Overview
The transcript explains a practical risk management technique for trading, focusing on refining entry zones across multiple timeframes to improve risk-to-reward ratios. The speaker details both the method and common pitfalls, offering actionable guidance for traders seeking more precise and profitable setups.
Importance of Risk Management
- Risk management is often overlooked but crucial for trading profitability.
- Applying a simple tweak to strategy can increase profits and reduce risk.
Identifying Supply and Demand Zones
- Demand zones mark where strong upward moves begin; supply zones mark where strong downward moves begin.
- Use the rectangle tool to mark from the lower wick to the higher wick of the relevant candle.
- Price often returns to these zones, offering lucrative entry points.
The Limitation of Basic Entries
- Entering at the first touch of a supply or demand zone on a higher timeframe often results in a suboptimal risk-to-reward ratio (e.g., 2.14).
- Traditional strategy can be profitable, but there is room for improvement.
Introducing Zone Refinement
- Zone refinement involves identifying supply and demand zones on a higher timeframe, then narrowing them on a lower timeframe (e.g., 4H to 1H).
- Refined zones offer better entries, smaller stop losses, and higher potential profits.
- Risk-to-reward ratios can increase significantly (examples: from 5.15 to 11.12, or from 5.23 to 7.6).
Live Trade Example
- Marked a demand zone on the 4H; initially set entry and stop loss with a 5.23 risk-to-reward.
- After refining the zone on the 1H, improved the risk-to-reward to 7.6.
- Entered at the refined zone, resulting in stronger profits while risking less.
Warning Against Over-Refinement
- Refining entry zones beyond two timeframes down can lead to missed opportunities.
- Over-refinement example: 4H → 1H → 5min may result in price never reaching the ultra-refined zone.
Two Steps Down Rule
- Only refine two timeframes lower from your starting point to prevent over-refinement.
- Examples: Daily → 4H → 1H, 4H → 1H → 30min, 30min → 15min → 5min.
Recommendations / Advice
- Apply zone refinement to improve trading entries and risk-reward ratios.
- Avoid over-refining zones; stick to the two steps down rule for consistency.
Action Items
- TBD – All Traders: Test the zone refinement technique in personal trading and share results with the speaker via Instagram.
- TBD – Speaker: Increase posting frequency in response to audience feedback.