FAQ: Supply And Demand Forex Example #2 (GBP/USD M15) ADDED



Yes, we had a great weekend. I hope so had you? Our youngest son was having his birthday so it was a great day.

Thanks again for the email. I have printed it and filed it so I can easily re-read it so I can absorb most information and use it for trading!

You mentioned that you marked a M15 supply zone?

I think you meant the zone I marked instead?

You mentioned that I should always determine the trend on the timeframe I trade off… As you could see on my charts, and still on the attached ones, I use a semaphore indicator to display the major swing high and lows.

This is just a helper function but I have noticed that a lot of times there doesn’t form a sema since its connected to a ‘count’.

Due to using this indicator I feel I have trouble determining the trend a lot of times correctly. Formerly I was told to find the sema #3 first and then wait on two other semas which together will form a 1-2-3 setup… this means we can safely trade away from the sema #3 (highest timeframe)

Reading your articles I feel this is not really the best approach… looking at it, I see that I miss a lot of trade opportunities since I’m ‘late’ waiting for additional confirmations.

Attached is a chart which I marked up, but didn’t trade.

I started reading the chart at the vertical line so to speak.

Marked the Lows and highs and as you can see, the swing up was eventually broken by the small horizontal blue line. Looking back, this seems to indicate that the trend has changed right? It also means that its not just profit taking by the banks but they seem to have placed trades (sell trades) since the swing break was followed by a bearish engulfing pattern. 

Is this a correct interpretation?

Next the trend continues to go down, making new lower lows and lower highs.

There are some minor supply zones, on m15, but the up candles seems to be profit taking by the banks (look at the pinbar at the lower part of the chart)

So if I had entered at the arrow I placed on the chart, would this be the best opportunity to enter if you look at this?

Couldn’t I have entered earlier?

I think this is where my impatience is coming in… I still have an ‘urge’ to take lots of trades it seems but I need to WAIT for the better probabilities…

Also, it must sound odd, but im using the lowest lotsize available and even then I am scared to let a trade run mostly due to I don’t really have a clear clue where price might go… I would love to aim for a +50 trade but to be honest I cant right now…

First due to not waiting for the BEST setups (or unaware of those) and secondly not knowing where price would go…

Perhaps somehow I still have this idea that there are a zillion high probability trades available each day that I skip the best ones or don’t wait for it… fear of missing the bus?

If you got some time to reply to this, I would appreciate it.

Thanks for all your help and your good work!

Take care,


Hey Phil, hope you and your family are doing well!

You’re spot-on – I did mean the M15 supply zone you highlighted; a little slip-up on my part. While the semaphore is a handy indicator, I don’t see it as a superior method to simple observation of higher highs (HH) and lower lows (LL) for finding trend direction.

Now, onto your chart…

Breaking the low you indicated with a blue line signifies a current downward momentum.

Although it doesn’t necessarily suggest the banks’ profit-taking is behind the selling, it does hint at a higher likelihood of a price drop in the short run.

From the daily chart, it’s clear that we’ve been in an uptrend since May 8th.

Aside from a single pullback on April 12th and a few minor hiccups, there hasn’t been a significant retracement for a relatively long period.

The last upward move, as seen in your image, stood out due to multiple large-range bullish candles.

As you’d know from my articles, this typically lures a vast number of retail traders into going long. Consequently, any ensuing bearish move would force these traders to exit their positions at a loss.

So, if a downward move were to occur – be it from profit-taking or banks placing sell trades – it’s likely to be quite substantial.

This is due to 1. the prolonged absence of a retracement, 2. price’s consistent upward trend enticing retail traders to go long, and 3. the sheer scale of the bullish move prompting a significant number of retail traders to enter long.

These factors indicate that the next downward move could be substantial.

As more retail traders go long, the number of traders liquidating losing positions increases, leading to a surge of sell orders entering the market as the price reverses.

I reckon you might have been able to enter earlier than your indicated arrow on the chart, especially if you were trading on the 1-hour chart.

The reversal on this chart showcases a large bearish engulfing candle.

Although there’s a bearish engulf at the top of the 15-minute chart’s reversal, I don’t deem it as a strong engulf. (I just noticed that my charts show a bearish engulf, but your image doesn’t – it seems we might be using MT4 based on different time zones.)

Regarding your query, an effective reversal-engulfing candle needs to be significantly larger than the one it engulfs.

The engulfing pattern you pointed out on the 15-minute chart doesn’t convince me of a sure reversal. However, if you compare it with the bearish engulf on the 1-hour chart, you can see it’s substantially larger, thus indicating a higher chance of success.

From your charts, I believe it would have been possible to place your first short entry on the previous bearish engulfing candle.

Interestingly, this position aligns with a sell trade based on the bearish engulf on the 1-hour chart.

While the bearish engulfing pattern next to your marked candle doesn’t seem large, its significance diminishes as the market has already reversed.

It’s important to see a large engulf during a reversal.

Notably, this engulfing pattern follows a bullish pin bar formation.

Traders on the 1-minute and 5-minute charts might have been trapped during this pin’s formation.

A closer look at the 5-minute chart shows a sharp drop and subsequent rise, creating a large bullish candle. This movement would force retail traders to close their sell trades at a loss, providing buy orders for banks to place additional sell positions.

Consequently, we see a significant bearish engulfing pattern on the 5-minute chart.

In your image, you’ve correctly stated that more sell orders enter the market after the swing low breaks. This sell pressure comes from bank traders placing sell trades against buy orders from retail traders closing their sell trades at a loss due to the bullish move.

The pins and the retracement hitting the demand zone were indeed created by profit-taking. Hence, your understanding is spot on.

Identifying high-probability trades is challenging, irrespective of the strategy.

If you share your primary trading method, I could provide some advice on spotting promising trades.

Understanding which trades have a higher probability of success can ease your fear of entering trades. I empathize with your fear – it’s something I battled with and occasionally still do. As you understand the market better, this fear tends to recede.

One effective way to overcome this fear is to place a long-term trade in the trend direction.

Even if it requires several losses initially, the long-term gains will offset the fear of losing money. For instance, a potential £10 or £20 loss on a trade won’t seem as daunting if you’re already £250 in profit on a long-term trade.

Hope this helps…

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