Supply and demand in a nutshell by Alfonso Moreno

Remember what we talked on last Friday's webinar about the EURJPY?

1. We were bouncing off the D1 supply, third retest
2. We were not allowed to set and forget
3. We needed either the ascending trendline broken and/or previous compressed demand taken out on our entry timeframe

That's just what has exactly happened.

Take a look at the H4 chart

1. Price hit the D1 supply for the third time
2. Ascending H4 TL has been solidly broken
3. A brand new H4 speedbump supply has been formed. No pullback yet. This looks like a valid short setup

Take a look at the H1 chart

1. Price hit the D1 supply for the third time
2. On H1 the ascending trendline was solidly broken as well as previous demand. Brand new supply at 131.05, The first retest was the entry
3. The trade has already happened on H1
4. It's not possible now to short on H1 because we have no fresh H1 supply underneath the new descending H1 trendline
5. But the H4 chart does have a nice H4 speepdbump that could work

As you can see, this is exactly how the methodology works. Perfect example as well as many others discussed on the webinar and on many trade setups discussed on the thread.

I didn't take the H1 short, I was not allowed to trade during Friday NFP session. But it was available for anybody who was able to detect it.

If you still have any doubts, please feel free to ask.
Alfonso

Love reading your posts Alfonso.

Please keep posting your thoughts. I have a thirst for knowledge that cannot be quenched.

Hello Alfonso and other users

It's seems nice setup on EUR/JPY, but look on USD JPY:

Take a look at the H4 chart:

-Price almost hit d1 supply zone
- It's cross line trend
- new h4 speedbump

http://charts.mql5.com/2/463/usdjpy-...-markets-2.png

Hello Veni!
I don't know where you D1 supply and demand zones are on your H4 chart, that is key to understanding your mental process. On your H4 chart we can't see the trendlines painted by the rectangle indicator if you had drawn the manual D1 levels on your D1 chart. I can't help you much based on your charts without that information since multiple timeframe analysis is key to pre-plan a trade.

What I can see and say from the limited information on you H4 chart is this:

1. H4 trendline has been broken solidly
2. Previous compressed demand has been taken out
3. Room to lower levels of demand which are in the middle since the origin of the whole move up is much lower

You H4 speedbump supply are is not well painted for a couple of reasons:

1. Your level did not cover the whole condolidation area, the basing candles and the highest high in the area
2. You covered the low of the blue basing candle, you don't do that when drawing a supply area
3. Thus, you would not be protecting your short entry since the highest high is not within your zone and the wiggle room added would not reach the highest high

If you were to set a short trade on USDJPY, you would have higher odds of being stopped out for all those reasons. Watch the videos on how to draw levels in a mechanical way, that will help you to be more mechanical on how you draw your levels. There are very strict rules on how to draw them mechanically. Maybe this is the way you draw them and you have your reasons, but I can tell you by experience that this way of drawing them is low odds.

The correct way of drawing your H4 speedbump supply level can be seen in the attached screenshot.
Hope that helps. But like I said, I can't tell you since you are not showing me your D1 SD levels on your H4 chart.

Alfonso

Hi Alfonso, thanks for sharing and just got a quick question regarding the EURJPY H4 short setup you mentioned. On my chart it seems like price has already hit D1 demand, doesn't that make shorting at the H4 supply invalid?



Also, based on the exact same analysis you used on EURJPY, I found a H1 short setup on GBPJPY that still seems valid. In fact it seems better than EURJPY as the D1 demand is still far below hence providing more space for price to move. Could you help verify if this setup is valid, and correct me if I am overlooking something? Thanks a lot!



-------------------------------------------------------------
Update: I just saw veni1604's post and have to agree that the USDJPY H4 supply zone if drawn correctly looks like a valid setup too.

Hi Myst!
It all depends on where you draw your D1 SD areas and what the market dynamics are telling you at present time. By looking at your EJ D1 chart:

1. That D1 demand area is used-up, it's retraced now for the second time
2. First retracement didn't take out previous D1 supply
3. D1 ascending trendline would be solidly broken now
4. Your D1 used-up demand is now a speedbump against the D1 trend, not that high odds

As far as the GBPJPY H1 short, I do have that level marked on my charts, it looks great as a setup to me!
All Yen pairs are dropping (Yen is strengthening), they are normally correlated, so it looks like we have some levels on EJ, GJ and UJ at the same time.

Alfonso

Hi Alfonso, thanks for your reply, your points do make sense and I'll definitely keep a lookout on the yen pairs

Here is another long setup on NZDUSD H4 that I'm looking at. It is just 1% too high on the D1 curve (76%), but the strong departure on the H4 and good RR (about 4:1 if I TP at the D1 supply) negates that slight downside for me. The H4 demand is also a speed bump demand on the D1. Would appreciate any opinions!

Hi there!
I do have the same trade setup at that H4 demand area on the NZDUSD Myst. No comments on that one, you said all that needs to be said about that setup, it just follows the rules, it's just valid, we need to trade it. UNLESS the opposing D1 supply area is reached, then that H4 demand will not be that higher odds. But right now conditions allow us to take that H4 long on the kiwi, don't you think?

I would drill that H4 demand area a bit to open of the tight red basing candle on the right side.

See a live example on NZDUSD of how a H4 speedbump supply can be easily absorbed when:

1. D1 demand is in control
2. Speedbump is against the H4 new uptrend

It's always like that, those are the rules. Sometimes the speedbumps will work, but WHO CARES? Rules are rules

Alfonso

Hello there fellow traders!

I just wanted to inform you that I've updated the first post of the thread EXTENSIVELY with many new things. After a couple of months answerting your questions, I've had to add some more sections in order to cover the most frequently asked questions.

I've also modified some of the existing sections, so I advice you to read the first post from the top to the bottom, since all is covered there now.

The new sections added area:

1. Multiple timeframe analysis and Topdown analysis
2. How to score a level
3. Set & forget versus confirmations. When and when not to use them
4. Using trendlines as direction and filtering out levels in a mechanical way

There is lot of important information there which was previously scattered thorghout the thread, so please go through it, read it, chew it in!

Let me repeat it again, do not believe what I say, test it yourself. Forward testing and backward testing is key to gaining condidence at trading supply and demand or any other methodology, it's just the way your mind works, do go against it or you will know what blowing up an account is

You now have very strict rules, follow them! Just do it!

Hope these new additions will help you all become at least a little bit a better trader!
Alfonso

Hi,

From post 1973 on page 99

http://www.forexfactory.com/showthre...41#post6941341

and video # 6 on page 1 post 1.

I have compiled Alfonzo’s work from this post to an Open Office Document and it is just a rough 1st draft. All one has to do is follow the instructions above the cells and it calculates the actual prices where you should place your orders. Basically all you have to do is enter the proximal, distal and target price in the cell of the pair that you want to trade and it calculates the actual prices. I do want to note that this is untested because this has been done while the markets are closed. I did provide 2 buy setups and 2 sell setups (with the 4H data) that are highlighted in blue and red (these are not actual trades I am just testing the math to see if everything is correct which so far it looks to be). My programming skills are limited but I think I can make this much better and clean it up in the future if there is any interest.

Thanks,

Joe

That's a great addition and contribution Joe, I appreciate that and I am sure others will do as well.

I believe that the fact that you have just sit down and pre-planned the spreadsheet after watching the video has achieved a very important thing. Maybe you knew how padding and wiggle room can protect your trades, but perhaps you didn't have fix rules about it. Now that you have watched the video, fully understood it and created a spreadsheet to help you and others, I am pretty sure that your knowledge has improved greatly because you have done it yourself, you didn't just watched my video, you chew it in and proceeded to create a tool to help yourself and others. That's the best way to learn, congratulations Joe!

Alfonso

Thanks Alfonso,

I can really relate to one of your analogies; “This is a marathon with hurdles every 100 meters”.

1 less hurdle.

Joe

Alphonse, on your second video above - supply and demand fresh levels versus original levels at time period 10:43 into the video you mention that the downward speed bump was no good because it had 2 candles the same colour (blue) between the red drop and the other red drop candles. However at time period 11:12 into the video you show an upward speed bump that had 2 candles of the same colour (red) between the blue rally up and the other blue rally up candles and you said that it was a good speed bump to use. How can that be when they both had the same problem with no opposite colours between the big candles?
Cheers
rob

My weekend analysis of all pairs I trade. I like to do this every weekend, in preparation for the market open. Preparation = Success !


The Yen crosses.




AUDJPY:


Daily:

Price has yet to hit the Daily supply level. The level is not original, as it is a reaction to another level, but it is fresh.




H4:

Price is approaching, but has not yet hit, an original and fresh H4 supply. However, this level is just outside of the Daily supply proximal line, making it a bad choice to go short on.






GBPJPY:

Daily:

Price hit unfresh Daily supply and bounced off.





H4:


Price has not yet convincingly broken the ascending trendline, but it has violated areas of demand. I will wait for price to break the trendline, and then short on supply zones. There is a H4 speedbump that looks promising to short on.





CADJPY:


Daily:

Price is within a Daily unfresh Supply zone and seems to be bouncing out.




H4:

Waiting for price to break ascending trendline. Then looking for fresh H4 supply to go short off of.






Will be Continued in next post, as I have reached the maximum attachments limit per post.

USDJPY Daily:

If we remember from Alfonso's last webinar, as discussed, a reaction to a level may not be original, but it is a valid fresh level, if price has not retraced back into it.

We can see USDJPY hitting this fresh, valid supply zone on the Daily, and bouncing downwards.




USDJPY 4H:


We can see that the H4 trendline has been clearly broken to the downside. No H4 supply areas available for short at the moment. Patience.






NZDJPY:


Daily:


We have hit a daily supply zone, which was a reaction to a previous level. It is not original, but it is fresh. Price has yet to convincingly bounce off it, as we will see on the H4 chart.



H4:


Ascending trendline has yet to be broken towards the downside. We have a FRESH AND ORIGINAL H4 supply which price has already touched (so it is no longer fresh), within the fresh daily supply. Price has yet to bounce off it towards the downside, and is still hanging around it.

A quick thing I saw on your chart Samir! That ascending trendline USDJPY D1 chart is not valid, you don't have 2 valleys to join the trendline. Speedbumps can't be part of a Trendline. The trendline is no longer valid once a higher timeframe has been touched though, but it's not well drawn from the outset. You can have it like that so that you see that the ascension has stopped right at the D1 supply but it's not a valid trendline.

1. The valid trendline is painted in orange in the attached chart. Hope that it makes sense, I am just following what has been explained on the rules on how to draw trendline. I joined two valleys, that's the right way to draw it
2. That D1 demand right at the second TL valley would be a fresh level to trade with the D1 trend, a tradeable area on lower timeframe's set and forget or confirmation type of trade

Alfonso

Hello Alfonso,

That is the H4 trendline. For some reason it is appearing on the Daily.


I'm not sure why its showing up on the daily. I think I need to change the TF properties.

Then that's fine Samir. I know why that's happening Let me tell you:

1. The markets are closed, so price is not ticking
2. The rectangle extender indicator manages the tredline's properties as well
3. The rect. extender inidicator needs ticks in order to update the rect's properties real time to the timeframe where the TL has been painted
4. Since the market is closed, there are no ticks, so you need to manually edit new TL's properties if you draw them while the market is closed
5. You'd also need to do that if market is too slow and ticks are not coming too fast, if you switch to another timeframe the rectangle indicator might have not been able to change rect's properties

That's the reason
Alfonso

Ahh, thank you for this.

This explains much of what I have been seeing. I was wondering why this would sometimes happen.

And thank you for your recommendation on the D1 Demand. I will make sure to keep an eye on it.

Hi Rob!

I may make mistakes, I do make them, feel proud of them since I am human I believe it's not the case this time. The speedbump you are referring to at 11:11 of the fresh vs non fresh video is a valid one, see the snapshot.

1. A speedbump needs at least 1 candle of the opposite color at the base, that is a red candle if we want a valid speedbump demand
2. Opposite for a supply speedbump

Since the one speedbump you are referring to is a demand one, it's valid since it'd need at least 1 red or bearish candle in the basing. It has 2
Alfonso