Traders have different approaches to trading the forex markets. However, good traders seem to do some things in common or at least have the same concepts with other successful traders. One of the things that great traders do is that they could anticipate where price could move to or reverse. These traders often look for areas and call out where price could possibly move to or reverse even prior to their actual trades. Another thing that excellent traders do is that they patiently wait for confirmation. They know the market could do anything it wants so they wait for the market to confirm their assumptions.
Imagine trading like a sniper looking for its next kill. Snipers do not go out and chase their targets. They wait for their targets to show up. In the same way, excellent traders do not chase price but instead wait for price to come to them. Snipers also do not pull the trigger right away when they see their targets. Instead, they make sure that their targets are at the center of their crosshairs. In the same way, excellent traders do not haphazardly enter trades when price enters the area where they expect it to be. Instead, they wait for price to confirm its direction prior to clicking that button.
HAMA Supply and Demand Forex Trading Strategy is a strategy that revolves around this concept. It waits for prices to move within an area of supply or demand and waits for a trend reversal to be confirmed.
Supply Demand Indicator
Supply and Demand trading is probably one of the most effective type of trading strategies. Many professional traders use this type of trading and seem to be very successful at it.
Supply and Demand Zones are areas on the price chart wherein price have previously moved away from with strong velocity. The idea is that because price did move away from such zones in the past, these represents areas where many buyers or sellers could be interested in trading. This sudden influx of one-sided interest in trading could cause price to reverse once it visits such areas.
Although Supply and Demand trading is very effective, many new traders avoid it. This is because identifying supply and demand zones can be very difficult to the untrained eye.
Supply and Demand indicator simplifies this process by plotting these areas automatically on the price chart. It draws a blue box to represent a demand zone and a maroon box to represent a supply zone.
The zones are based on fractals. However, not all fractals are considered as a valid zone. These fractals should be swing highs or swing lows where price have recently moved away from with strong momentum and have not yet been previously breached.
HAMA
HAMA is a trend-following technical indicator based on the Heiken Ashi Smoothed indicator. Heiken Ashi literally means average bars in Japanese. This is developed to identify the average of movement of the candlesticks in order to identify trend direction.
The Heiken Ashi Candlesticks indicator is an indicator which displays the highs and lows of a candle, yet it modifies the color of the candle based on the average movements of price.
The Heiken Ashi Smoothed indicator on the other hand is not a modified candlestick. Instead, it is derived from the Exponential Moving Average (EMA). For this reason, the candlesticks produced by the Heiken Ashi Smoothed indicator closely resembles the movements of a moving average line.
The HAMA indicator is somewhat like the Heiken Ashi Smoothed indicator. However, instead of displaying candlesticks, it displays bars. These bars change color depending on the direction of the trend. Blue bars indicate a bullish trend, while red bars indicate a bearish trend. The HAMA indicator is a very reliable indicator. It usually indicates a trend reversal only when the trend has clearly reversed.
Trading Strategy
This trading strategy trades off bounces from the supply and demand zones. However, instead of taking trades right away as price touches the zone, we will be waiting for the confirmation prior to entering the trade.
We will be using the Supply Demand indicator to automatically plot the supply and demand zones. Then, we wait for price to touch the zones. Price action should show characteristics of a probable trend reversal. We then wait for price to bounce off the supply or demand zone.
The HAMA indicator will be used to confirm the trend reversal. Trades are taken only when the HAMA indicator has changed color indicating a trend reversal.
Indicators:
- SupplyDemand
- HAMA_
Preferred Time Frames: 30-minute, 1-hour, 4-hour and daily charts
Currency Pairs: FX majors, minors and crosses
Trading Sessions: Tokyo, London and New York sessions
Buy Trade Setup
Entry
- Price should touch a demand zone indicated by a blue box.
- Price action should show signs of a bullish reversal.
- The HAMA bars should change to blue.
- Enter a buy order on the confirmation of these conditions.
Stop Loss
- Set the stop loss below the HAMA bars.
Exit
- Close the trade as soon as the HAMA bars change to red.
Sell Trade Setup
Entry
- Price should touch a supply zone indicated by a maroon box.
- Price action should show signs of a bearish reversal.
- The HAMA bars should change to red.
- Enter a sell order on the confirmation of these conditions.
Stop Loss
- Set the stop loss above the HAMA bars.
Exit
- Close the trade as soon as the HAMA bars change to blue.
Conclusion
This trading strategy works very well. This is because we are using a reliable method to identify probable trend reversal areas, which are the supply and demand zones.
Taking trades based on bounces off supply and demand zones is a proven strategy. However, it is sometimes difficult to confirm if price has indeed bounced off the area or if it is just congesting. Confirming trend reversals using the HAMA indicator simply increases the probability for the trade to work in our favor.
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