Whilst I’ve tried my best to open people’s eyes as to why the Seiden method is flawed, I understand there is still a large selection of traders who continue to trade supply and demand using Sam’s rule set.
A long time ago I used to trade supply and demand using the rules provided by Sam Seiden.
In my time trading the method I managed to pick up a few small tweaks you can make in order to find and place trades which have a higher probability of working out successfully. I’m going to share these tweaks with you today and hopefully you can see an improvement in your own supply and demand trading.
1.Lower Time-Frame Zones Within Higher Time-Frame Zones
One of the first things I learned when I was looking for a way to increase the success rate of supply and demand zone trades was that when you find a lower time-frame zone contained within a higher time-frame zone you are more likely to have a winning trade.
It’s important to note which time-frame you find the zone is in has a big effect on whether the trade will work out or not.
A zone on the daily chart is likely to contain multiple zones inside it on the 1 minute chart, therefore it’s not really logical to try to trade these zones as there’s a high chance you going to lose on at least one of the positions.
What I used to do was look for 1 hour zones which were inside 4 hour zones, in fact I actually back-tested this over a years worth of trades on EUR/USD and found that if you were to only trade 1 hour zones which are contained inside 4 hour zones you would win on a significantly higher number of positions than if you were to just trade the 1 hour zones on their own with no additional confluence.
Here we have a 4 hour chart of AUD/USD.
I’ve marked three 4 hour supply and demand zones, we are going to take a look at the 1 hour chart to see if any of these 4 hour zones contain 1 hour areas inside them that we use to look for trading opportunities.
On the 1 hour chart we can see there are two demand zones which are inside 4 hour demand zones
Both of these demand zones worked out successfully had you traded them, the supply zone seen at the top of the image does not contain a 1 hour zone due to it being created by a new event.
This is the same image only I’ve marked an additional four 1 hour supply and demand zones so you can see how the zones within the 4 hour areas tend to work out more often than the typical 1 hour zones.
Trading zones within zones can require a certain amount of patience depending on which time-frame you usually take trades off, if your used to trading supply and demand zones on the 1 hour chart then it may be difficult for you to only take a trade when you see a zone inside a 4 hour zone, therefore tweaks to your trading plan may be needed.
I’ve made a list below on which time-frame to use to look for zones within zones.
- Daily chart: Don’t go any lower than the 1 hour chart to find zones
- 4 hour chart: Don’t go below the 1 hour chart
- 15 minute chart: No lower than the 5 minute chart
2.The Halfway Entry
My next tip isn’t really something you can use to increase the chances of having a successful trade.
Instead its a method you can use to risk less money on each trade, this will be helpful if you only have a small amount of money in your brokerage account.
The Sam Seiden method of trading supply and demand involves placing pending orders at the zones for when the market returns, sometimes you’ll have zones which are bigger in size than the total amount of money you have available to risk on each trade which means you either have to miss the trade out or take the trade using different entry parameters.
So in an effort to reduce the risk on the trade I came up with the idea to slice the size of a supply and demand zone in half and place your pending order at the halfway point, thereby cutting the distance of your stop-loss from entry in half too.
This may sound like a bad idea, I mean no doubt it will lead to missed trades where the market only manages to get to one of the outer edges of the zone, but at the same time it will increase the amount of supply and demand zone trades you can place.
Using pending orders as an entry strategy is risky in itself because its rare for the market to spike the outer edge of the zone then reverse, most of the time the market drives into the zone before reversing, therefore by using pending orders you are unnecessarily risking more money than you need to had you waited for a price action signal inside the zone or placed a pending order at the halfway point of the zone.
Another thing the halfway entry is useful for is when the market is in a strong trending movement and you want to try and pick the place where it will reverse.
Typically what supply and demand traders tend to do when the market is in a strong trend is use supply and demand zones to pick the place where they think the trend will stop and reverse, more often than not these zones have tendency to be broken due to the strength of the trend. When a zone does cause a reversal, the market drives deep into the area before reversing rather than spiking one of the edges and reversing, this is when the halfway entry is used best.
If we use the image above as an example if you were trying to catch a reversal of this up-move you place a pending order to sell at each one of the supply zones, by placing a trade at each one of these zones altogether you would be risking 42 pips assuming your stop-loss covers the range of the zone, by implementing a halfway entry, you would only risk 21 pips and you could have peace knowing that when the market finally does reverse its likely to move far into the zone rather than spiking the edge and bouncing in the other direction.
3.Find The Source Of The Zone
This next tip is something which is applicable to the Seiden method of trading supply and demand and my method of trading supply and demand.
The process of finding the source of supply and demand zones is one where you can lower the total amount of money needed to risk on each trade. I’ve seen other traders do this, although they abuse it slightly and go down onto the lowest possible time-frame to find the source of the zone, what this inevitably leads to is zones which the market ends up missing by a few pips which can really frustrating when your trying to make money.
To find the source of a supply and demand zone you need to determine which time-frame you trade-off, as its how far down you go on the lower time-frames to find the source of the zone depends alot on which time-frame you usually trade.
Since I usually trade-off the 1 hour chart the lowest time-frame I’ll use to find the source of supply and demand area is the 5 minute chart, any lower than this and it can become tricky to determine where the source begins and ends.
We use a two-step process for finding the source of zones.
Step 1 is to locate the supply or demand zones you wish to find the source of.
For the sake of this example we are going to use one of the supply zones seen in the previous image.
Above you can see I’ve marked a supply zone on the 1 hour chart of EUR/USD, the total size of this area is 16 pips which mean the distance of your stop from entry is 16 pips assuming you trade the zones using pending orders.
Now we have our zone marked, we need to switch to the 5 minute chart to see if we can find the exact point where selling entered the market creating the supply zone.
From the 5 minute chart we can see that the zone we have drawn on the 1 hour chart covers an area much larger than the actual source, what we need to do now is resize the area to more accurately define where the selling came into the market.
After re-sizing the area you can see how the amount of pips we would have had to risk decreases dramatically, the zone is now only 6 pips as opposed to 16 pips.
Here’s another example, this time we’ll find the source of a demand zone.
Here we have a 1 hour demand zone on EUR/USD, as you can already see this demand zone would have resulted in a successful trade if you traded it, the total size of this zone is 20 pips, hopefully by finding the source we can knock a few pips off the total size of the zone.
To find the source and lower how much we have to risk on the trade we need to go down to the 5 minute chart.
Now we can see the exact point where the demand zone was created.
After finding the source of the zone and reshaping the area to better define where the buying came in, you can see how the size of your stop has been reduced by 5 pips, now you only have to risk 15 pips instead of 20 pips which is what the zone was initially.
You may have already noticed there’s a problem with our reduced zone ?
When the market returns to the area the spike lower fails to touch the zone, if you had a pending order to buy placed at this demand zone your trade would not have been executed and you would have missed a successful trade.
It’s a good idea to always add two or three pips onto the size of the zone once you have found the source, although the size of the zone has decreased significantly what you’ll find is many times the market will spike the bottom of the area and your pending order will not be executed due to the spread, by adding an extra few pips onto the zone you’ll increase the amount you have to risk but also giver yourself a better chance of getting your order executed.
Whilst it may seem silly to find the source of supply and demand zones just to knock a few pips off the total amount you’ll need to risk on trades, over time it will add up, and you’ll find that not only will you be able to risk less on each trade, you also be able to take trades at a higher leverage even if you only have a small amount of money in your account.
If you had a zone which was 16 pips initially and after finding the source it’s really only 8 pips then you can take the trade at twice the leverage and your maximum risk would still only be 16 pips, so your only risking as much as you would have in the first place if you never found the source of the zone.
The Sam Seiden supply and demand method is one that carries some huge flaws in its thinking and execution.
But that’s not to say it cannot be used to make money, it is possible to make decent profits from Sam’s method but you will eventually grow tired of losing on trades which you could have been winning had you been using price action to enter into positions. I hope some of the tips provided to you today will allow you to make some steady progress in your supply and demand trading, if you have any questions about the topics discussed in this article please leave them in the comment section below.