My strategy is so much more than simply drawing supply and demand zones and when you’ve stared at the charts for 10 years, certain aspects of price action ring alarm bells and signal that a trade should be passed.
In this article I’m going to show you one of my very simple price action filters that I call the “V return”. You’ll see it on every instrument and every timeframe.
So let’s take a look at how it works with some examples.
When the market makes a “V” shaped return to a supply zone, it is highly likely the zone will not hold. This also holds true for an upside down V approach to a demand zone. We want to see either a flagging return or rounded return to a zone in order to be a high probability trade.
This is a slide from my course on Udemy.com which shows in diagrammatic form what we are looking for:
Now let’s look at a trade that I should have known better not to take because my “V” filter had signaled against it! You can see the market made an upside down V return to two demand zones (the upper two yellow boxes) where I went long. Price briefly paused at each zone – it often does when giving a false confirmation that it may turn. But eventually it made it’s way to the 3rd and final zone below (see next chart). On both trades I took a loss, which was unnecessary if I had stuck to my rules!
By the time we got to the 3rd zone (lower yellow box), the effects of the V return were weaker and we also had a major support level in confluence with demand.This zone gave a winning trade.
The V and Stophunts
The V return into a zone is even stronger if the V pattern spikes into a stoploss level. When that happens, you better not stand in the way. Instead look for the move to lose strength or take a setup in the opposite direction.
Here are some examples of V returns combined with stop hunts. Demand zones failed in all cases. Incidentally, no two patterns will ever look exactly the same – train your eyes to see different variations of this pattern.
Finally, sometimes the market will throw a “curveball” and a V shaped return to a zone will work. Don’t let this fool you because the probabilities of the zone not holding are a lot higher. I’m going to leave it as an exercise for the reader to work out the probabilities for this filter across various instruments, timeframes, etc.
I hope this article has helped you. If you enjoyed it, please use the social media buttons below to share – thank you!