(binned per thread starter's request) Market bottom rotation trad

YUMC potential supply takeout, there is no momentum thus one should play this one carefully. Best case scenario is if it is rejected again and it forms new leg that shows bull strenght.

YUMC long stoped out, this trade was defenetly forced and should not be taken, no momentum on that supply takeout.

NOV high quality shelf stack play. Looking to get filled long near the lows.

NOV sold for 1.5R loss.

EURCHF solid play there.

WFC

VRX is setting up.

Sold break even.

Thats about it for this week, equity markets kinda dry finishing it there.

Thanks for this one. I have quite a few of these "forced" trades this week........ good teaching!

so this is a good fail?

for this entry, we didn't have either momentum or HH baked. The only advantage is potential good RR.

Dear JP,
when reviewing your charts, (maybe I missed your points taught earlier), here are what i guess for EXITs.

1. for SL, this is where i'm not quite sure. I believe that the underlying logic is same (or similar) when you set SL for either rotation or pullback leg or even wedge continuation. so I attach a rotation chart as example. Sometimes, the SL is set right below shelf after HH, the other times (like the chart), we'd hold thru some DD. The SL placement seem involving both price reading and risk exposure control? but I don't think I summarize well how you handle SL except earlier exits and small loss are preferred, and avoid seller momentum. You indeed mentioned "this is where actual trading performance kicks in, it is about micro management, and it is often hard decision." I'm just digging deeper your expertise here, lol

You once showed statistics that 70+% price won't retrace deep to the last low (for pullback leg), but if I always set SL under the last low, the RR would be quite limited....... so when to and when not to, that confuses me a little.......

2. for BE, usually when 1R+ floating is seen, we adjust BE. we don't accept a winner turning into a loser (usually).
3. for TP in bullish case, we don't expect price will hesitate, or retrace, we expect the price will move straight to target (a supply ahead).
therefore, the TP is usually exited on strength, and often prior to reaching a higher supply. i'm relatively sure about this part.

Pretty much, decent RR if fill is near lows, but yeh it was B quality play.

Alright so with easier ones first. On point 2 and 3 you are 100% right, thats how it should be done and what should be expected. For 3rd case it is a bit more mixed in terms if price has very strong momentum move then there should be very limited delay but if momentum on takeout is not that strong (for example if it matches previous bear leg and is only 50% stronger) then you will find often price sitting on top of taken supply and forming micro shelf. So there are basically usually two good scenarios, one is price goes instantly in your favour on squeeze momentum, or second one is price stalls (but stalls above supply without DD) and starts forming micro shelf on top of taken supply, those are two most common "winning" scenarios.
And for those two is what i meant that experiance is needed in order to see from the structure and actually current price behaviour which of those is likely to come, but the main part you should focus on is just to be cutting a loss when needed to.
Being an order flow trader that actually recognizes key flip areas of price is about being very defensive at your play, that means that as soon as you enter you should have trigger ready at cutting the loss, to ensure that in first place you need to have a good fill on entry, that is why i keep suggesting using limit order so that you enter positon with steady fashion and later follow all your rules, because when trader gets bad fill it will be much more likely that loss will not be cut quickly (cascade psychological events).

Another thing to add from the picture you provided, especially for supply takeouts and pullback leg rotations you should be very precise defining when the actual whole supply is taken, that means all the highs have to be taken, even if that means only 1 pip difference. This will ensure that you do not enter on pre-takeout where supply is still active and pushes back, faking you. On the screen initial supply got taken out, but not the whole supply yet, in this case would have been worth to wait especially as after that bounce price forms strong HL and goes with momentum so after that leg if you had been early at entry is less likely to have DD, since often bulls will pick it up with symmetrical pressure from the way previous 2 HLs were printed, which means it would likely be a small dip before going up again, thats how usually price responds in takeout areas due to the players that are actively pushing to squeeze out supply.




For the point 1, it is more murkier, if you enter in supply takeout setup that already has very clear established micro shelf near or above supply then as it was said before its 100% clear that lows of micro shelf is where you should position your SL which has been shown by mine and also TRDs setups. That means you could have option to always wait for micro shelf to establish as those plays are higher quality, but goes without saying you would filter out many other trades by doing that. So in early caught supply takeouts you need to decide where will you cut entry and how, and the simple rule i follow is:
-no more than 50% of whole last leg should be used as SL distance
-if price goes very strongly and quickly against me after entry, go out instantly because the order flow simply doesnt agree with initial thoughts



Oprtionally you could also use scale outs, if you have some trade managment EA or indicator, by quickly offloading 30% position in slight loss, and then progressing if price keeps going against you, same goes for adding to size if goes in your favor. Mind that there is 100% proven edge increase for any trader who uses partial scale outs (especially on TP side) simply due to factor that you can never really be sure how much more will price go in your favour.


To avoid as many fakes and draw down as possible supply takeout setup is all about correctly identifiyng all structural parts and where the most attention to what currently order flow is doing is all about. Once you get that routine going youll avoid more fakes and start to see difference between good and lower quality plays.
Goes aprox like that:


Therefore if you are thinking of whether current structure you are tracking is decent quality setup for entry, ask yourself does it have clean stage 1 ahead of it, does it have stage 2 (both of those stages are a must), does it have stage 3 (optional but its a plus), and the most important stage 4 which is a momentum takeout, or if not that at least a very clear micro shelf buildup. So always look at the setup from this stage perspective that will remove your confusion and also remove confusion on how to handle your SL at least a bit.

In reality the setups will vary conceptually how they look, its all about order flow so the strenght of setup and potential of reward on it will also be very much determined from 3 "external" factors:
-consistency of symmetry
-consistency of consolidation
-heaviness of one sided order flow positioning (for example ultra strong short positioning on the supply).
Previously all those points in thread have been covered, for example how identifying a huge short positioning can help you uncover potential massive rippers in equitiy markets as the short squeeze takes place, or how a very consistent structure in FX can help you build case from much stronger rip.

That means the supply takeouts setups are usually split in few different versions but eventually all traded the same way:



So to increase quality of play with potential strong rip in FX its best to focus on setups with more than just 3 highs and lows that have strong volatility in structure with especially strong bull legs. And then strong momentum takeout on last leg. Thats basically it, clearout is a plus.
In equities its very much worth it to dig deeper, on low cap equities that are heavily shorted with bad fundamentals and bad overall daily chart with history of short squeezes and then trying to find H1 structures that match either of supply takeout conditions, and once the fire is ignited there its a far stronger RR on trade than any FX setup can deliver, those arent very frequent but they come every week. A bit more extra work for a lot more reward.

Best is to practice on historical charts trying to find high quality supply takeout plays, study them what makes them strong which will usually explain why price responded with strong squeeze. If needed save those setups as screenshots or whatever and study them over again so that you over time are quickly able to tell what really a good play is ahead of the time.

Let the last leg be your foundation and pillar to lean on.

To continue previous post, esential part is to have your last leg that breaks key order flow area of symmetry as your wind behind the sails, it needs to really show strenght, one wants to see targeted attempts into key areas, not the areas to respond with strenght only after being taken out as at that point it is what it is.
This is about focusing on stage 4 part of structure (on previous post), that last variable before the entry is considered.


One statistical analysis which i didnt do yet is what is average time of winning trade on heavy momentum move in terms of how long it takes for price to respond in the direction of taken entry, would be interesting data to have, something to do in future.
Let the last leg be your foundation and pillar to lean on.

Rounding

Another component that one wants to see in supply takeout (or demand takeout) is rounding process, which shows the accumulation or progressive strenght indicating targeted attempt on supply or demand. If not rounding then additionally same strenght of process is LL HH bake. Basically both of those processes are asymmetric / opposite to each other visually but from order flow basis they are both on the same side.

Statistical count of winning pattern behaviour for supply takeouts and pullback leg rotations

Alright so statistical count done today for time response and DD on 125 A quality play examples of supply takeouts and pullback leg rotations on FX currencies.
What was included in this count is only setups with strong and clean symmetry of behaviour and also a strong momentum leg that performs the takeout (last leg in structure). What was counted is how long in terms of time it takes for price to respond in a direction that trader trading those two setups should expect and how much draw down was overall before the price hit the profits. Loosing setups were not counted in as it only matters for winning trades. Data results strongly suggest what i already mentioned yesterday that there is no point to use larger SL than 50% of whole last leg distance as data is heavily concentrated around minimal 10% or less DD (of whole last leg distance before takeout) on majority of setups. For anyone trading those two patterns this is very important data to recognize and validate in how risk managment should be handled, as pointed out the way trader should manage trade should be determined strictly from how pattern behaves and not what trader finds the most comfortable otherwise the edge is decreased (but best natural method is to start with confortable risk management and then step by step start adjusting it towards what statistical data says).

Data: 125 counted examples on M1.
-100 examples performed with less than 10% of whole last leg distance of DD, which means minimal DD and price responding with strenght quickly into direction of expected move, which means 1 minute on most examples. That means 80% of examples fit such behaviour.
-22 examples had DD between 20-50% of whole last leg distance and took them 2 - 5 minute before price went into 0 DD teritory and then hit the profits. That is total 17% of examples.
-3 examples had DD between 50-90% of whole last leg, which took between 2 - 8 minutes before price hit the 0 DD territory and went into profits. That is total 3% of setups fit that.

To put the data on picture (same for both setups):

Jan,
i know you dont like renko, but i dont think it really matters tick, volume, renko, range or timeframe bars when it comes to the pattern shape.
To determine the power and momentum, you need a time based chart ofc. Speed and velocity of price.
I closed all positions except the biggest at the end of second impulsive move up. I can use it as a guide to build new positions from there

With use of renko you cannot determine strenght of volatility changes compared to previous price action and also the momentum moves, therefore for all the rules explained in strategy the edge is removed drastically. In some clean symmetric setups it will be alright, but overall its decreased quality of performance.

USDTRY on track for potential pullback leg rotation after bull impulse move, its a bit asymmetric so needs decent setup.