the chart. Some of you will be thinking – but what about Fibonacci and 50%

retracement? I say – stay away from it. If you must use Fibs, go for 38.2% and 78.6% because they are closer to the Quartile points. I find Fibs an unnecessary complication to the swing, when Quartile areas are much simpler and more accurate than 50% Fibs – which, to remind ourselves, is dead in the middle of the distribution curve. DO NOT TRADE THE MIDDLE OF SWINGS. Sorry for shouting, but I felt this is so important that I’m actually going to repeat this again: DO NOT TRADE THE MIDDLE OF SWINGS. Moving on. To find the Quartile areas, which I shall be referring to as Q-points, find your most recent obvious high and most recent obvious low:

Figure 46. Obvious swing high and swing low Now let’s add the quartile areas by subtracting high and low and dividing that number by 4. Then add that number to Swing Low and subtract the same number from Swing High to get your Q points. 51

In other words: Swing High – Swing Low / 4 = x Swing High – x = top Q point Swing Low + x = low Q point If you’re calculating instruments with 5 decimal points, like eurusd, gbpusd or euraud, disregard the whole number and only calculate with the decimal points. For example, on gbpusd chart from Figure 46 you’d take 5388 – 5106 and divide that by 4 which equals 70.25 pips, let’s say 70 pips even. Adding 70 pips to the swing low makes 5176 and subtracting 70 pips from the high is 5317. And here’s what these numbers look like on the chart, approximately:

Figure 47. Same chart with Q points added By getting the Q points you can then see how far price has retraced in relation to the swing. Once it reaches the Q points, I would use one of my entry techniques, ie to look for strong S/D zones within them or looking for specific candlestick patterns in the absence of the suitable S/D zones.

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Topdown Approach (TDA) Now that you know about Q points, I will take you through using a Topdown Approach in your multi timeframe analysis so that you can develop a feel for the price and where that price is from top timeframe to bottom timeframe – hence the name “topdown approach” (referred to as TDA from now on). We’ll also be using Supply/Demand zones, but this time you’ll be using Supply/Demand zones as a trend indicator. You don’t need to look for ALL filters and enhancers. The only condition that needs to be satisfied is that the S/D zone has a 3:1 risk/reward. It doesn’t matter if it’s strong or weak. All you’re looking for is whether demands are in control or whether supplies are in control. If the demands are in control, it’s an UPTREND and we expect ALL supplies to eventually break. You’re also looking for creation of Higher Highs and Higher Lows. If the supplies are in control, it’s a DOWNTREND and we expect ALL demands to fail. You’re looking for Lower Lows and Lower Highs. When determining if the supplies/demands in control are significant enough to count as swings, make sure that S/D zones have a move away of roughly 4:1 distance the size of the zone. Otherwise, the swing is too small and too close to the current high/low to count. To begin your Topdown Approach (TDA from now on) always start with a Monthly chart. I will be using a current EURUSD chart to illustrate the TDA. So starting with a monthly chart, I locate the swing high and low with Q points: 53

Figure 48. EURUSD Monthly chart with Q points Chart is showing me that the price has began to move higher and is currently exiting the lower Q point. The most likely direction now is UP, since price is leaving the Q point. This will also become more obvious when we look at the Weekly chart, where a most recent supply has been broken. Remember this, it’s REALLY important. Now that I have a possible TRADE DIRECTION from Monthly, I need to find a good TRADE LOCATION. For that, I like to use a mix of THREE timeframes. My choice is Monthly/Weekly/Daily for longer term picture and Daily/H4/M30 for short term. On a typical trading day I look at Daily/H4/M30 combo. Depending on whether the opposing zones are standing or have been taken out, I will determine if the trend is still in force. Remember: in UPTRENDS you expect ALL SUPPLIES TO FAIL. In

DOWNTRENDS ALL DEMANDS to fail. So with that in mind, if a recent opposing zone gets taken out, whether strong or weak, it is the first clue that the trend has changed. However you still need to have a directional trend alignment between 2 larger timeframes in order to buy low and sell high. 54

Let’s have a look at Weekly timeframe and its Q-points & recent supplies to see if there’s a possible trend change:

Figure 49. EURUSD Weekly chart with Q points (red) Weekly chart shows that a supply that was created around 3rd May (bearish engulfing) has now been broken to the upside. Therefore: Weekly trend: UP. Now there’s a directional alignment on two larger TFs. This confirms that I should only be looking for LONGS. Now I will drop to a Daily chart to find the most recent swing there, marked in green: 55

Figure 50. EURUSD Daily chart with Weekly Q points in RED, Daily Q points in GREEN Daily chart shows me that price is close to reaching a top Q point but I don’t want to go counter-trend with the Monthly and Weekly. At this point the longer term picture stops and I start looking for Daily/H4/H1 combo in this particular case. Daily so far is showing me that its right at the previous supply. I was watching it like a hawk to see if that supply gets broken. Indeed it did, two days later. So by price taking out previous supply, I now have a confirmation on Daily chart for an UPTREND. H4 showed the same break, which confirmed that Daily and H4 are both in an uptrend. Here it is on the next page: 56

Figure 51. Orange rectangle is previous supply, now broken. Uptrend is confirmed. We can now look for a suitable trade location 57

I will also use H4, combined with Q points to see if I can find an area that would give me good risk/reward for my LONG trade:

Figure 52. EURUSD 4-hour chart with a last obvious swing points in PINK H4 chart is giving me a possible area under 1.1200 which might be an option, but I still want to try and find another smaller timeframe that might come in faster. I turn to Q points once again for a previous swing low and possible demand. Let’s see what H1 looks like. 58

Figure 53. EURUSD H1 with obvious H1 swing Q points in PURPLE Aha! H1 looks interesting and close enough to come in over the next few hours as a setup. There are several entry techniques that a trader might want to use but more on that some other time, otherwise this book is going to get very long. So what this whole exercise has shown is that with TDA, you aim to get your TRADE DIRECTION from your higher timeframes, such as Monthly/Weekly, or Daily/H4, then to fall back through the timeframes analyzing swings and Q points to find the most probable area for a bounce in our desired direction. One thing to note: try not to mix timeframe setups too much. If you’re taking a setup from a 30min chart, look for your targets from a 30 min chart. If you want your trades to last a few days, look for H4 and Daily setups. If you are only aiming for a one session pony, don’t go thinking that you can take a setup from M30 that will somehow miraculously survive for days on end. The trade location off M30 is NOT STRONG ENOUGH to survive the very next day in most cases. So don’t be a hero and stick to your targets based on the timeframe you entered the trade. Although you CAN use lower timeframes to get a more accurate trade location for less risk and still keep your targets from larger TFs. 59

But these have to be nested inside a larger zone, like H4 or Daily. To recap: zooming into lower TF to minimize risk – yes. Looking to enter a trade for a larger swing target from an intraday Q point that doesn’t line up with a larger Q point – bad idea. This way you’re only minimizing your chances of success as the trade location is less than optimal. As a conclusion to this part, remember that 3 longer term timeframes, such as: Monthly/Weekly/Daily will give you your PRIMARY trend, whereas Daily/H4/M30 will give you the SECONDARY trend. To get the trade direction, two top timeframes have to align. I found that if using m30/H4 combo gives low probability trades. Because HIGHER TIMEFRAMES ALWAYS WIN. 60

Rule of Fours This section will talk about the basic market moves. This part is more about tracking the candlestick patterns for very basic formations that keep repeating. Much like in music, a cycle pattern of consisting of 4 phases is also very much present in the markets. If you can pick up on these and spot them early enough by using candlestick patterns like engulfing, harami, shooting star, hammers etc then you’ll be able to track the price changes when coupled with the Q points and/or S/D zones. What do I mean by 1-2-3-4?

What does EVERY PRICE MOVEMENT DO, over and over again? It generally starts by having a base, then goes up, then tops out, then falls. 1-2-34 cycle pattern. If I show you this on a graph:

Figure 54. All price always has 4 phases in a cycle 61

I’d like to point out that my phases are NOT in any way connected to Elliot waves with their abcdexyzyxyx patterns, that then get conveniently re-counted when a plan doesn’t work - all you ever need to spot my cycle is the phases of accumulation, markup, distribution and liquidation. I call this the Rule of Fours.

It makes NO DIFFERENCE if we’re in an UPTREND or DOWNTREND, price will still move in four cycles. The only difference in uptrend/downtrend is that at accumulation and distribution phases, price will either make a higher high or a lower low. Let’s find these on a chart:

Figure 55. Rule of Fours, 4 Phases in a cycle, over and over So that’s in an uptrend. But on the next page you’ll notice that the same 4 phases keep repeating even in a downtrend. 62

Figure 56. Same 4 phases in a downtrend The only difference between these is that on Figure 54, price is making either higher lows/higher highs and Figure 55 shows lower highs and lower lows. 63

Accumulation, markup, distribution, liquidation are all very long words, unsuitable for marking the chart fast. These can also be called like this:

Figure 57. Rule of Fours, simplified names of phases Basecamp and Summit phases are effectively consolidations. Because the initial representation of the 4 phases looks like a mountain, I decided to use terms related to a mountain. Rise and dive are trends up or down and they almost rhyme. To simplify things for charting I will add the phase numbers next to the phase initial:

Figure 58. Rule of Fours, abbreviated phase names 64

Sometimes instead of BC1 and S3 you’ll only find a bullish/bearish engulfing or a shooting star, inverted hammer etc. But those patterns still represent the BC1 and S3 phase. By using this way of analyzing basic price movements, you can easily orientate yourself and know where you are and what is happening, both in larger timeframes and lower timeframes. But remember – larger timeframes ALWAYS win. Let’s use the abbreviated 4 phase names to put on a chart:

Figure 59. EURUSD chart with phases Rule of Fours should only be applied as a general information on what could be happening with the price, NOT AS AN ENTRY TECHNIQUE. You’d still use areas of supply/demand to enter, but now you have a way of looking at phases of price and hopefully this will alleviate any confusion of why price does what it does. 65

To Countertrend or Not? Now that I’ve been over all of the clues that will help you to decide on the trade direction and trade location, I’ll go back to explain how to tie all of this up and when to stop going with the trend. Here are the steps to follow for a creation of your trading plan: 1. Using a Topdown Approach (TDA), starting from a Monthly chart find your Q points 2. Work out which Phase the Monthly chart is in and whether there are clues that the price could be changing Phases by looking at Weekly/Daily charts 3. Work downwards through timeframes to find swing Q Points, looking for strong S/D zones inside Q Points in the direction of the active Phase on Weekly or Monthly chart. 4. Once you see the price reaching Q Points, it’s time to stop going with the trend. Look for strong, fresh S/D zones for entries. 5. If you have spotted a phase/trend change, any levels that you might have used for pending limit orders have to be REVIEWED, possibly REMOVED or levels used as TARGETS ONLY, as they become counter-trend trades once the Monthly/Weekly changes the Phase. 6. If you decide that a countertrend trade opportunity has appeared, but the opposing zones have not yet been taken out to confirm this view, limit your profit expectations to maximum 1:3 risk/reward. I would also strongly advise to have several timeframes open for the same instrument to allow you to see the whole picture and where price is in relation to different timeframe swing Q points and S/D zones. - End of Chapter 4 –

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Risk Management This chapter will be about practical application of correct risk management. I will not bother you much with exactly how much risk per trade you should use because different people will be comfortable with different sums of cash. Obviously don’t do all in on a single trade. You might want to use analysis of your accuracy to gauge how much risk you can handle. That’s one side of it. Another side is what kind of risk you can handle mentally and trust me, everyone has a breaking point cash-wise. Answer to questions like: ‘are you naturally a risk-averse trader or an impulsive overtrader’ will generally be extrapolated through your previous behavior in live environment and under pressure with skin in the game. If you tend to lose control and proceed to add onto losing trades, moving stops, kicking of trades one after another, I suggest using a very small amount of your equity. If you are a hesitator trembling with fear over the smallest amount of cash, you’ll need a different approach where you HAVE TO TAKE EACH SETUP that comes your way, EVEN if it means you will lose money. It’s an exercise in mental discipline and stepping outside of your comfort zone, which as a trader, you’ll be doing a lot of! But enough about that, this time I won’t be dealing too much with the psychology of trading. However I do suggest you set some kind of limits for yourself. Looking at your trading from a week-to-week point of view rather than day-today, statistically, is a good way to keep track of how many trades you’re doing. If you’re tracking stuff day by day, it gets very easy to overtrade one day and then overtrade the next day too.

Before long, you have no idea how many trades you’ve done by Wednesday and left dumbfounded upon checking your account history. 67

So set yourself: 1. Maximum number of weekly trades 2. Maximum Weekly Loss Limit I start with up to 5 weekly trades and 2% Weekly Loss Limit for my newer traders/students.

Risk Model Once you start to get consistent in your trading, you want to create your risk model. What does this mean? It means that you will have a set number of pips you always use for your stop loss. For example, I always use between 15-35 pips for my stop. If a level doesn’t conform to those number of pips, ie it requires a lot more, I will either try to find a more accurate entry by investigating lower timeframes S/D zones, or I will wait until I have a reaction at the zone that creates a possible playable candlestick pattern. Usually that’s in the form of a bullish/bearish engulfing or consolidating candles at level. The reason why you want to have a set number of stop pips you use consistently is because if you vary your stops from 10 pips to 100 you are effectively mixing up long term trading with shorter term trading. Long term trading means that you’re willing to wait for 5:1 r/r for 3-6 months. While you’re still learning, this is too long a time to wait and see if your setups will work out. Also if you’re not aware of the amount of time required to wait for a 100 tick stop trade to work in order to get you 5:1 r/r, you’re setting yourself up for a lot of hours of staring at the charts, lots of failed trades and wondering why you’re not making money yet. Because to make cash, it’s a matter of numbers - you need the 4:1, 5:1 reward/risk ratio, especially if your accuracy isn’t great yet. By keeping your stops to something sensible, like 20-40 pips per trade, you can easily get the 4-5:1 r/r trades, most times within one or two days. But I do advise the following: NEVER SET YOUR STOPS ABOVE THE RECENT LOW OR BELOW THE RECENT HIGH. Rather than setting stops higher, I suggest placing YOUR ENTRIES DEEPER OR CLOSER TO THE HIGH/LOW, depending on whether you’re longing or shorting. 68

Since I’m on the subject of time and timeframes, here are the general guidelines on how long to expect to keep your trades: If trading off m15/m30 charts, give the trade at least 2-6 hours to work out. Trading off H1/H4 charts, you’ll need about 12-48 hours. Daily charts you’re looking at a week or two. Weekly charts you should be prepared to hold a trade for a month or two. If you’re trading off Monthly charts, you’re not really a trader, but more of a medium term investor, aiming for trades that will last between 1-5 years. Same principle, but different holding times. By all means, trade as a long term investor for wealth if you’re so inclined, but keep in mind that what I do on a weekly basis is the same thing, but vastly sped up. Concepts behind setups are exactly the same. I would also suggest that you pay close attention to Daily charts and H4 charts EVERY DAY that you plan to trade. These levels are more accurate due to the amount of trading that went into them.

LARGER TIMEFRAMES ALWAYS WIN. - End of Chapter 5 69

Summary We’ve come to the end of this ebook and to sum everything up, here’s a rundown of what these techniques will help you do: 1. Recognise true supply/demand on the chart 2. Identify strong zones vs weak zones 3. Score levels appropriately 4. Exclude levels that don’t have a high enough score 5. Use Topdown Approach for analysis of primary AND secondary trends 6. Track trend changes through opposing zones being taken out 7. Discard levels not inside Quartile Points of swings 8. Using Rule of Fours, identify which phase price is in on larger timeframes 9. Work to develop your own risk model/risk management and stick to it 10. Know how long to allow for trades to work, based on timeframe setup 11. Develop risk models and risk management The follow-up to this book will be about different ways of trading that still heavily rely on supply/demand zones however a lot of the techniques are

actually dependent on finding trade locations on either much lower timeframes or finding trades on highly volatile cross pairs, by using something called daily divergence. I will also write about ways to minimize your stops for intraday trades, how to systematically determine targets for your intraday trades, when to chose to let trades run longer than a day or two, when to take them off intraday. There will be mention of how to use Market Profile to read intraday sentiment and to watch for a developing profile and day type, including timeframe transitions to determine if your trade is still valid or if you should bail. I hope you find information in this ebook useful and that it will ease your journey to becoming a consistently profitable trader. 70

Thank you for taking the time to read and learn with me and remember, market stalkers are always one step ahead. - The End ©Copyright 2015 • Blahtech Limited • www.blahtech.co.uk 71

Table of Contents Disclaimer ......................................................................................... Introduction ....................................................................................... Chameleon, the ambush predator ........................................................... 5 Supply and Demand Basics .................................................................... 6 S/D Formation Types ........................................................................... 17 The Right Zones ................................................................................. 25 Scoring Table ...................................................................................... Filters ............................................................................................ Odds Enhancers ..................................................................................... Trends and How to Read Them ............................................................. 50 Topdown Approach (TDA) ............................................................................. Rule of Fours ...................................................................................... Risk Management ............................................................................... 67 Risk Model ......................................................................................... Summary .......................................................................................... 7