In this trade a long was taken at the strong VSA signal, though there was distribution behind. This is seen by the multiple Major Supply signals, with the prices not advancing further. A bit after, there was an upthrust bar (pink bar), showing more supply, and a successful no-demand test (light pink bar).
In the entry point there was some buying, though it wasn’t enough to stop the trend. The buy-stop should also have been set above this bar’s high (https://www.analyticaltrader.com/trading-guide/vsa-trading-setups/trend-trading/supplydemand-background/), which comes as a price confirmation of strength.
Trading the supply/demand signals directly, without taking anything else into account, is a common mistake which often leads to losses. Demand during a strong downtrend can mean it’s profit-taking or just some buying, that may or may not have a follow-through. In this trade,
1. The background was weak, and so we should be looking for short positions (in weak signals), as explained here Supply/Demand + Background.
2. Next to the demand bar, there was a no-supply test (painted as blue), that was testing lower prices for supply. The prices however didn’t rally afterwards and break its high – if professionals were interested in buying, they’d get in after such an indication of no-supply, and a rally would follow, which did not happen, and so the latent supply kept on moving the market downwards.
After the high volumes that was noted on the last post (zone 1), I wrote that if prices failed to continue the rally soon, this would be a sign of too much supply hitting the market and would be a probable reversal point. In the Asian session the prices failed to rise, and a bit more supply showed up as a churn bar (green bar) after a small rally. When the London session opened, the prices went down to re-test the previous area of demand.
In (2), we can see that the volumes picked up again, and VSA showed a demand signal. The volumes were also higher than the last top, which was a good indication of renewed interest in the up move. As the background was still strong at the time, Alert System indicator sent out an alert to go long on the high of this demand bar.
Prices continued to rally afterwards, and upon reaching a medium-term resistance at 1.138, Supply signals from the current timeframe and from D1 halted the move.
In (3), we can see a successful test (the test is the dark blue bar, 3 bars ago) near the prices of the previous demand, as the prices broke its high. The background is weak though, and so taking a long right now, while possible, is risky and would have to be with a tight stop-loss. Other EUR pairs such as EURJPY are looking better, since it’s just now emerging from a double bottom with demand as the current prices.
- The background was weak – one should only look for short trades
- Prices had just broken a support. This is important because near a support, there will always be increased volumes from locked-in traders, which means any demand signals could just be from stoplosses being hit. You should wait for confirmation for the prices to break-through upwards again.
- A bit later there was a test bar (blue bar), testing for supply at lower prices (hence the lower low). As the prices failed to rally afterwards, it means the test failed and there was still too much supply in the market, namely from the big traders who sold before this movement started (where the Major Supply signals are present). This was an opportunity to close the trade earlier.
As the Sterling is selling-off for weeks in a row, it makes sense to look for intraday opportunities in GBP pairs. Likewise, gold is also getting stronger, as the Dollar weakens, and AUD is directly affected by these movements, as Australia is a major gold exporter.
Since 6th January, GBPAUD H1 has been forming a round top, which is a typical distribution pattern. Most importantly, VSA confirms it, as the there have been major supply signals in H1 and above timeframes, and sluggish movement. The background has also been weak, and an opportunity arose when there was a minor supply signal in H1, to which there was an alert given.
- Weak background
- Supply signal
- Entry on the break of the supply bar (could also be on the previous)
- Exit on take-profit. If not having exit, with the low volume bars, it would be wise to atleast close the order partially and get in at a better price.
The prices are now approaching a previous support at 2.017, and are on the lower part of the trading channel. There could be opportunities to counter-trend trade, if prices can stabilize above the recent low at 2.02457 and demand comes in.