Professional Documents
Culture Documents
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.
Table of Contents
Disclaimer ............................................................................................. 2
Copyright Notices ............................................................................................................... 2
Introduction ......................................................................................... 4
Two Ways of Trading .......................................................................................................... 4
Trends and How to Read Them ................... Error! Bookmark not defined.
Swings and Quartiles ........................................................... Error! Bookmark not defined.
Topdown Approach (TDA) .................................................... Error! Bookmark not defined.
Rule of Fours ....................................................................... Error! Bookmark not defined.
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.
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.
“
Chameleon is 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!
What is supply?
Supply means providing something that people need or want:
səˈplʌɪ/
verb
make (something needed or wanted) available to someone; provide.
dɪˈmɑːnd/
noun
desire for something, a service, product, item, etc…
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.
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.
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.
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.
“ By recognizing a demand and going long, even with one mini lot size, a swing
trader could have banked 1400 pips by simply holding this trade for less than
2 months. That’s roughly £890.
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:
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.
Now that I’ve given you a rundown of what S/D zones can do, let’s
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.
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:
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…