The Realignment: The Sequence and Nested Zones

23rd March 2014, 10:55 AM

The Sequence and The Realignment concepts are a mechanical approach for a top down analysis that will
allow us to do the same kind of analysis over and over again, thus reinforcing the rules and our beliefs in
what the rules we trade. We must choose three timeframes for our sequence and learn about the trend
on each of them. In order to assess the trend we do have very specific rules laid out in the lesson on how
to identify a trend.

Each timeframe will have its own trend and imbalances, completely independent from other timeframes.
These concepts have already been introduced in the first lesson.

Let's go over them again...

THE SEQUENCE & THE REALIGNMENT

These rules just state where price is most likely that a predictable move will happen. Price can really do
anything, we're talking about probability and tested scenarios/environments here

• Choose only three timeframes for your sequence. MWD, WDH4, anything, and stick to this
combination. Don't add more. If you add more you will always find a reason not to take a trade,
don't over-complicate things

• Draw last bullish and bearish trendlines on all the three timeframes in order to locate the latest
imbalances.

• Start your analysis from the highest timeframe in your sequence and step down timeframes until
you find the first timeframe where the trend has been broken, as shown in the screenshots
attached

• Once we have located the timeframe that has lost momentum and alignment, switch to one
timeframe higher than the one where the trend is broken, and wait for price to hit a valid
imbalance to keep on trading in the direction of the higher timeframe's direction and realign with
the HTF sequence and trend

Refer to the type of trader and timeframe combo lesson to choose your sequence

The following slides use the Monthly, Weekly and Daily timeframes as an example. Any timeframe
combination can be used but I highly recommend you to use this combination because I guess you want
to have a life, maybe I am wrong and you love staring at your trading platform for hours chasing for trades.
Traders are often limited by the number of trading opportunities due to the time it takes to analyse
multiple markets. When analysing the bigger imbalances and sequences, we will be able to move through
hundreds of markets at a relatively fast pace. Less time in front of the computer, less stress and less over
analysis and over-trading, resulting in a better life and relationship with your couple, children, family and
friends. Family and friends are away more important than your trading my friend, do not ignore that fact,
FAR more important.
NESTED ZONES

Nested zones are supply and demand imbalances that are located within a higher timeframe zone than
the one where the imbalance has been detected. These nested zones can be used to lower our risk by
drilling the entry timeframe to a smaller zone at a lower timeframe. For example:

• A H4 demand zone at a D1 demand which is at a WK demand zone with the WK/MN in an uptrend
is a way to drill down our entry to have a lower $ risk entry at a much narrower level

• A D1 demand zone within a WK demand zone with a WK/MN uptrend is a good way to reduce our
entry level for a lower $ risk entry

For a zone to be considered nested, does the LTF zone has to have both their distal and proximal lines
inside the HTF zone, or can the LTF have only the distal line inside the HTF and still be considered nested?
The nested LTF zone may straddle the HTF zone: eg a nested D1 DZ within a WK DZ - the D1 DZ may have
its proximal line slightly above the proximal line of the W DZ, subject to the D1 DZ having its distal line
within the W DZ.

A nested zone will be only valid if the HTF zone at which it's nested is also a valid imbalance (2:1
imbalance, consolidation away, correct basing structure and formation, etc). If we have a D1 DZ nested
at a W DZ, then that D1 DZ will be validated for a set and forget D1 long if the W DZ is also a valid imbalance
(min 2:1 imbalance and consolidation away). ELSE: wait for a confirmation setup on the D1 (or H4). Read
more about zone validation in the validation lesson

Can a zone be nested if it's not contained completely within a bigger timeframe?
Yes. A nested zone can be contained entirely within the bigger TF. The nested zone will be valid if it's
touching or overlapping the HTF proximal line.

Nested zones combined with the sequence and the realignment concept is a very powerful and
mechanical way of lowering the risk in our entries.

WHEN TO SET AND FORGET YOUR TRADES IN A SEQUENCE

For example:

1. MN, WK and D1 are up, H4 is down. We won't set and forget long trades until we reach the D1
area of demand, if we have room and good short setups, we might try to counter-trend (lower
odds), but watch the last week/month lows/highs and make sure you have enough profit margin
for at least 3 or 4:1

2. MN and WK are up, D1 is down. We won't set and forget long trades until we reach a WK area of
demand, all longs will be based on confirmation and WoW trades (lower odds though). Why? The
WK demand will act as a "magnet" that will tend to attract price with a high probability, this going
long in "set and forget" mode is not very wise

3. MN is up, WK is down. Price must reach the MN demand before we set and forget our long trades,
price will tend to realign with the MN uptrend at a MN demand if WK is down. Any longs before
that happens are not high odds, high odds ones will be located within the MN demand zone

NOTE: remember that a nested zone will be only valid if the HTF zone within which it's nested is also
valid (2:1 imbalance, consolidation away, correct basing formation, etc)Read more about validation of a
zone in the validation lesson
WHAT TO DO WHEN PRICE HAS HIT OUR SEQUENCE'S ENTRY TIMEFRAME
There are a couple of things we can do when price hits our entry timeframe in a sequence. Let's use one
of the default sequences as an example:

• The Position Sequence (type 2): Monthly, Weekly and Daily. Daily is our entry timeframe. See
figure 1 at the top of this post, Position Type of trade 2

This is what normally happens when price is sequencing in this scenario:

• Monthly is trending UP. MN ascending trendline is being respected

• Weekly is trending UP, trendline is respected

• D1 is trending DOWN. D1 trendline is pointing down

As per the realignment rules described in this post, we should wait for price to reach a Weekly area of
demand before we start buying again with high probability. All longs taken should be based on
confirmation when a D1 demand zone is hit (use H4 WoW long trades as confirmation)

• Our entry timeframe will still be the Daily timeframe. You can use the H4 entry TF if your that's
your entry TF

• However, we must wait for price to reach a Weekly demand zone

Once price is within the Weekly demand zone, we can trade Set & Forget or Confirmation (new imbalance)

• Set & Forget entry

o We should look for fresh nested D1 demand zones within the Weekly demand to define
and fine tune our entry

o If no D1 demand zone is found, or the one we find is not-fresh, we must wait for
confirmation

• Confirmation (new imbalance)

o Draw a descending TL on your entry TF, in this case the D1 chart

o Wait for price to solidly break the descending TL and form a brand new well structured
D1 demand

o Follow the WoW trade rules and make sure you don't forget to take into account the
freshness of the HTF level, it's key to decide if we need an opposing D1 zone needs to be
taken out before we validate the new D1 demand imbalance