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Supply demand trading and order flow

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  • First Post: Apr 1, 2017 8:44am Apr 1, 2017 8:44am
hello,
i have been trying out supply demand trading lately and understanding how the price really moves. But i got a few kind of questions which i couldnt find answer. the basic idea about SD trading is when price falls from a area it means there has been an imbalance and sellers exceeded buyers and many orders will not be filled at the supply zone and when price returns back to the zone all the orders will be filled. But what if its like this ? A massive sellers came to the area and since all the orders were filled price dropped. both can happen and still the charts will show the drop right ? how to tell apart both scenarios ?
Quoting zoomfire
hello, i have been trying out supply demand trading lately and understanding how the price really moves. But i got a few kind of questions which i couldnt find answer. the basic idea about SD trading is when price falls from a area it means there has been an imbalance and sellers exceeded buyers and many orders will not be filled at the supply zone and when price returns back to the zone all the orders will be filled. But what if its like this ? A massive sellers came to the area and since all the orders were filled price dropped. both can happen...
In short, it's not possible to tell both scenarios apart.

It's important with supply and demand to make the distinction between analysis and trading method. Unfortunately, implicit in a lot of the analysis is the suggestion of a method. In others words; identify a supply zone then set limit orders because price "will" turn there because unfilled sell orders "are" there. It's only after a long series of losses that one begins to sense there's a little more to this approach than first meets the eye. This was my experience of it at least.

Depending on how new you are to supply and demand I think one of the most important aspects to get your head around is the "context" in which the level occurs. Is it a top, bottom or does it precipitate the break of a swing point thus giving rise to continued "direction"? Along the way you may begin to see other stuff as well. The other thing to do is also focus on how price reacts once it tests a fresh level. By doing this you may find yourself becoming less and less interested in trying to tell the scenarios of a level apart and instead become more in tune with the market in a selling/buying sense, which at the end of the day is really all supply and demand is.
Quoting zoomfire
hello, i have been trying out supply demand trading lately and understanding how the price really moves. But i got a few kind of questions which i couldnt find answer. the basic idea about SD trading is when price falls from a area it means there has been an imbalance and sellers exceeded buyers and many orders will not be filled at the supply zone and when price returns back to the zone all the orders will be filled. But what if its like this ? A massive sellers came to the area and since all the orders were filled price dropped. both can happen...
You don't need to worry about if all the orders were filled or not. Find good supply/demand areas, look for price action in the zone and fire it up.
Quoting abhilash
{quote} You don't need to worry about if all the orders were filled or not. Find good supply/demand areas, look for price action in the zone and fire it up.
The question is how to find those areas? The good one?
Risk comes from not knowing what you're doing.
Yeah I'd be interested to learn how SD traders analyze apple stock right now )))

http://finviz.com/quote.ashx?t=AAPL&ty=c&ta=0&p=w
Quoting simond2002
{quote} In short, it's not possible to tell both scenarios apart. It's important with supply and demand to make the distinction between analysis and trading method. Unfortunately, implicit in a lot of the analysis is the suggestion of a method. In others words; identify a supply zone then set limit orders because price "will" turn there because unfilled sell orders "are" there. It's only after a long series of losses that one begins to sense there's a little more to this approach than first meets the eye. This was my experience of it at least. Depending...
ok so you mean to say that if price retests the level and moves down in a supply area it means all the unfilled sell orders are being filled ? or else if price breaks through it means all the orders will filled when the supply level was created.?

Quoting abhilash
{quote} You don't need to worry about if all the orders were filled or not. Find good supply/demand areas, look for price action in the zone and fire it up.
No i am trying to understand the market movements . If the orders are filled in first creation of the zone then in next attempt price will break through it.

Quoting dragonexpert
{quote} The question is how to find those areas? The good one?
You have to learn the basics of how to identify the zones and filter it out. there are some videos in youtube.
Quoting asgcorp
Yeah I'd be interested to learn how SD traders analyze apple stock right now ))) http://finviz.com/quote.ashx?t=AAPL&ty=c&ta=0&p=w
There are is a good demand level at 115 approx. Sorry i dont trade much of stocks.
Quoting zoomfire
ok so you mean to say that if price retests the level and moves down in a supply area it means all the unfilled sell orders are being filled?
It doesn't mean "all" the unfilled sell orders are being filled. It just means there are more sell orders than the buy orders to fill them, therefore price must drop.

Quoting zoomfire
or else if price breaks through it means all the orders will filled when the supply level was created.?
Not necessarily. It may be that bigger buyers have stepped in at a price below the level and with more buy orders consume the remaining sell orders then bid the market up through the level.

Your original question related to whether or not a level exists because:

a) Some of the orders were filled
b) All of the orders were filled

My point is, there's no way of telling.
Quoting simond2002
{quote} It doesn't mean "all" the unfilled sell orders are being filled. It just means there are more sell orders than the buy orders to fill them, therefore price must drop. {quote} Not necessarily. It may be that bigger buyers have stepped in at a price below the level and with more buy orders consume the remaining sell orders then bid the market up through the level. Your original question related to whether or not a level exists because: a) Some of the orders were filled b) All of the orders were filled My point is, there's no way of telling....
thanks for clearing it up . Also according to the SD trading concept , lets assume a big supply level is created in monthly charts and the level is created around 8 years ago. So if the price comes back to the level again in next few months/ years how can the theory work? like will there be really big sellers who will be willing to sell at that supply level which was created years ago?
Quoting zoomfire
So if the price comes back to the level again in next few months/ years how can the theory work?
Which theory? Unfortunately there's lots of SD theories knocking around FF and elsewhere on the Internet...

Quoting zoomfire
will there be really big sellers who will be willing to sell at that supply level which was created years ago?
Again, nobody knows for sure. How can they know?

Here's a MN chart of GBPJPY with a historic supply zone marked out. If you were to leave a limit sell order at that level, what information do you have that it's going to turn there?

Attached Image (click to enlarge)
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Here's the same chart with a historic demand zone created about 5 years ago drawn in. There's an elemental difference on this chart. Can you describe it?

Attached Image (click to enlarge)
Click to Enlarge Name: GBPJPYMonthly2.png Size: 13 KB
Edit: If you want a live LTF example right now, check out EURUSD M5.

Attached Image (click to enlarge)
Click to Enlarge Name: EURUSDM5.png Size: 14 KB
Quote
Which theory? Unfortunately there's lots of SD theories knocking around FF and elsewhere on the Internet...

the basic theory is when price makes a very strong move upwards and returns back to the origin of the starting level the buyers will come back and price will go up again. what i asked is will there really be any sellers who created a very strong move 5years ago? and yes we cant know that but it arises question how supply demand will work then.

The difference between two charts is in the supply level we cant say that the sellers have got inside the market as there is no pull back or retest.
but in the demand level there has been a bounce so we can say buyers are coming back.

But what goes in my mind is how can there be so many people to buy/sell at the level which is created years ago. I am just trying to understand the flow of the market.
Quoting simond2002
Edit: If you want a live LTF example right now, check out EURUSD M5. {image}

EU has a nice setup now but that supply wont hold. but there is a very good supply level at 1.0615 above this one which i feel will get back the sellers again
Quoting zoomfire
what i asked is will there really be any sellers who created a very strong move 5years ago? and yes we cant know that but it arises question how supply demand will work then.
Once price hits but doesn't breach the historic level, trade the bearish reversal PA if it sets up.

Quoting zoomfire
The difference between two charts is ... in the demand level there has been a bounce so we can say buyers are coming back.


Quoting zoomfire
But what goes in my mind is how can there be so many people to buy/sell at the level which is created years ago.
Hehe, I think one can go round the bend trying to find these answers. I used to lie in bed at night deciphering the Forex version of supply/demand versus the traditional market version, say, supply of oranges versus the demand for eating them. There's a lot of mind-numbing stuff we have to go through it seems - all part of the journey.
Quoting zoomfire
{quote} EU has a nice setup now but that supply wont hold. but there is a very good supply level at 1.0615 above this one which i feel will get back the sellers again
Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot at Apr 10 17-41-50.jpg Size: 129 KB
Quoting zoomfire
{quote} what i asked is will there really be any sellers who created a very strong move 5years ago?
No, only maybe a very few of them. Because most traders already took profits as the market came down.

See the problem with the majority of retail traders regarding supply and demand trading is, that they turn the whole thing into top and bottom picking. If the market is trending up, you buy the recent demand areas below you, if price gets there. Instead, people roll back charts days, weeks, months, years before, and mark the supply zone all the way to the left, and keep selling them. Then of course they get run over, come to the forum and cry how much of a crap SD trading is, because the zones were busted through, they don't work etc.

If the market is generally trending up on your base timeframe (so for example for me, intraday my basis is the H1, for swingtrades the D1) then you mark the recent demand zones below, and when price reaches down for the demand, you buy them. If the market is trending down, you mark the recent supply zones above you, and short, when the market reaches up.

Not rolling back the chart, and finding distant SD zones. The more time passes, the less power an SD zone has, because more and more traders have taken profits already, as it moved to their direction.
Price and volume reveals everything. The market moves on supply and demand.
Quoting Darastonius
{quote} No, only maybe a very few of them. Because most traders already took profits as the market came down. See the problem with the majority of retail traders regarding supply and demand trading is, that they turn the whole thing into top and bottom picking. If the market is trending up, you buy the recent demand areas below you, if price gets there. Instead, people roll back charts days, weeks, months, years before, and mark the supply zone all the way to the left, and keep selling them. Then of course they get run over, come to the forum and...
Yes that is true. I have noticed that in many trades the faster the price goes back to the level and retraces back, the trades goes into success than the levels which were created very long time ago.
i am trying to use multiple TF analysis with SD trading. Does multiple TF work? because when i am doing it when the price enters the demand zone in my big TF i start to look for demand zones in my entry TF but the thing is price never makes any clear demand zones which has made good imbalance and price just keeps shooting up. Am i doing it wrong or is there any other way? my big TF is usually 4h and my entry TF is 15m.
If price is shooting up, that's not good anyway, because the upswing is coming from professional demand. A good short is, when the zone has a large and quick downmove coming down from it, then as price retraces, it is grinding up slowly.

Timeframes are not that strictly important, but an H4 zone in my opinion is too large for intraday trading. What I do is, go to H1, are there clear zones around, if yes I mark it, if no, I go to 30M, and so on. Also if I find a good zone on higher TF, I might be able to pinpoint it better on a smaller one, for better RR. Because smart money likes to buy as low as possible and sell as high as possible. I wouldn't go below M15 though regarding marking, but definitely not below M5.
Price and volume reveals everything. The market moves on supply and demand.
Quoting zoomfire
{quote} thanks for clearing it up . Also according to the SD trading concept , lets assume a big supply level is created in monthly charts and the level is created around 8 years ago. So if the price comes back to the level again in next few months/ years how can the theory work? like will there be really big sellers who will be willing to sell at that supply level which was created years ago?
You mean like GBPUSD zone from 1985?
Attached Image (click to enlarge)
Click to Enlarge Name: GBPUSD_1985.PNG Size: 41 KB
It's much easier than this. In the past 28 years trading the most valuable lesson I earned wasn't from trading someone else's 'system' but from observing price movement after a series of news releases. Supply and Demand in normal market conditions is always the same. It develops in ebb and flow of movement. When it comes to news releases it's NOT the order flow or demand that makes prices move. The volatility stems from the lack of supply and demand relative to 'normal' market conditions. Volatility is the lack of orders, or willingness of market makers to place passive, bid's/offers. When prices reach key reversal points and momentum in the movement is slowed by passive market making at the new level. We can then witness the new level's supply and demand. What most people don't realize is that the new level isn't a new level at all and in 90% of occurrences it's visible on the chart before the news release is actually published. Now a step further - 99% of traders would never step into trading the M1 but those 99% of traders aren't making consistent profits either. If they remove the historical lag from their analysis they will then find the M1 to contain more transparency on the 'levels' in past action.
Trading isn't investing. Don't let your trades become investments.
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