(binned per thread starter’s request) Winston's Supply and Deman

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Yes, an active Supply/Demand thread. Just what the doctor ordered.

Let the learning begin.

For context this 15min USDCAD is downtrending. We don't need anything else to know this is the trend.


Looking at the chart below:

Bar 1 is a bullish wide range bar (WRB) gap. It represents bullish effort. The result of this bar in this case is that price does not continue in a bullish fashion. For the purposes of this thread WRB gaps in and of themselves are evidence of supply/demand. In this case since this WRB is bullish it is evidence of demand. A WRB gap bar is not a trade signal. It is a significant event and observing how price reacts to it is what is important. This WRB occurs at the top of a corrective leg in this overall downtrend.

Bar 2 is a tail that tested the base of the bull WRB. It represented a bearish effort that got reversed by bulls in one bar. For that one bar the bulls held the supply represented by the WRB. Notice however that price did not go on to make any significant new high. As with WRB gaps tails by themselves should not be viewed as trading signals. Again watching what price does next is important.

Bar 3 is a bearish WRB gap and therefore indicates a degree of supply. However WRB gap bar 1 is larger so far nothing has taken it out.

Bar 4 takes out not only WRB gap bar 1 but also Bar 2. Bar 4 closes below both. More importantly is the result of this is that price goes on to make new lows.

The green rectangle is drawn from the lower 1/4 of WRB gap bar 1. Bar 4 and its result represents a significant reversal of effort by WRB gap bar 1. This can be called a swap or where demand became supply.

A return of price to the area of the swap can often represent a trading opportunity if the R:R is appropriate.


This is just one example of how I see supply and demand. More to follow.

For context. The blue rectangle in this 15min NZDUSD represented an area of sellers or supply. Price broke through and for the moment it seems supply has become demand or a swap. Price is currently testing.

If we look a little closer we can see a couple of largish bearish gap bars led the way into demand. These bars represent supply and what happens next will be important. We'll keep an eye on this and see what we can see.

This is another look at NZDUSD 15 min. The gap bars are labeled as shown. Important bars are also highlighted with arrows.

"Effort", "Effort reversed" and "Result" help describe supply/demand dynamics. This chart currently reveals this interplay. Let's observe and learn together.

Definitions:

WRB - a wide range bar is one that is larger than the three previous bars

Effort - a bar or other price action that demonstrates significant directional intention

Effort Reversed - a bar or other price action that completely reverses a bar or other price action that previously demonstrated significant directional intention.
Example: a WRB bullish outside bar that is completely taken out by significant bearish price action.

Result - what happens after effort or effort reversed.


As charts are posted I will highlight examples of the above definitions.

For context. Overall the trend is up on this 15 min NZDUSD. It's not necessary to analyze higher or lower time frames. MTF analysis imho confuses the issue and provides a false sense of reassurance.
This shows the blue rectangle representing supply. It gets taken out to the upside and it's reasonable that this may now become demand. Given the current uptrend of this pair a test of this area and validation of it becoming demand would seem to represent a trading opportunity

Coming in closer to price it can be seen that price comes down to the swap area. The appearance of the bar highlighted by the pink arrow was a potential sign of demand confirmation. It doesn't strictly meet the requirements of a WRB but it is a strong bullish bar opening on it's low and closing on it's high. For me this was enough to entertain an entry. The green rectangle was an entry area.


What determined the entry area?
1. Correction in an uptrend.
2. The potential termination of the corrective leg at a swap.
3. Appearance of potentially confirmatory PA.
4. A reasonable stop loss and a reasonable opportunity to make at least 3x the stop loss.

Nice work

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AUDUSD 3minute chart for context.

Red arrow points to bearish outside bar at bottom of corrective wave. Price takes out this bearish outside bar to upside and depending on your preferred entry method this for me is a valid entry. The stop provided a 3:1 profit target.

Relative to one's time frame, focusing on more recent price rather than on distant price is very helpful. Many believe analysis of other time frames is necessary but I dismiss it. The trend in this time frame is obvious. Trading with it as is is so simple and uncomplicated. Just my thoughts though.

GBPUSD 3min
-Even without supply/demand concepts this chart makes a good case for trading with the trend. Of course entries are intensely debated but in reality they can be quite easy.
-Here this GU 3 minute chart is charging up and one just needs a pullback of some kind to jump in.
-A couple of pullbacks are shown where the pullbacks resolve with a reversal of effort. In these cases the reversals of effort are clear signs of demand in control.
-A test of the "reversal of effort" in the pullbacks is confirmation in these 2 situations.
-The stops are small and sometimes a good stop is reason enough to enter a trade.

UJ 3 minute chart
Supply/Demand dynamics