Entry, Stop Loss and Target in Supply and Demand Trading: The Method Explained

Lesson 6 of 8 · Intermediate

Three common entry methods

This lesson explains the method; it does not tell you where to buy or sell. Supply and demand traders usually choose one of these three entry approaches:

1. Limit order at the proximal line (set and forget). The order is placed in advance at the proximal line of the zone. Advantage: if price only touches the line and turns, you are not left behind. Drawback: there is no confirmation, so you take every zone, including the ones that fail.
2. Entry inside the zone. The order is placed somewhere between the proximal and distal lines, for instance the middle. The stop is smaller, but you miss reactions that only touch the proximal line.
3. Entry with confirmation. You wait for price to enter the zone and show a reversal sign on a lower timeframe; for example, a break of a small opposing structure, or a small fresh zone forming inside the main zone. Drawback: the entry price is worse and you sometimes miss fast reactions.

None has an absolute advantage. The choice should come from testing on historical data and careful journaling.

Stop loss: behind the distal line, with a sensible buffer

The logic of this style is simple: if price passes the distal line, the zone hypothesis is invalidated. So the stop goes behind the distal line, not exactly on it. The extra distance (buffer) has two reasons:

• Spread. In spot gold the bid and ask differ, and the spread widens in thin hours and around news. A stop on a short position is triggered at the ask price.
• Normal volatility. Short wicks that poke slightly past a boundary are common in gold. Some traders set the buffer as a fraction of the ATR of the entry timeframe.

Hypothetical example: a supply zone runs from 4,132 (proximal) to 4,141 (distal). A short entry at 4,132 with a stop at, say, 4,144 puts it three dollars behind the distal line. The risk per ounce is twelve dollars. The numbers only illustrate the calculation.

Never move the stop farther away after entry. If a zone does not fit a sensible stop, the zone is not suitable for this method; the answer is not to remove the stop.

Target: to the opposing zone

The most common way to set a target in this style is the opposing zone: if you bought from a demand zone, the first fresh supply zone above price is where the move is likely to stall. Some common approaches:

• Full target at the proximal line of the opposing zone, slightly before it, since price may not reach the zone exactly.
• A fixed reward-to-risk ratio, such as two or three times the risk, provided the opposing zone is not in the way.
• Scaling out: part at the first target, part at the next opposing zone, with the stop moved according to a rule written in advance.

Continuing the example: if the first fresh demand zone below 4,132 is about 4,100 to 4,106, the distance to its proximal line is roughly 26 dollars, a little more than twice the twelve-dollar risk. This number simply shows how to calculate room to run before entry.

Position size and risk management

Calculate trade size from the stop, not from feeling. A simple method:

1. Decide the risk per trade as a small percentage of the account.
2. Calculate the distance from entry to stop in dollars per ounce.
3. In spot gold, one standard lot is usually 100 ounces, so each one-dollar move is worth about 100 dollars per lot. Always check your own broker's contract specifications.
4. Size = risk amount ÷ (stop distance × value of a one-dollar move per lot).

Hypothetical example: allowed risk is 100 dollars and the stop distance is twelve dollars. For one lot, a twelve-dollar move is 1,200 dollars; so the size is about 0.08 lots.

Note that spread and commission are part of the cost in this calculation. In narrow gold zones, spread can be a significant share of the risk, so the smaller the stop, the greater the effect of costs on the final result.

When not to enter

An important part of the method is the “do not enter” rules:

• In the minutes before and after high-impact US news.
• When room to run to the opposing zone is below the minimum written in your rules.
• When price has reached the zone in one very fast, high-volume move with no sign of slowing.
• When the zone has already been tested several times.

Logging every trade with a chart screenshot, the reason for entry, the entry method, the stop and the result is the only real way to evaluate these methods. Results of any method change with the market period.

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Frequently asked questions

Is entering with confirmation always safer?

No. Confirmation removes some bad entries, but you get a worse entry price and a relatively larger stop, and you miss some good reactions. Only testing on your own data shows which suits you.

What is a suitable reward-to-risk ratio?

There is no magic number. Reward-to-risk and win rate only make sense together, and both must come from testing. This course promises no success rate.

Should I move my stop to breakeven after the first target?

It is a management decision and both choices have drawbacks; moving too early can close good trades on normal fluctuation. Write the rule in advance and measure its results.

Education only, not a recommendation to buy or sell; we never give signals. Price examples are illustrative. Test any method on a demo account first, with strict risk management.