Supply and Demand Entry & Exit Strategies

Entry & Exit Strategies

In the previous chapter, we discussed the main odd enhancers that we use to filter out supply and demand zones. Because supply and demand zones don’t work all the time, we need a system to let you filter out the good zones from the bad ones.

Remember that these odd enhancers don’t guarantee the success of the trade. Instead, they give us a better chance of making the right trades when they show up and leaving the ones that have a low probability of success.

Ideally, we are only interested in supply and demand zones with a final score of above 8 points.

Note:

If two levels or zones have the same score, then the zone which is closest to your higher time frame is the one that takes priority.

Entry Strategies

There are three types of entries: limit orders, market orders, and confirmation orders.

1.    Limit Order

A limit order is used to trade supply and demand zones with a score of 10 points. We place a limit order at the proximal line with a stop loss a few pips away from the distal line.

2.   Market Order

A market order is used to trade supply and demand zones with a score between 8 and 9 points. We place a market order when the price is anywhere inside the zone.

3.   Confirmation Order

A confirmation order is used to trade supply and demand zones with a score between 8 and 9 points.

When the price dips into the zone first (in 1) and crosses above (for demand zone) or below (for supply zone) the proximal line (in 2). The moment it pierces the entry line, you open a market order (in 3):

Examples

The first example shows a supply zone with a score of 10 points. The strength of the move is strong giving us 2 points.

The zone is fresh, price did not test it (3 points) and price spent as little as one candle at the base (2 points). Finally, the zone has enough room to give us a 3:1 ratio (3 points).

The final score is 10 points and with this score, we have to place a limit order at the proximal line of the supply zone and wait for the price to continue moving higher to trigger our pending order.

This is a good example of the perfect trade.

The next example shows a supply zone with a final score of 5.5 points. In this example, the supply zone is fresh (3 points) but has 6 candles which makes it a weak zone to trade (0 point).

Next, we have a weak move out of the zone because of the two ERCs we give it 1 point. The reward-to-risk ratio is 2:1 scoring 1.5 points.

The final score is 5.5 points which is a good example of a bad zone to trade. This supply zone is considered a low probability zone based on our final score.

Exit Strategies

To close open positions, we could either use an opposing zone or a fixed pip ratio.

- Opposing Zone: we sell at the supply zone and we exit as soon as the price reaches the first opposing demand zone.

We can also close half the position size at the first opposing zone and close the second half when the price reaches the second opposing zone further down.

- Fixed pip ratio: we use the stop loss to calculate the exit of our trade. For example, if we use a 3:1 reward-to-risk ratio, we multiple the stop loss by 3 to get our exit.

In this example, we sell at the supply zone with a 78 pips stop. The exit level is 234 pips away from our entry.