Supply and demand trading course How to qualify supply and deman…

The strength of the move (Detailed Text Lesson)

Supply and demand VIDE…

The strength of the move (Detailed Text Lesson)

Trading supply and demand zones is one of the most powerful trading methods,
because it allows you to take the same trades that banks and financial institutions
make. However, you can’t open your charts and start trading all the supply and
demand zones you find in your charts and sit back and wait for amazing results. This
is not how it works – there’s more to it than that.

When you identify a supply or a “demand zone”, there are some factors that you
should take into consideration to decide whether you should take the trade, or you
should stay away (the importance of focusing on high probability set-ups).

One of the most important elements to determine the power of the zone is the
strength of the move. That means, when you identify a supply or a demand zone, the
move should be strong and powerful.

There are three factors that will help you determine the strength of the move:

-The time spent in the zone: you should always pay attention to the beginning of
the move; if the move was quick and the market didn’t spend too much time in the
zone, this is powerful sign that the order that was taken was by a bank or a financial
institution. Because, when banks and financial institutions decide to take an order,
they risk millions of dollars, which affects the market behavior. We can see a strong
and quick move from a level without understating what happens. All that happens is
that there is a big bank that takes an order in large quantities.

So, when the beginning of the move is quick and strong, this is a clear evidence that
there is a bank or a financial institution behind this move. However, if the market
spends too much time in the zone, this is a sign that the move is not that powerful.

-The Candles size of the zone: “Candles” give us an obvious representation of the
quantities spent during the move, if the candles are big and have the same color, this
is a sign that there is a big bank behind the move. But, if the candles are small and
have different colors, this is not a good sign of a strong move.

When a bank takes an order, it affects the market, and you can see bullish or bearish
candles that go strongly in one direction; but, when you see a move composed by
small candles with wicks, and different colors, this is not necessarily an order that
was taken by a financial institution, so always focus on the beginning of the move
and see if it is quick and strong. Look at the illustration below to understand how we
qualify the strength of the move:

As you can see in the illustration below , we have two different moves, the first and
second moves are very strong because they are composed of three consecutive
candles of the same color, or with a gap, the gap happens exceptionally in the
market when there are high quantities of orders that was spent, so the price jump to
the next level creating a gap. This gap is the representation of a bank order and
should be taken as a high-quality zone. The last image on the left is the
representation of a weak move, this move is not strong because we don’t see an
impulsive force that drives the market go strongly up or down, and zones like this
should be ignored.

The stronger the movement the better, sometimes you can find only one big candle,
and other times you can find three or four strong candles in a row of the same color.
Don’t spend a long time to decide whether the move is strong or not, the chart
doesn’t lie, and give you the reality of the market. If it is a big move, it will be obvious
on chart, and if it is weak, you can know that just from the first sight. Look at the
chart below to see how we evaluate the move:

As you can see in the chart above, the beginning of the move was quick and strong;
the market didn’t spend a long time deciding whether to go down or up; it goes down
strongly because there was a bank behind that move.

The move was composed by only two big candles, and this is quite enough to qualify
a supply or a demand zone. Sometimes, you can find only one big candle and other
times you find multiple candles, it all depend on the quantities spent by the financial
institution that was behind the move. Look at another example of a supply zone
below:

This is the AUD JPY daily chart; this zone is considered a drop-base/drop-supply
zone. The basing candle is the Doji candlestick. In order to draw the zone using this
candlestick pattern, you draw the proximal line at the lower shadow, and the distal
line at the upper shadow.

This supply zone is very strong, because the move was quick; as you can see, the
market didn’t spend at long time in the zone and the size of the candles are very big,
the speed of the move and the bigger size of the candles indicates that this sell order
was made by a big financial institution.

When the market returned to test this supply zone, prices were rejected ,forming a
nice dark cloud pattern that can be used as an entry signal. We will talk about entries
and exits in the next lessons, for now I want you to focus only on how to qualify the
strength of the zone. Look at another example below:

This is the EUR USD H1 chart. Here, in this example we have two supply zones, the
first one on the left is a weak supply zone, because the move was not fast, and the
candle size is not that big.

This weak move down found a huge resistance; look at the pin bar pattern that was
formed to stop this move down. If this supply zone was made by a bank or any other
financial institution, we would see a very fast move down characterized by big
bearish candles. Nothing can stop a bank from moving a market down.

This weak supply zone worked, even if it is not tradable, but this doesn’t mean that
weak zones work every time. So, I don’t recommend you to trade any supply zone if
you see that the move is not fast and strong.

Now look at the second supply zone on the right. As you can see, it is a rally-base-
drop pattern. The basing candle is a pin bar candlestick. So, in order to draw the
zone using this pattern, you draw the proximal line at the close of the candle, and the
distal line at the upper shadow.

This supply zone is very strong, because prices didn’t spend long time in the zone,
and the move was very fast and strong. This zone will provide us with a good risk-to-
reward ratio, which motivates us to trade it when the market returns to test the zone
and form a high probability candlestick signal. Look at another example below:

This is the GBP JPY H1 chart. The market formed a weak supply zone, as you can
see in the illustration, the move was not fast and strong; the first pin bar that was
formed indicated buyer’s resistance, and the Doji candlestick indicated pause or
hesitation in the market.

This is a clear, weak supply zone, because if it was made by a bank, you would see
big red candles that form a significant move down. Look at what happened when the
market returned to test the zone. As you can see, prices didn’t find any resistance
and easily broke this weak supply zone. Please take this advice from me: whenever
you spot a supply zone, look at the move and the size of the candles. If the move is
fast, and the candles are big and strong, you can then stop by this zone, and look at
it to see if it is worth trading or not. However, if the move is weak and the candles are
small, just ignore it, otherwise you will lose your money. Look at another example
below:

This is a EUR USD Daily chart; the market formed a nice Rally-Base-Drop supply
zone. Look at the beginning of the move; it was fast, and strong, and look at the
candle size, they are all big and bearish without any resistance. This is a sign of a
strong and healthy supply zone.

The last candle that was formed before this strong move down, is the Doji
candlestick. So, it is considered a “basing” candle. And to draw the supply zone, you
draw the proximal line at the lower shadow of the candle, and the distal line at the
upper shadow; as you can see, when the market returned to test this area, it was
rejected and prices moved down strongly. Let me show you another chart example
below:

This is the AUD USD H4 chart; the market formed a Rally-Base-Drop supply zone
pattern. This zone is obviously very strong. Look at the first and second red candles.
They are big and strong, without any resistance. This indicates that there is a
financial institution behind this move down, and when the market retraces back to
test the zone, prices are likely to move down again.

To draw this supply zone, you should identify the basing candle, and in this example,
the pin bar candlestick was the last candle that was formed before this move down.
Hence, to draw the zone, you can draw the proximal line at the nose of the candle
and the distal line at the upper shadow.

To qualify a demand zone and make sure it is strong, we take into consideration, the
same criteria that we used previously to qualify supply zones. Take a look at the
chart below:

This is the EUR CAD daily chart; here, in this example, we have two demand zones;
the first demand zone was powerful because the beginning of the move was quick
and strong, and the second demand zone was also a powerful area because there
was a gap. When prices jump strongly up or down creating a gap, this is clear
evidence of a market maker order. As you can see, when the market retraces the
test to the first demand zone, it went up again, because there were quantities left in
the same price level.

Look at another example below:

This is the AUD JPY H1 chart; look at this big blue candle, the size of this candlestick
shows that there is a huge bank behind this move, because retail traders can’t move
the market strongly upward in a very short period of time. So, the move is powerful,
and the candlestick size is bigger, which indicates that this demand zone is strong.

We don’t care if this bank was motivated by economic news, this is not our job,
because we don’t use fundamentals; we use the supply and demand method to read
how fundamentals affect banks and financial institutions. And based on bank(s)
behaviors, which we see in the form of patterns on charts, we make our trading
decisions.

This chart above shows a huge move up made by a financial institution; this huge
order was not taken by chance. If this bank doesn’t find enough sellers, it will leave
limit orders in the same area, and when the market retraces back to test it, we can
anticipate another move up.

To be able to identify the limit order area, we need to draw the demand zone, and in
this example, we will use the pin bar candlestick as a basing candle, because it is
the last candle that was formed before this move up. So, to draw the zone, you draw
the distal line at the lower shadow and the proximal line at the nose. And when the
market retraces back to test the demand zone, you should wait for a price action
signal to confirm your buying decision. Look at another example provided below:

This is another example of the USD CAD H4 chart; the market formed a Rally-Base-
Drop demand zone continuation pattern. This zone is not strong, because the move
is weak; look at the both red candles, they are small and show lack of liquidity in the
market. So, it is very obvious that this is not a bank order, and this demand zone
should be ignored. Look at another example below:

This is the EUR USD H1 chart; this chart reveals that we have a nice Drop-Base-
Rally demand zone. The move is fast and strong, and the candles are big. This is a
clear demand zone that we should take into consideration. So, in order to draw the
zone, you need to just identify the basing candle, and in this example, the engulfing
bar is the last pattern that was formed before this move up. To draw the zone, you
draw the proximal line at the close of the first candle, and the distal line at the lower
shadow of the second one. When the market returned to test the zone, prices were
rejected, and the market move up again. Let me show the last example below:

This is the EUR USD H1 chart above, which shows that the market made a huge
move up. Look at the three blue candles; they are big and strong, which give us an
idea about the strength of the move. This zone is clear. Most strong demand zones
are obvious on charts. If you find it difficult to decide whether the zone is strong or
not, just ignore it, because strong zones will jump out at you immediately when you
open your charts.

The basing candle in this example is a bullish pin bar with a nose, so to draw the
demand zone, you draw the proximal line at the nose, and the distal line at the lower
shadow, and when the market retraces to test the zone, pay particular attention and
wait for a high probability price action signal to confirm your entry. I will teach you
how to enter and exit your trades in the upcoming lessons; for now, I want you to
focus on how to qualify supply and demand zones based on the time spent in the
zone, and the candle size of the zone.

Ps: If you are a complete beginner and you want to learn more about price action, i
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