The Bouncing Zone Strategy — Part 2

Introduction

Your are about to read the part 2 of a 3 part article called "the bouncing zone strategy".

Have you tried to find zones on your charts? If so, you certainly noticed that not all of them work as planned. Well, I have a good news for you: it’s possible to filter out some of the zones that are most likely to fail.

Before talking about what makes a zone good or bad, we should first understand what are the characteristics of a zone. That’s what we’re going to talk about here. Each section below deals about one of the characteristics of a zone.

Name of the zone

You already know the first characteristic of a zone, it’s simply the name of the zone. Is either a supply zone, or a demand zone.

Okay, now let’s talk about things you don’t know yet :-)

Type of zone

We can divide the zones into 4 different types:

• Drop Base Rally (DBR)
• Rally Base Drop (RBD)
• Drop Base Drop (DBD)
• Rally Base Rally (RBR)

This sounds weird? Here's an image that should make things clear.

This is simply a way to describe the "direction" of the zone.

Strength of the move

When price leaves a zone, it’s important to know how to describe the strength of the move. For this we have 2 useful things to look at:

• How many consecutive candles of the same color there are
• How big the candles are

If you have lots of big candles of the same color, it’s a strong level. If you have only a couple of small candles of the same color, it’s a slow level. You can see below a slow move (left) and a strong one (right).

Time in the zone

This one is simple: once you draw the zone, count how many candles there are in the zone. If you see more than 5 candles, then it's a long zone. Is there are less than 5, then it's a short zone.

In the example below you can count 3 candles, so it's a fast zone.

Height of the zone

Look at the height of your zone, then look at the height of your price movement. If the zone is bigger than 1/4 of the price movement, then the zone is big. Otherwise, the zone is small.

In the example below, the left zone is big, the right zone is small.

Freshness of the zone

You need to follow 2 steps in order to know if a zone is fresh or not:

• Look on the left of the zone, and see if your price movement is due to a previous zone being hit.
• Look on the right of the zone, and see if the the price already hit the zone at least once.

It’s easier to explain with an example:

Is the zone 2 fresh?

• On the left, we do not see a prvious zone at 1
• On the right, price touched the zone at 3
• -> The zone was fresh before hitting 3, but now it is not fresh anymore

Is the zone 4 fresh?

• On the left, we do not see a previous zone
• On the right, price did not touch the zone yet
• -> The zone is fresh

Quick summary

As we just saw, there are 6 characteristics to think about when describing a zone:

• Name of the zone: supply, demand
• Type of zone: DBR, RBD, DBD, RBR
• Strength of the move: strong, medium, slow
• Time in the zone: short, long
• Height of the zone: small, big
• Freshness of the zone: yes, no

All of this is really important, you should keep it in mind while looking for zones

Some examples

Now it’s time to see some examples together. Below are 2 zones, try to describe them using what we learnt in the article.

Characteristics of the left zone:

• Name of the zone: supply
• Type of zone: DBD
• Strength of the move: strong
• Time in the zone: short
• Height of the zone: small
• Freshness of the zone: not fresh anymore

Characteristics of the right zone:

• Name of the zone: demand
• Type of zone: DBR
• Strength of the move: strong
• Time in the zone: short
• Height of the zone: small
• Freshness of the zone: not fresh (you can see another level on the left of the zone)

Now you should practice describing zones on your own charts.

Credit: 21pips

The Bouncing Zone Strategy — Part 1

Introduction

Your are about to read the part 1 of a 3 part article called "the bouncing zone strategy".

You should know that I haven't invented this strategy. I've learned it on the internet and with friends, and then tweaked it to feet my needs. Some people call this strategy "supply and demand levels", but I think "bouncing zones" better describe what it's about.

The setup

This is a strategy based on Price Action, so the setup is quite simple: just the price in candle sticks. No indicator at all. I trade mostly on the main pairs (EUR/USD, GBP/USD, etc.), and on a 1h timeframe (TF). But this technique should work on any pair and any TF.

The basic idea

Sometimes we see price moving very rapidly in one direction. What does it mean? Let's use an example to make things simple:

• Some people are selling a huge amount of $currency, and these "some people" are usually big banks
• That makes the price drop quickly from 1.3 to 1.2
• It means that a lot of people who wanted to sell $currency at around 1.3 couldn't do so, since price moved so fast
• So next time the price goes back around 1.3, a lot of sell orders are going to be triggered, and price is going to move down again
• Of course it works the opposite if price increased from 1.2 to 1.3

Once you realise that, you just have to use this information at your advantage. Here's a EUR/USD chart that shows this.

Legend:

• 1) Price dropped quickly from here, we call this a zone
• 2) Then when the price reaches back the same zone, the price bounce

Now you should understand why we call this strategy "bouncing zones". The zones from where price move quickly in one direction are called:

• Demand zone, when people want to buy and price will increase
• Supply zone, when people want to sell and price will go down (like in the example chart above)

So you just have to identify these supply and demand zones, place orders when the price goes back into these zones, and wait for the price to bounce. Obviously not all zones are going to work as planned. But from my experience, enough are going to work in our favor to make this system work, and make money.

How to identify bouncing zones

Identifying zones is quite easy. All it takes is two steps:

• 1) On a chart, identify all strong price movement
• 2) Find the base of the price movement, where the price moves slowly in sideways. This is what we call a zone.

In the example below we see 3 strong price movement. There is a supply zone that already worked, and a new demand zone.

You can see that it's quite easy to do!

How to precisely draw zones

This part is hard to explain precisely, cause there may be some rules to follow, but your also need some kind of instinct, that you can only learn by doing. Drawing zones is an "art". Anyway, the basic idea is this:

• Look at the base of a strong price movement to find some candles moving sideways
• Make the zone cover all of these candles (body and shadows)
• Then refine your zone:
  • If it's a supply zone, you do not care about the lower shadows of the candles
  • If it's a demand zone, you do not care about the upper shadows of the candles

Here are a few examples of zone drawing:

Legend:

• In blue + orange: the whole zone that covers all the candles
• In orange: the shadows we're not interested in, as explained above
• In blue: the refined zone to use for the trade

Entry, stop loss and take profit

Once you identify a zone that you want to trade, you have to set up the trade. Here's how I do it with a little example.

Legend:

• Blue rectangle: the supply zone
• Blue line: the entry of the trade, at the beginning of the zone
• Red line: the stop loss (SL), usually 2-3 pipes above the end of the zone
• Green line: the take profit (TP), that is simply placed in a way to have a 1:2 or 1:3 risk:reward ratio (in this example it's a 1:3)

So once you know how to draw zones, setting up trades is really simple with these rules.

Examples of bouncing zones

Below are 4 examples of bouncing zones from CHF/JPY charts. Two are demand zones (top), and two are supply zones (bottom).

You should try to find zones on your own charts, and see the price bouncing into them

Credit: 21pips

An introduction to psychology in trading

A big mistake that beginners make when first learning to trade, is to assume that developing technical or fundamental analysis skills alone will allow them to become successful. In fact, learning to control emotions is the most important skill that allow a trader to become successful, because emotions have the biggest impact on your results.

The role of psychology in trading

Successful trading is not down to any single trade, but a number of trades using a strategy. This means that a trader must be disciplined enough to stick to their strategy, even throughout a losing streak. However, human beings often do not behave in a logical way and there are many times that emotions influence us and we act differently to normal.

A trading strategy's success is determined by a number of trades. A successful trader must stick to the rules of their strategy and not allow emotions to get in the way.

Do you remember the last time you were very angry? Maybe you did something and you were surprised by your actions. As much as you regretted it afterwards, at the time you probably couldn't help it and furthermore, you are likely to act the same way again if you become angry in the future.

This is because the psychology of a person is made up of thoughts and feelings that are an incitement to act, and so psychology shapes our behaviour in every aspect of our lives – trading is no exception.

Emotions are inevitable – especially for a new or unskilled trader and they can prevent you from making an objective decision. For this reason, learning how to control emotion becomes paramount to successful trading over and above everything else.

The zone

When a trader is thinking clearly and is uninfluenced by emotion, they are said to be in the zone.

When a trader is thinking clearly and uninfluenced by emotion, he is said to be in the zone. When you are in the zone, you are in control of your behaviour and are able to follow a trading strategy in a logical and systematic way.

Some traders find it easy to get into the zone, but even those who struggle can learn to control their behaviour and become emotionally detached from trading.

Tharp's chart and the importance of psychology

Dr. Van Tharp is known for breaking down the trading process into three categories that affect traders. He categorises them by importance as follows:

• Trading strategy (10%)
• Money management (30%)
• Psychology (60%)

According to Dr. Tharp, the psychological outlook and an individual’s way of thinking towards trading is the most important factor for success.

The fact that the actual trading strategy is ranked the least important by Dr. Tharp, suggests that regardless of how successful a strategy is, psychology is the key to being successful.

Emotions that influence trading

The emotions in trading that have a negative impact on results are greed and fear. These emotions cause a trader to deviate away from their plan, which can lead to further issues, such as ego and revenge trading.

The following are examples of these emotions and how they can negatively affect trading results.

Fear of losing can lead to further losses

Fear of taking losses can ultimately lead to even more losses. The typical behaviour of a trader will be to close trades early, either when the trade has temporarily gone into a loss or a small win, and not letting the trade run its full course

When a trader has a fear of losing, they try to avoid them. This can actually increase losses.

For example, a trader may open a trade and place theirstop loss, say, 20 pips away – based on the strategy they use. In other words, there is a technical or fundamental reason for it being placed where it is.

However, a trader that is influenced by fear may close the trade prematurely, simply because the trade temporarily goes against them. So if the trade goes against them by, say, 10 pips, then the trade results in a 10 pip loss. If the trade turns out to be a winner, then the trader has just turned the winning trade into a losing one out of fear.

Another scenario is when a trader closes their trade as soon as it has gone into profit, out of fear that they can lose that profit. If the trade then goes on to hit the profit target, then the trader has reduced a full winning trade down to a much smaller win.

This behaviour ultimately turns a profitable strategy into a losing one, because the trader reduces the amount of winning trades and/or reduces the profit overall because of fear of losing.

Greed results in trying to take too much profit and end up with less.

A trader under the influence of greed will try to go for more profit and will not close their trade when their strategy dictates that they should.

When a trader experiences greed, it means that they try to go for too much profit and deviate from their strategy. For example, a trader may place their profit target in accordance with their strategy. This means that – as with placing a stop loss – there is a technical or fundamental reason for doing so.

However, when greed influences a trader, they do not close their trade when the strategy has dictated they should – they try and go for more. What can happen is that the trade can turn against them, ultimately ending up with less profit, or worse, a losing trade. This means that they actually reduce the profitability of a strategy because they try to increase their profit through greed.

A trader influenced by ego will never admit they are wrong

Ego can affect a trader, causing them to not close trades when their strategy dictates they should or continues to trade on the same analysis after their trade has been stopped out, because they believe they are correct in their original assessment.

A trader under the influence of ego does not want to admit they are wrong.
For example, if the trade does not go well, instead of closing their trade according to the strategy, they carry on taking a bigger loss than necessary because they cannot admit that they are wrong.

Another scenario may be that after taking a loss on a perfectly good trade, they do not go on to look for the next setup according to their strategy. Instead, they continue taking trades based on their original analysis because they believe they were right in the first place.

Revenge trading is chasing the money you have lost on a trade

Revenge trading is when a trader chases the losses they have made – they are so focused on winning the money back that they fail to realize that they are not trading with a set of rules and each trade ends up resulting in another loss.

The importance of discipline when trading

To avoid emotionally influenced trading, you will need to build discipline that will allow you to think as objectively as possible. There are several ways in which you can do this:

Trade with a tried and tested strategy

You are much more likely to remain calm under pressure if you have confidence in your trading plan. If a strategy has not been tested enough, it may lead to doubts that could allow fear to overwhelm the trader.

Demo-account trading

Having confidence in your plan will help keep you calm under pressure. Test your strategy with a demo account and accept the risk, because a 100% winning ratio is unrealistic.

Testing and further development of a strategy should be done on a demo account first before using real money. Using real money creates an additional pressure that is likely to amplify negative emotions that are involved when trading, which can lead to further losses.

Accepting the risk

A strategy with a 100% winning ratio is unrealistic. You must be prepared to accept losses. It is normal to hope that every trade turns out to be favorable. However, inexperienced traders are likely to experience a stronger emotional impact when they take a loss. In contrast, a profitable trader is able to accept losses as part of the trading strategy and move on to the next trade, without allowing greed or fear to affect future decisions.

Summary

So far, you have learned that ...

• ... new traders make the mistake that skills in technical and fundamental analysis is the most important element in trading.
• ... controlling emotion is actually the most important skill that a trader should focus on.
• ... Dr. Van Tharp has broken down the trading process into three categories that affect traders: strategy, money management and psychology.
• ... psychology is ranked as the most important element, followed by money management and then the strategy. This highlights that regardless of how profitable a strategy is, psychology can impede the ability of a trader to make money.
• ... fear of losing can cause a trader to close trades early before the trade has run its full course, which can lead to further losses.
• ... greed can cause a trader to leave trade in and not close at the specified profit target when their strategy tells them too. This can run the risk of taking smaller profits if the market then turns against them.
• ... ego is when a trader does not admit they are wrong and can influence them to either not close their trades when their strategy tells them they should or keep trying to trade in the same direction after their trade is closed.
• ... revenge trading is where a trader tries to chase the money that they have lost without any regards to a strategy.
• ... having confidence in your trading plan and trading with a demo account ultimately helps with learning to control emotion.
• ... a strategy with a 100% win rate is unrealistic, you must be learn to accept the risk on each trade.

Credit:Tradimo

The Kobe System: The Lessons Of Self-Motivation From Kobe Bryant That Will Ensure Success

Throughout the 17 seasons of his NBA career, Kobe Bryant has established himself as one of the most fascinating athletes ever to grace the sports world. He’s won five champions, cemented himself as a first-ballot hall-of-famer, scored more clutch three-pointers than can be counted and probably landed even more dunks. But for as a great a skill set that he has displayed on the court, the Lakers’ living legend has always been noted for the mentality that he has as a person, beyond the court.

Simply put, Kobe Bryant hasn’t always impressed with just pure talent, but he’s always been able to amaze people with his sheer will to win and the ability to play beyond himself.

And when the 15-NBA All-Star was put before a crowd while on tour in China as they quizzed him on all things basketball, Bryant was always likely to speak about one his best attributes, his mentality, as well as the strategies that he has used to motivate himself that can be used by any person in any walk of life. So, here they are, the five success lessons that we can all take away from Kobe Bryant:

Find your personality in and out of the business setting.

One of the traits that Kobe Bryant is most noted for on the court is his killer instinct. He is, quite simply, a freakishly competitive player. It’s part of the reason that he’s earned the nicknamed the Black Mamba, a moniker which he explained in more detail during his time overseas.

“Black Mamba is one of the deadliest snakes in the world. The reason why I got the name is because when I step on the basketball court, that’s what I become,” Bryant said. “So, off the court, I’m laughing, joking, having fun. But once I get on the court, that’s when I become this other person, this other thing. It helps me focus.”

Whether it’s on the court, in the classroom, the boardroom or on any playing field that life puts us on, it’s important that we find a persona to channel when it comes time for business, a mode that takes us to another level and, as Bryant says, helps us focus and become deadly at our craft.

Stephen Dunn/Getty Images

Great Challenge = Great Opportunity to shine

While it may be tempting to use a great challenge or a great task as an excuse to be intimidated, wary or timid, Kobe Bryant argues that there’s nothing like a big test to prove yourself as a big time performer. Not only is the Black Mamba speaking from experience, he is speaking from current experience as he battles back from a torn Achilles tendon injury that some suggested could have ended his career.

And while he says he could never know for certain whether he could come back, the basketball great says that it’s that seed of doubt that makes the challenge that much more inciting and that much more inviting.

“I have moments and I have days where I doubt myself. But to me, that’s the exciting part of the challenge.That’s when I realize this is a great opportunity to come out and show everybody this is how you bounce back. This is how you respond to a challenge.”

Your Critics Shouldn’t Only Motivate You, But Motivate You To Distinguish Yourself From Them

We’ve all heard it before. Haters can always provide that extra bit of fuel that one needs to push oneself to success. But Kobe takes it even further. According to the Bryant, when others try to place limitations on you, it’s just a sign of their own limitations. Their efforts to deter you are a sign that they can’t do what you’re aiming at, which shouldn’t just motivate you to prove them wrong, but should motivate you to distinguish yourself from such small time thinking.

“The people who say, ‘you will never come back from this injury,’ to me, that means that if they had this injury, if they had this injury, they would quit,” Bryant said. “That’s what that means to me. Because if they sit there and look at me and say I can’t do it, that means that if this happened to you, you wouldn’t do it. So, I have to show them just as much as I show the people who are supporting me that this can be done and I can come back from this.”

Inspiration Can Come From Many Places And Many Fields

The Lower Marion High School product says that when he was young, he didn’t just draw inspiration from the basketball great likes Jordan and Magic, but also some of the world’s greats like Beethoven and Michael Jackson, like Da Vinci and Bruce Lee. His message, motivation can come from any great, because all greats are bound to have a similarities to their methods for success.

“No matter what you do, if you want to be a basketball player, if you want to be a writer if you want to be a TV host, or whatever it is that you want to do. It’s making sure that you focus with laser-like precision on that goal and you learn from other people who have been great,” said Bryant. “Because no matter what they’re doing there’s always a common thread, there’s always a common denominator between what has made people great and what has separated good from great.”

Harry How/Getty Images

You Are Never Too Good To Gain Experience

No matter what point you get to, no matter how skilled or accomplished you become, you should never feel established enough to stop learning. The hunger to gain new knowledge is part of what Kobe calls the Mamba mentality.

“It’s really about wanting to learn and feeling like your cup is always empty, because there’s always more that you can fill it with. That’s really the important thing and just continuing to learn, learn, learn.”

If you’re skeptical, just look at it like this: If the player that has mastered almost every move and landed practically every accolade there is to land on the basketball court still feels that he has the need to learn, there is no way we can come to a point when we don’t feel the same.

Top photo credit: Allen Berezovsky/WireImage/Getty Images

Credit: JOSEPH MILORD

20 Habits That Will Make You A Success

1. Don’t define success with a dollar amount, but in relation to your happiness.

The habit of defining success with a dollar amount will lead you to constantly chasing a higher price point. It’s a chase that will never end, and a view of success that will never be attained. Get in the habit of seeing your success and your happiness in the same light.

2. Read before you write or work.

Reading a good book will get the creative juices flowing, the brain learning, and your knowledge base growing. Try reading for 30 minutes to start your day.

3. Wake up at the same time everyday.

Having a good sleep routine will help you have more energy to do more work during the day.

4. Always finish your to do list.

Get in the habit of never leaving anything that you wanted to finish at the beginning of the day, incomplete at the end. If you simply do what you set out to do, it will be hard for success to elude you.

5. Keep your to do list small and scaled.

Have 1 or 2 things that are important to finish, and make sure you finish them first. The rest of your tasks should be tended to only after your most important ones have been completed.

6. Keep two journals; one for your planning, scheduling, and work.

The other for your big ideas, thoughts, and goals. Writing stuff down makes it real and tangible. A to do list, a goal, or a dream, that isn’t written down isn’t yet real.

7. Measure everything.

Every goal you set needs to be measured. Every sales page you create, needs to be measured. If you measure everything you’ll have a blueprint for exactly what does work, and what doesn’t.

8. Stick to 90-minute work sessions.

Few people actually work as much as they say they work. Their time is usually made up of distractions. They Facebook, Tweet, and surf the interwebz. Time your work sessions. Keep a stopwatch. Focus for 90-minutes, take an active break, then get back to the beautiful grind.

9. Take active breaks.

A work break should enhance your working experience. It can’t – at all costs – take away from it. So do something active that will get your blood pumping and your mind working as effectively as it was when you first started working in the wee hours of the morning.

10. Wake up early.

The list of successful people who wake up before the rest of the world is far too long to list. This isn’t a coincidence. Get up before 6 am, 7 days a week and get a head start on your day and your dream.

11. Put your family first.

Success can’t exist without family – even if that “family” is simply loved ones and friends. You need to be working for a greater purpose than your own monitory gain if you’re going to accomplish truesuccess.

12. Work harder than your competition.

If you work harder than everyone else, success can’t hide from you. You will find it. And you willenjoy it.

13. Use a board.

Use a big white board to keep your goals visible and close.

14. Share your dream.

Get in the habit of talking to others who have a similar dream, even if the similarity is the enormity of your goals, and the audaciousness of your plans. Napoleon Hill coined this relationship “a mastermind”, and it’s one of the most important factors in your eventual success.

15. Only surround yourself with successful people.

That is, don’t have “suckers” in your midst – people who will tear you away from your work, and destroy your dream. If you have friends that do this, stop hanging out with them. Are they worth you living a mediocre life when greatness can be in your future?

16. Keep a healthy body.

Without a healthy body it becomes evermore difficult to maintain a healthy mind.

17. Spend your money only on things that will propel your dream.

Cars, “things”, are only good for boosting your image in an effort to impress people who you really don’t want to impress. Spend money, instead, on your own development and your business to fuel your growth.

18. Make a sacrifice.

Get in the habit of sacrificing things that you may like in your life, for things that will help you become a success. The road to greatness isn’t one of excess spending and easy living. Hustle. Focus. Sacrifice. Succeed.

19. Review your journals every month.

A journal can bring you clarity when you write in it, but it’s far more powerful when you get in the habit of reviewing it.

20. Write down 3 things you’re thankful for every day.

What you’ll find is that success is often in your midst if you look at it from the right perspective. And study after study has shown that happy people achieve far greater things than pessimistic, unhappy individuals. This habit, combined with hard work, is as simple a recipe for success as you can create. It’s also an effective one.

If your habits are those of a successful, happy, productive, hard-working person, there’s no way that you can’t be successful. Make your success unavoidable by changing your habits.

Credits: Chad howse