Supply and demand in a nutshell by Alfonso Moreno | Page 69 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Supply and Demand Zones 57 replies

Price movement as a function of Supply and Demand 43 replies

Supply and demand zones and EW principles 1 reply

How Markets Work, in a Nutshell! 32 replies

Demand and Supply 1 reply

Attachments: Supply and demand in a nutshell by Alfonso Moreno
Exit Attachments

Supply and demand in a nutshell by Alfonso Moreno

  • #1,361
  • Aug 24, 2013 1:04pm Aug 24, 2013 1:04pm
Quoting Axlz
{quote} alfonso, how are those two red zones valid supply levels on the daily chart? None of them have broken any demand levels. and the first red supply zone is not fresh. It was touched almost instantly after departure.
Hey Axlz!

Take a look at the attached D1 chart for Gold. Both D1 supply areas took out previous demand areas, so they are valid D1 supply areas.

Alfonso
Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 155 KB
Set and Forget supply and demand trading community
  • #1,362
  • Aug 24, 2013 1:08pm Aug 24, 2013 1:08pm
Quoting panoramia
{quote} Hey Axlz! Take a look at the attached D1 chart for Gold. Both D1 supply areas took out previous demand areas, so they are valid D1 supply areas. Alfonso {image}
Im confused, because neither that base or the speed bump should be considered as demand areas, as they also never took out any supply areas.

there are large red bearish candles only. No supply levels for them to have taken out to be validated.

Price also broke both of them, with only a little bounce from support in the second one, so it doesn't look like they were proper demand areas to begin with, which is what I'm saying.
  • #1,363
  • Aug 24, 2013 1:22pm Aug 24, 2013 1:22pm
Quoting Axlz
{quote} Im confused, because neither that base or the speed bump should be considered as demand areas, as they also never took out any supply areas. there are large red bearish candles only. No supply levels for them to have taken out to be validated. Price also broke both of them, with only a little bounce from support in the second one, so it doesn't look like they were proper demand areas to begin with, which is what I'm saying.
On that demand area you are mentioning (speedbump), price reacted to a previous demand area way back on January 2011. Price rallied, based, rallied and created a speedbump. Then price rallied again, retraced and printed a new high tge 3rd May at 1488.01, going higher than 1485.33.

It's true that is a valid speedbump demand area per se on the D1 chart, but it was printing higher highs and it was a good pocket of demand (that speedbump). There was even a 25$ reaction to that D1 speedbump, there was demand there, not the best in the world.

ALSO, that top area of supply at 1469 is the origin of the whole movement down after the retracement to the 20 EMA on the D1 area, thus absorbing previous demand and re-validating the level. Forget about the speedbump, it's also the source of that drop in price. Hope that makes sense.

Alfonso
Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 146 KB
Set and Forget supply and demand trading community
  • #1,364
  • Aug 24, 2013 2:10pm Aug 24, 2013 2:10pm
Quoting panoramia
{quote} On that demand area you are mentioning (speedbump), price reacted to a previous demand area way back on January 2011. Price rallied, based, rallied and created a speedbump. Then price rallied again, retraced and printed a new high tge 3rd May at 1488.01, going higher than 1485.33. It's true that is a valid speedbump demand area per se on the D1 chart, but it was printing higher highs and it was a good pocket of demand (that speedbump). There was even a 25$ reaction to that D1 speedbump, there was demand there, not the best in the world....
I am still confused. I will post a picture to describe what I mean.


Attached Image (click to enlarge)
Click to Enlarge Name: ga.png Size: 143 KB


Because of the reasons I described in the picture, these areas did not have enough power (demand) in them to take out previous levels. Therefore, they do not have any significant demand in them and should not be used as demand levels.

This is why price broke straight through them. They were not valid.


Attached Image (click to enlarge)
Click to Enlarge Name: sup.png Size: 39 KB
  • #1,365
  • Aug 24, 2013 2:25pm Aug 24, 2013 2:25pm
Quoting Axlz
{quote} I am still confused. I will post a picture to describe what I mean. {image} Because of the reasons I described in the picture, these areas did not have enough power (demand) in them to take out previous levels. Therefore, they do not have any significant demand in them and should not be used as demand levels. This is why price broke straight through them. They were not valid. {image}
It's normall to be confused, there are a quite a few nuances and lots of things to take into account sometimes. I used to be and I make many mistakes, but that's the way it is.

You are forgetting about top down analysis. That retracement was a reaction to a valid D1 demand area as well as a Weekly demand area, as I told you in previous post. When price hits a historical original area, we're allowed to go long. In such a situation if I see a D1 speedbump which does not take out any previous supply, I will consider it valid for intraday trading (in fact it rallied $25 from it.

There area several ways of looking at it. I am just pointing out the fact I mentioned on my previous posts that that correction was a reaction to a valid and historic D1 demand.

But like a said, there are a few nuances you need to take into account as well as the top down analysis. It's not just looking at the trees, the reaction you were talking about, but WHERE it was reacting to at the moment (the forest)

I may be wrong, but that's part of the business

Alfonso
Attached Image(s) (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 165 KB
Click to Enlarge Name: Screenshot2.png Size: 141 KB
Set and Forget supply and demand trading community
  • #1,366
  • Aug 24, 2013 2:29pm Aug 24, 2013 2:29pm
Quoting panoramia
{quote} It's normall to be confused, there are a quite a few nuances and lots of things to take into account sometimes. I used to be and I make many mistakes, but that's the way it is. You are forgetting about top down analysis. That retracement was a reaction to a valid D1 demand area as well as a Weekly demand area, as I told you in previous post. When price hits a historical original area, we're allowed to go long. In such a situation if I see a D1 speedbump which does not take out any previous supply, I will consider it valid for intraday trading...
Ok thanks Alfonso.

More studying and reading charts for me. Until I understand 100%!.

  • #1,367
  • Aug 24, 2013 2:41pm Aug 24, 2013 2:41pm
Quoting Axlz
{quote} Ok thanks Alfonso. More studying and reading charts for me. Until I understand 100%!.
Me too, me too! I will always be learning and still make many mistakes, and will always make them, it's part of life The first thing we need to do when we see a reaction is:

- Is this a reaction to a previous higher timeframe level?

If YES, then what do we expect from it?

In this scenario for Gold, it was a reaction to a Weekly and D1 demand area. In the same way that we expect a H1 speedbump off a D1 demand area to trade that reaction, we can expect a D1 speedbump off a Weekly demand area. As you could see in that D1 demand speedbump, there could have been H4/H1 entries because we were still making higher highs from the Weekly demand touch, in fact it produced a $25 reaction.

Alfonso
Set and Forget supply and demand trading community
  • #1,368
  • Aug 25, 2013 2:00am Aug 25, 2013 2:00am
Quoting bobyv87
another one! usdjpy h1 is down with fresh level. H1 trendline was broken and D1 supply was hit. Maybe next week I will have a trade on this pair! {image}
Hi, on usd jpy your daily supply zone was a reaction from upper supply zone, so for me, i think that we will have another move up. Main trendline on h1 wasn't broken. At the top of h1 we see that price spend to much time at this level, and wasn't able to create strong fresh supply level. Of course I may be wrong, but i think, that we should be expecting that price will hitt upper daily and weekly supply zones, and in those areas we should be looking for shorts.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: usd jpy d.PNG Size: 105 KB
Click to Enlarge Name: usd jpy h1.PNG Size: 96 KB
Click to Enlarge Name: usd jpy h1 a.PNG Size: 102 KB
  • #1,369
  • Aug 25, 2013 2:36am Aug 25, 2013 2:36am
Quoting sebkor6
{quote} Hi, on usd jpy your daily supply zone was a reaction from upper supply zone, so for me, i think that we will have another move up. Main trendline on h1 wasn't broken. At the top of h1 we see that price spend to much time at this level, and wasn't able to create strong fresh supply level. Of course I may be wrong, but i think, that we should be expecting that price will hitt upper daily and weekly supply zones, and in those areas we should be looking for shorts. {image} {image} {image}
I totally agree with Sebastian. When you have a used-up zone (non-fresh) on the daily which matches current trend, you can do either of these two things:

  1. Wait for price to reach the blank area on the D1 supply zone, that is, the area tha has not been penetrate by price, and wait for the setup there
  2. Wait for previous demand to be clearly and easily absorbed, and trendline solidly broken... to give you the confirmation that the used-up area is holding

This does NOT mean you are allowed to buy into used-up D1 supply.

When counter-trend is different:

  1. We'd need that the D1 supply to be original and fresh, no other way
  2. Unless previous demand is clearly and easily absorbed/violated, and trendline solidly broken... that would give you the confirmation that the used-up area is holding

This is key for a mechanical process!

Hope that makes sense!
Alfonso

Set and Forget supply and demand trading community
  • #1,370
  • Aug 25, 2013 5:06am Aug 25, 2013 5:06am
Hi guys and Alfonso,

I am trying to adapt myself for D1 and H1 combination with respect to W1 SD curve.
To illustrate my question i draw a D1 chart with WEEKLY SD zones and i gave numbers to zones from 1 to 6.
and basicly my question is how we should react if price makes moves as dotted red lines and arrives to Daily areas.

-as you see, current location of price is marked with little turquaise circle,
-until that location we can clearly see that we are bouncing downward from weekly supply zone
-and Daily upward trend line has been broken and we are making lowerlow.

Questions:
(question a and b are cases of zones with the direction of the current trend, but question c,d,e,f are about counter-trends)

a- if we arrive from current price to zone # 2 which is not original but fresh, are we able to sell the market in H1 time frame?
b-or should we wait (since zone #2 is a reaction to zone #1) more deeper non-touched areas of zone #1?
c-since zone #4 is original and fresh (however this zone is above 50% of the weekly curve) are we able buy H1 TF in this zone?
d-if zone # 4 'd have been a speedbumb, how would your answer to question -c- change?
e-can we buy at zone # 5 in H1 TF since it is fresh, or we will just say that it is a reaction to zone # 6 and we dont even draw zone #5?
f-can we buy if the price totally brake zone # 5 downward but we still be inside zone #6?

Thanks again for your remarkable efforts Alfonso
Attached Image (click to enlarge)
Click to Enlarge Name: DAILY CHART.png Size: 32 KB
  • #1,371
  • Aug 25, 2013 5:08am Aug 25, 2013 5:08am
Quoting sebkor6
{quote} Hi, on usd jpy your daily supply zone was a reaction from upper supply zone, so for me, i think that we will have another move up. Main trendline on h1 wasn't broken. At the top of h1 we see that price spend to much time at this level, and wasn't able to create strong fresh supply level. Of course I may be wrong, but i think, that we should be expecting that price will hitt upper daily and weekly supply zones, and in those areas we should be looking for shorts. {image} {image} {image}
Yeah, but that level is also a reaction to a level above it, which is also a reaction to a level above that.
  • #1,372
  • Aug 25, 2013 5:14am Aug 25, 2013 5:14am
Attached Image (click to enlarge)
Click to Enlarge Name: usdjpy seb.png Size: 53 KB


Sebkor,

If what you're saying is true, then by your own definition, that level you have marked is a reaction to the above levels.


Also, the level is valid, because it had enough supply to take out the demand levels (speedbumps) I marked in the picture.
  • #1,373
  • Aug 25, 2013 5:18am Aug 25, 2013 5:18am
Attached Image (click to enlarge)
Click to Enlarge Name: reversal caused.png Size: 55 KB



See how this level was a reaction of another, and still acted as a supply level, reversing the daily trend in the past?


Just because a level is a reaction of another DOES NOT mean it isn't a valid area.
  • #1,374
  • Aug 25, 2013 6:52am Aug 25, 2013 6:52am
Quoting panoramia
DAILY CHART On the Daily chart, Gold is in an uptrend now, demand is being respected, supply is being violated. If we want to sell in such an scenario, we need an original and fresh level of supply, since we are only allowed to short on those when we want to go counter-trend. The D1 supply zone is original and fresh, but: Departure is not good It's located in a Weekly speedbump supply zone against the WK temporary uptrend There is basign right underneath on that purple level I drew. I would only use confirmation entry on this level for all of these...
Alfonso this does make perfect sense and you can call me Jason.

Hope you don't mind if I thorw out another question for you and others if they want to chime in... again as a continuation of the conversation I sparked on Gold.

Daily chart attached and I added manually the blue zone (which is the same base you had in purple on your daily) which is obviously a base in a RBR. I also added a green zone on the base that formed right below the red zone. I have seen this on many charts that I have been going back over where we see what consider the origin point on a drop or rally but that base has a less than enthusiastic departure only to base again before really taking off. I know that the auto S/D drawing indi does not do DBD or RBR continuations so this green zone would not be drawn by it but would you consider this as a fresh supply after it printed and price took off since it created a great reaction down that engulfed two lows?

As we can see last week and then end of the week before we hit this level and did see some pause but no real sellers reaction and on Friday we blew up through this zone. I guess the other thing to note is that when we departed this zone it was not a clean break as the second daily candle had to back up to gather supply from this zone before heading down further so perhaps this zone was actaully not fresh right from the get go.

This brings me to another question based on something else I have seen several times in the charts so far (keep in my I started the S/D journey on August 12th) where price as it did in this example rallies to the a previous supply base and bases below before breaking up through it. Still have must backtesting on this but it almost appears that this may be a clue of the impending break, although this is in hindsight as when this is forming it could well have been a base on a RBD so... What is your experience with this and is this something you watch or consider?
Attached Image (click to enlarge)
Click to Enlarge Name: xauusd.daily.png Size: 50 KB
Today's zone = Tomorrow's opportunity!
  • #1,375
  • Aug 25, 2013 9:51am Aug 25, 2013 9:51am
Hi there,

I think that there will be a nice oppotrunity to catch down move on NASDAQ emini.
Price touched fresh weekly and daily supply level.
Question: what can we do in that case?
As always, i will be waiting for confirmation. I prefer scenario which i drawn on h1.
Local trendline need to be broken, price should create new supply level, which I allways call "confirmation S&D level", and after retest - enter.
What do you think about h4 supply level? Can we try to enter short there?
Attached Image(s) (click to enlarge)
Click to Enlarge Name: NASD emini daily.PNG Size: 99 KB
Click to Enlarge Name: NASD emini h4.PNG Size: 104 KB
Click to Enlarge Name: NASD emini h1.PNG Size: 109 KB
  • #1,376
  • Aug 25, 2013 11:55am Aug 25, 2013 11:55am
Hi Alfonso,

I'm still trying to read through this whole thread, so I can get 100% up to speed, but one thing that has come to mind that I was wondering is do you bother watching levels that have already been hit several times? I'm trying to figure out if the levels on your SD spreadsheet are the same ones you trade or if I should only pay attention to levels you would trade. Say you have a demand zone on the monthly that has been hit several times but respected, but there is a fresh demand level farther below that. Will you use the first area on your spreadsheet and refuse to trade smaller time frame supply levels? Or will you ignore that area and use the fresh demand zone? I guess more simply what I'm trying to ask is do you have criteria for the spreadsheet that are different from those you trade? I feel like I'm seeing too many trees in the forest.

I keep finding areas that are reactions to wicky areas. Should I ignore those?

Here's a practice chart I did for EUR/USD monthly below. Can you please tell me if that looks ok?

You're awesome, thanks!
Nick
Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot2.png Size: 66 KB
  • #1,377
  • Aug 25, 2013 1:55pm Aug 25, 2013 1:55pm
Quoting Axlz
{image} See how this level was a reaction of another, and still acted as a supply level, reversing the daily trend in the past? Just because a level is a reaction of another DOES NOT mean it isn't a valid area.
Well Axlz, you will see MANY situations where price holds levels that have been touched twice, 3 times, 4 times or even more. You just need to decide what you want to do and add a rule to your trading plan. It's key that you know what to do in these situations, and do always the same thing.

I've personally backtested and forward tested these scenarios for a some time now, and my rule is very simple:

I always trade fresh levels, the very first pullback into a level. They have the highest odds to succeed.

As simple as that. You want to trade a second pullback? Sure you can. But don't do it just because you see a couple of areas holding. I am sure a new rule can be found to trade second pullbacks, in fact I used to trade them before only if first pullback produced a lower low or higher high and absorbed previous SD area. But I decided to make it as simple as possible, only fresh levels. In just 10-20 seconds I can tell you where I want to buy or sell, I need no more time.

How can I do that? Because I made is simple, it's the KISS method, Keep It Super Simple, or Keep It Simple Stupid. The least rules I have, the least indecision.

But like I said: you need a plan and rules to know how you want to trade those levels. And that needs, lots of backtesting and screentime. But of course many of those levels will be tradable and will work well. I am just passing on them, I want only fresh levels so that I spend very little time in front of the computer and I can enjoy life as much as possible.

That's just me... Each of us is different!
Alfonso
Set and Forget supply and demand trading community
  • #1,378
  • Aug 25, 2013 2:09pm Aug 25, 2013 2:09pm
Quoting caparzo
Hi guys and Alfonso, I am trying to adapt myself for D1 and H1 combination with respect to W1 SD curve. To illustrate my question i draw a D1 chart with WEEKLY SD zones and i gave numbers to zones from 1 to 6. and basicly my question is how we should react if price makes moves as dotted red lines and arrives to Daily areas. -as you see, current location of price is marked with little turquaise circle, -until that location we can clearly see that we are bouncing downward from weekly supply zone -and Daily upward trend line has been broken and we...
Hello Caparzo!

It's not easy and quick to go through your screenshot, but I took a look at it and I saw what you mean... the answer to your questions are already on some of the videos and on first post.

Watch the video on fresh levels versus original levels, it's all there:
Inserted Video


Summing up:

  1. We will ALWAYS trade fresh levels
  2. Fresh levels will only be traded when we are in a trending market
  3. Original AND fresh levels are needed when we want to counter trend

Your question: a- if we arrive from current price to zone # 2 which is not original but fresh, are we able to sell the market in H1 time frame?
We can sell because we are in a downtrend and current price took out previous demand. Since we are in a downtrend, new lows are printed and demand is being absorbed, we are allowed to sell on fresh areas only, else we'd need an original and fresh area for counter trend.

Your question: e-can we buy at zone # 5 in H1 TF since it is fresh, or we will just say that it is a reaction to zone # 6 and we dont even draw zone #5?
You can't buy because by the time price reaches that area, we will be in a downtrend and thus a counter trend. What do we need for a counter trend? An original and fresh level. Neither non-fresh levels nor fresh levels are allowed for counter-trend. Only original levels.

The other questions you asked have similar answers following this rationale.

It's all based on the same ideas. I don't know if you watched that video, but even if you did, watch it again, maybe it can cast some new light on these scenarios.

Hope I could help a little bit.
Alfonso

Set and Forget supply and demand trading community
  • #1,379
  • Aug 25, 2013 2:37pm Aug 25, 2013 2:37pm
Good evening Alfonso

I think you've been very clear on all aspects of your trading plan. But there's possibly an area you might want to tell your avid readers more about...

...which concerns the adding of "wiggle room" to the distal line and the width you'll allow your zones to be before you're comfortable trading them... What is your thinking?

I understand you have a higher "risk tolerance" (as measured by the pip width of the zone) on a pair for an H4 trade over an H1 trade. And that on GBP pairs your observation is that they often overshoot the distal line so you add extra width to your zone on that side. Can you expand on that and tell us if there are any other currencies that show particular behaviour?

On the wiggle room do you use a relationship that adds x multiples of the spread to the distal side, with x being particular to the pair? Or is your rule something else?

All the best.

Huk
  • #1,380
  • Aug 25, 2013 2:42pm Aug 25, 2013 2:42pm
Quoting Hukkleberry
Good evening Alfonso I think you've been very clear on all aspects of your trading plan. But there's possibly an area you might want to tell your avid readers more about... ...which concerns the adding of "wiggle room" to the distal line and the width you'll allow your zones to be before you're comfortable trading them... What is your thinking? I understand you have a higher "risk tolerance" (as measured by the pip width of the zone) on a pair for an H4 trade over an H1 trade. And that on GBP pairs your observation is that they often overshoot...
Evening Huk!

I was precisely planning to record a video this week precisely on how to enter a trade:
- Adding padding to the entry price
- Adding wiggle room to the SL
- Adding spread to SL when you short
- How many pips to add on H4 or H1, depending on which pairs or cross pairs

Let me record it and you will have your question answered. But I do not use any relationship to add x multiples of spread. You know how simple I am trying to do things, so it is simple!

Alfonso
Set and Forget supply and demand trading community
10 traders viewing now