Supply & Demand trading system based on hourly timeframe
I call this SDH1 system
SD stands for Supply & Demand and H1 for hourly timeframe. This is one of the two systems I trade.
I developed this system based on the following resources, and here I’d like to give credit and say thank you to people who shared their knowledge and materials for free:
Kenneth Lee member of forex factory.
His thread with free supply & demand ebook with tens of charts examples (exactly how trading courses and system descriptions should be), here on his thread.
Alfonso Moreno member of forex factory.
His thread on supply & demand set & forget trading, which was an inspiration for my method for trading end-of-day as I have a full time job, can be found here.
PhAnTi member of forex factory.
His thread and ebook is here.
There are many others who directly or indirectly contributed to my trading system development, including Mike and others from james16 thread and others. Thank you.
First, let me clarify what I mean by a trading system. I could also call it a trading method, or approach, or strategy, or “my way”. It is not a mechanical algorithmic system. It is a system (method) that requires discretion and flexibility. I will continue calling it a “system”.
The flexibility is primarily with an assessment whether or not to trade the setup.
The hard-coded non-discretionary elements of my system include initial stop loss placement, position sizing method, entry method (order type), entry setup (what triggers the order entry and order fill).
I am using the Supply & Demand zones. These are places where there was a supply vs. demand imbalance, which we see on chart by the price moving away fast and far from the level, after a brief consolidation. (I will not repeat others who explained it very well, please refer to links in the credits section)
I trade after hours, end-of-day only. I spend 1-2 hours on forex between 20.00 and 23.00 CET (Central European Time, i.e. 6 hours later than U.S. EST, a NY close at 6 pm local time is my midnight).
I identify supply and demand zones on D1 chart and on H1 chart. Please refer to Supply & Demand materials to learn more on how to do this. I plan to provide chart examples, too.
I trade forex majors. About top 10 pairs.
Risk management principles. I always set a hard stop loss order at a broker. Stop loss distance is driven by the setup chart structure (more on that later). Position size is driven by how much money I am willing to lose on this trade (about 1% of my trading account). I never move the stop loss against my position. I never average, i.e. never add to a losing trade. I never hedge my positions. [I am not saying these things are bad. I know people claim to be successful using them. But I choose not to.]
This completes the foundation part.
In my next post I will cover the trade setup, entry criteria and entry method (order type) and exit criteria.
To be upfront I will share a very short summary already now: my entry method is a limit order just above the demand zone on H1 (so entry setup is price touching the demand zone), stop loss is just below the other edge of the zone, and take profit is around two times stop distance (2R). [reverse for short, i.e. entry sell limit just before the zone’s low, SL above the zone high]
EDIT: here is a link to part 2.