This week has been a good week in our Premium Trading Floor. In this post, we’ll be reviewing our best trade this week: a EURJPY short which brought us +90 pips and 3% gains. Before we do that, below are the results for our Trading Floor this week.
Premium Trading Floor results for this week so far (12th Feb – 16th Feb):
AUDUSD -20 pips (-1%)
AUDJPY -20 pips (-1%)
USDCHF +60 pips (+3%)
EURJPY +90 pips (+3%)
EURJPY +25 pips (+1%)
NZDUSD -15 pips (-0.5%)
AUDUSD +30 pips (+1.5%)
Returns for this week so far: +150 pips and +6%
The reason we went short was because you could see that price had recently reacted with a huge supply zone (the red box at the top) on a higher timeframe. This meant that supply was in control, and naturally, we would want to trade with the trend, which was bearish. The opportunity came when a supply zone (smaller red box) formed on our trading timeframe, which was the 30 minute chart.
There are two reasons why this was considered a valid supply zone.
Firstly, in the circled area, you can see that price had consolidated in that area for about 4 candles before eventually breaking out towards the downside. This indicates that in that area of consolidation, there was a balance between buyers and sellers. When price made a bearish breakout, it showed that there was now an imbalance, with sellers (supply) taking control. Not only was there an imbalance, there was a huge imbalance as the two bearish candles were full bodied and showed conviction.
Secondly, the bearish breakout also pushed past the previous lows (circled no. 2). This indicated that the sellers responsible for this move were serious about bringing price lower.
This gave us a textbook shorting opportunity from a supply zone. If price were to retest this zone, we would want to be short.
We had a sell limit @ 133.284, a 30 pip stop loss @ 133.584 and a 90 pip target @ 132.384. This gave us a very good risk to reward ratio of 3. For supply and demand setups, stops will have to go above supply zones and below demand zones. This is because if price closes outside these zones, we’ll know that we are wrong and we can close our trades for a minimized loss. Target was located at the next higher timeframe demand zone.
And the result?
A near perfect entry and a perfect exit.
You can see how price immediately rejected our identified supply zone and continued making its way lower. Moreover, when price hit target (woohoo!), it immediately reversed due to us identifying that area as a higher timeframe demand zone (where we expect buyers to enter the market). Having started the week off with 2 back to back losers, this trade was surely a welcome one in our Trading Floor.