DEMAND RETURN STRATEGY SIMULATION: EUR/USD Trade
Based on actual trading data from June 10, 2014. Using the Demand Return strategy on a major currency pair, we monitor multiple indicators to define an S/R zone, dropping down to a lower time frame to try to find a low-risk entry. The Demand Return signal, and position of support and resistance are considered before attempting to enter at a time of day that is appropriate to this pair. Entry attempts are ultimately abandoned, avoiding a poor trade.
EUR/USD Trade
Subjects Covered:
- Demand Return
- Multiple Time Frame Coordination
- Signal Candles
- Time of Day
- Position of Support/Resistance
- Round Number
Signal 1
The price action of the daily candles shows two consecutive bearish candles. The close of the second candle is below the low of the first candle, and is also in the bottom half of its own range. This is a bearish signal. We should continue analyzing the daily chart.
Caution?
We look to the left to see what was happening when the price was last in this area. We can see from the chart that there was a supportive candle that made a low at around 1.3500, a key round number. If we get a short trade, we should be careful of this support and look to exit in some profit close to this level.
Begin Monitoring Lower Time Frame
We drop down to the 15 minute chart at the next London open to try to find a precise, low pips risk entry. It takes 5 days for the price to pull back and enter the supply zone between 1.3582 and 1.3601. This currency pair is the only one where the strategy still works even if the zone is not entered the very next day. In this strategy, the supply zone is defined as the area between the first daily candle's low and the high of the second daily candle.
In the Zone
At the London open, we see that the price entered the supply zone briefly, at the beginning of the Tokyo session when we do not trade this pair. The price fell. We wait to see if the price reenters the zone before the London Close. If it does, we will look for an opportunity to enter a short trade.
No Trade
At the close of today's London session, we note that although the price reached close to the zone, from which it fell again, the zone was never entered. We decide to forget about this potential short trade, because the price has already entered the zone, and fallen about 50 pips from that high. This suggests that the trade has, in effect, already happened. It is important in trading to have the patience and discipline to not take trades and to deal with disappointment. Next, let's see what happened later.
Conclusion
Not taking the trade was the correct decision after all. We did get an entry opportunity on 18 June with the pin bar marked in blue, and although the price fell from there, it did not reach any good target. The price turned around and ran up right through our supply zone, so the trade would have been a loss.
