If you want to quickly improve your results (who doesn’t?), find better zones to trade, and make more money from S & D… you need to stick around and read today’s post.
It’s a GAME CHANGER, trust me.
Improving your results with S & D usually means finding better zones to trade. That’s what everyone always focuses on. However, while you can, and should always aim to trade higher quality zones, I know another way you can improve your results…
Not by finding better zones, or watching for more confirmation, but by only trading a certain type of zone.
What to know what it is? Then read on…
If You Want To Improve Your Trading, Focus On These Zone ONLY
Look, I’m just going to get right to the point, and give it to you straight:
The quickest, easiest way to make more money and improve your supply and demand trading is to simply focus on trading rally-base-drop/drop-base-rally zones over any other zones. That’s it.
No secret tricks or tips, no looking for special zones at S & R levels or big round numbers; although that will help, obviously.
Simply STOP trading RBR/DBD zones and focus on RBD/DBR zones.
One of the biggest misconceptions in S & D trading is the idea rally-base-rally/drop-base-drop zones have the same probability of causing a reversal as RBD/DBR zones. People think because the zones all look the same – they all form with a big move away from a base – they all perform the same.
But as much as this makes sense, it’s just not true…
A few years ago, back when I was still a losing trader, I wanted to find out whether RBD/DBR zones performed better than RBR/DBD zones.
At the time, I was coming off the back of a pretty bad losing streak. I had just lost two or three trades in a row, and I had a hunch it was because they were taken from RBR/DBD zones – which I already thought didn’t work that well.
So, I wanted to find out where my losses were coming from once and for all.
I decided to do a back-test of my last 50 trades…
I went through each trade and made a note of its type: an RBR/DBD zone or DBR/RBD zone, and whether it resulted in a loss or a win. What did I find?
Most of my losses came from RBR/DBD zones.
They weren’t all for the same reason; some zones caused a minor reversal before failing, which some wouldn’t necessarily class as a loss or failed zone. And, they weren’t all because the zone itself failed. A few came from my own mistakes with entry, moving the stop too soon, etc.
But overall, most of my losses came from RBR/DBD zones! That’s what the test showed.
At that point, I stopped trading rally-base-rally zones and focused only on rally-base-drop and drop-base-rally zones. And what do you know, my results improved.
It didn’t make me a profitable trader… took another few years get there.
But my S & D results improved, and I started to make more money.
Thats why I say it’s better to focus on RBD/DBR zones than RBR/DBD zones.
Yes, I know RBR/DBD zones often work and give you some good trades. I traded them for a long time and got into some bangers because of them. Overall, though, they just don’t work as well as RBD/DBR zones.
I wish they did – it would make trading the zones a lot easier – but they don’t.
That’s not my opinion, that’s a fact, as my back-test showed.
Why Rally-Base-Drop/Drop-Base-Rally Zones Work Better
I guess it’s clear then: if you want to improve your supply and demand trading, STOP focusing on RBR/DBD zones and ONLY take trades from RBD/DBR zones.
The question now, then, is why do RBD/RBD work better?
What gives them a higher probability of causing a reversal than RBR/DBD zones?
It all comes down to the banks and how they get their trades placed.
The banks create supply and demand zones by either taking profits, placing trades, or closing trades. They then make price return to get their remaining trades placed/closed or take the rest of their profits off; they couldn’t do this initially, as not enough orders were coming into the market.
If you’ve read some of other posts, this will be pretty basic stuff.
But here’s where it gets interesting…
The banks can only place trades/close trades and take profits when they have opposing orders entering the market – sell orders, if they need to buy; buy orders if they want to sell. Ontop of that, the size of trades they can place and the amount of profit they can take off depends on the number, and size of the opposing orders entering the market at that time.
So, for example…
If the banks want to place a buy trade or take profits off a sell trade, they need other traders to be selling: the more traders selling, the bigger the buy trades they can place or the more profit they can take off.
The opposite is also true!
If the banks want to sell, either to place a trade or to take profits off a buy trade, they need other traders to be buying: the more that are buying, the more profit they can take off and the bigger the size of the sell trades they can place.
What this means then, is supply and demand zones that form as a result of lots of orders coming in have a better chance of causing a reversal.
If the banks have placed bigger buy trades, for example, the resulting zone must be strong because:
A. They wouldn’t place a big trade if they didn’t think price was going to rise, and…
B. They would protect their trade if it was jeopardized by price moving in the opposite direction; ie, they’d come in and bid price up, resulting in a reversal from the zone.
So, what’s this got to do with RBD/DBR zones being stronger than DBD/RBR zones then?
Well, the number of orders coming in (retailers buying or selling) depends on what the market is doing, right?
If the market is falling, most people are selling, obviously.
And if it’s REALLY falling, like after a sharp decline or when price has been in a trend for a while, that means LOTS of people are selling, giving the banks more orders to place trades, close trades or take profits with.
So essentially; the move that PRECEDES the formation of the zone determines its strength.
It has to! That’s what governs how many people are buying and selling, and so determines the amount of orders the banks can use. It’s not the move away, like most guru’s say, it’s the move before the zone formed.
Now, I can’t go too deep into this… We’d be here all day, and there would be no point buying my books if I did.
But the reason RBR/DBD zones don’t perform as well as RBD/DBR zones is the fact they form AFTER price has already moved in the same direction, leading to A LACK OF ORDERS the banks can use to place trades, close trades or take profits with.
When price moves in the same direction a zone forms, RBR/DBD zones, most traders are doing the opposite of what the banks need them to do to take an action; buying instead of selling in the case shown above.
With only a few traders selling, the banks can’t place large buy trades… they don’t have enough orders.
This means the resulting RBR zone has a low probability of causing a reversal. Why would the banks want price to return and reverse when they’ve only got a few small buy trades placed?
There’s no incentive for them to bring price back! So, price will either not return at all, which you often see with RBR/DBD zones, or when it does return, it’ll smash through without stopping, or after causing just a minor retracement. Which is why we see RBR/DBD zones fail so often and cause losses.
Now, let’s compare that with how RBD/DBR zones form…
RBD/DBR zones always form after a move in the OPPOSITE direction. Price comes down (in our example), forms a base, then reverses and begins rising.
The fact price was falling before the base formed is the key.
If price is falling, most traders are selling.
That means the banks have lots of sell orders available to place trades or take profits off sell trades with. Remember, the banks need sell orders to buy and buy orders to sell.
So, the banks can place bigger trades or take more profits because MORE retail traders are selling.
That’s why this zone, and RBD/DBR zones in general, are stronger than RBR/DBD zones.
The banks have much more incentive to protect a zone by making price reverse when it returns because they’ve placed bigger trades or want to use it to take profits, which makes the zone more likely to result in a reversal.
So, does that make sense now, about why RBD/DBR zones are stronger?
It’s the fact they form as a result of the banks placing bigger trades – and sometimes, taking profits and closing trades too.
It’s not the move away, like the guru’s say, nor is it the way the zone forms.
It’s simply because they place larger trades, so have a much bigger incentive to make price reverse when it returns.
Stick to RBD/DBR zones for awhile; see if your results change for the better.
Again, I’m not saying you won’t find RBR/DBD zones that cause reversals from time to time because you will.
My point is, in the grand scheme of things, they don’t perform that well compared to RBD/DBR zones. They might provide the occasional bounce every now and again, but nothing like the large trend changing reversals we see from RBD/DBR zones.
So you’re better off leaving them alone and trading RBD/DBR zones only.