I see this pattern over and over and over again. And it doesn’t just work with supply (bearish) but with demand (bullish) situations.
Always trade the pullback into supply or demand. Why? You don’t really know its a supply or demand area until you see a reaction to it!
This little reversal could have bagged you 20 pips on the $EURUSD, and 20 pips isn’t a bad little move. But bear in mind this is a contra trade on the 15 minute chart, considering the trend, determined by the long term guppy is upward and (arguably) price is pulling back and probably going to go higher.
Your stop would be a tight stop above the grey ‘supply’ area.
I will be posting more about supply and demand, and in this example I’m using an indicator. Now an indicator doesn’t highlight supply and demand properly but it does ‘simulate’ it quite well. What do I mean by that? Well a ‘supply and demand’ indicator will highlight pivot highs and lows, but these are not actual S&D areas, but pullbacks into S&D areas, which is why the kinda work.
Ideally you should manually identify areas of supply and demand on the chart
This area circled on the five minute chart for AUDUSD caught my attention today. See the small area of small wicki candles. I remember seeing them and thinking ‘thats gonna shoot up!’ Before I could place the trade it did, on the (unscheduled) announcement by the People’s Bank of China.
Whenever I see that I always expect a decent move. I guess a small pocket of demand with buyers and sellers coming together briefly, then the game of ‘musical chairs’ ends and the Boom!
But one trade that got away. Risk would have been minimal with a tight stop a pip or two below the dark blue area. Not bad for a quick 50 odd pips.
There is a risk it could shoot either way of course. Hence a tight stop.