Supply and demand in a nutshell by Alfonso Moreno

Thanks for your kind message David, much appreciated. It all started like a place where I posted my trades, then I went a little bit further and the nutshell is now a walnut tree Thousands of hours and research has gone into it, lots of forward testing with Forex Tester 2, demo trading and then live trading. But still a lot to do, I added a few things in the last 6 months and a couple more that I have been testing lately! Very happy with the results, pity forum's subscribers here do not ask or post their charts. Most are not aware how much it can help them.

Have a great day and weekend!
Alfonso

I'm sharing with you a flow chart that shows how to mechanically draw supply and demand imbalances. It was created by our friend Robin, a member from the supply and demand community at www.set-and-forget.com created a few months ago. He has created a few more flow charts, how to draw trendlines, the core strategy flow chart, the sequence, etc. I'm sharing this one with you here so you know what kind of things some of the members have been doing.

On this flow chart you will see how to:

1. Mechanically draw supply and demand zones
2. What bases are good and which ones are not by locating the 50% candles, first and second legs that every single supply and demand level is composed of
3. Which ones are not high odds, like long tailed/spikes at the bases and too much trading in at the base
4. Marubozu candles on CP patterns, proximal and distal lines
5. Etcetera

Hope that you like this flow chart!


There are other tools being developped in the community by the members and for the members, it's starting to look like a community.

I will always reply any questions here at Forex Factory, but it looks like not many, pity!
Alfonso

Hello Alfonso,

thank you for answering.
First i want to clarify a few things. I don't use anything on the Chart because i want to do it step by step. For now i want to focus only on Daily trend and H1 lvls with the trend. I know this is not a full strategy but if i can do it piece by piece i can be confident later on.

I didn't ask for an analysis^^. Right now i am only interested in the concept of 'level in control'. I like it very much.
I also read your first post about lvl in control. The chart i posted was a Daily. You said ' If a supply zone has been hit 10 times and the distal line (furthest away price from current price) of that zone has not yet been broken, that zone is still valid, that zone is still the supply in control.'
That is were my question comes in.
The number 1 Demand zone wasn't broken yet so it is still valid. So far so good.
It went to number 2 to the supply. So far so good.
Now it does come back in point 3. My problem was how to identify that 3 happens.

Like i said it is not about buying that level or analysis. Just the level in control.
If it were you who looked at the chart prior to point 3. Could you have predicted that it would rally again in point 3?

I hope i formulated the question good enough.

Thank you.

Hello my friend!

The answer to your question is simple. You asked "How can I identy or predict that that rally at point 3 would happen"? Who can do that? Nobody Nobody knows what is gonna happen in the markets, we just play our odds, apply any methodolody/rules you trade with and "expect" to have winner, that's all you can do.

Your rules must give you those odds, and you have to take all valid setups as per those rules. No I can't answer your question. What I can tell you is that there are rules to give you odds on that rally from 3, very precise rules based on imbalances and Trendlines.

1. Descending Trendline broken. No shorts are allowed unless they are at valid D1 supply
2. Brand new H1 demand zone at the break of the Trendline- Upper H1 supply is not fresh, expect it to be removed if D1 demand is in control
3. Non fresh supply zone easily absobred if D1 demand is in control, it's not fresh so sellers probably consumed

Recommendation. Watch these patterns happen thousand of times on Forex Tester while testing, then you will gain the confidence and understanding how the supply and demand rules in Post #1 work, there is no other way.

Alfonso

Alfonso did you analyse distinctions chart as a H1 chart? I would be confused if you did it on D1 chart, he said its Daily.

greetz
joe

Joe, I believe he said H1 and D1 combo in his original post, but it does not matter, it's indifferent. You choose your TF combination, WK/H4, D1/H1, X/Y... one of them is the curve, the lower TF is the entry timeframe. Price is fractal, so whatever happens in one combination can be extrapolated to another TF combination.

Hope that it makes sense!
Alfonso

i see your point with indefference but if he posts a curve timeframe (H1 entry, D1 curve) there would not be a decision for point 3 (if not looking at HTFs), right?

joe

I don't understand what u are trying to say. This misunderstanding is because he didn't post a top down analysis with several timeframes. We have the rectangle reader indicator that would have displayed the d1 zone on the h1 timeframe. If d1 demand is in control, then new level would be valid, else it wouldn't be valid.

Alfonso

Ok now its clear, yeah topdown analysis would have been better. And thanks for that flow chart, nice.

Greetz
Joe

Thank you for your answer.
You are right about playing the odds. Most of what you said helped me but i have a new question.

The chart i posted is a daily. Point 2 is at an original Daily supply. (As far as i understand it)
That means that from point 2 the supply is in control. I don't really understand how your 3 points apply here because it is a daily chart.
The only thing i am interested for now is how to figure out that starting from point 3 the demand is back in control.

The thing is that i didn't post a topdown analysis because (unless i made a misstake) it doesn't matter for my question ^^. A H1 chart can't possibly tell me
what level is in control on a daily chart.

But of course you are right. You can't know where the price will go and you have to play the odds.

Thank you again.

Well, I believe yuo are wrong by saying that you didn't post your top down analysis because it did not matter for your question. Multiple Timeframe Analysis is the core of everthing. You can't make a decision by just looking at a single chart. Let me correct my statement, you can make a decesion, but you should not. You need other timeframes to know what the bigger picture is telling you.

If that is a D1 chart that you posted, then it's the same. You need to know what the WK and MN charts are doing and the SAME analysis I did would be valid. D1 descending TL was broken. Was the D1 demand that was hit sitting at at WK or MN area of demand? If yes, it was a valid long and you should expect the supply zones to be removed since D1 supply against WK/MN demand is not high odds.

There was a WK supply zone by just looking at the number of D1 candles Nested D1 supply at 2 which worked and provided the needed pullback for a long

By the looks of the D1 chart you posted, the WK was down 101% and MN was possibly down as well. Price could have reached a MN/WK demand zone, but you didn't use the rectangle reader indicator and didn't post your topdown analysis, not even the pair that graphic belongs to, so my answer can't be complete.

As you can see, the multiple timeframe analysis is compulsory or you will run into a lot of trouble. Moreover, you will make wrong decisions and you will always asking yourself questions that could be answered by the bigger picture's direction. Needless to say that we can't predict there would be a bounce off that D1 demand and D1 supply, we just play our odds based on a set of rules.

Hope that makes sense! Have a great weekend!
Alfonso

Hello again Alfonso.

Great answer! I understand what you are saying.
However wouldn't it make things just more complicated. I would like to trade Daily and H1 for now. Than i should add weekly and monthly. This are two more timeframes.
They might give informationts that makes you doubt your decision. The trades that are perfectly aligned with all timeframes are very rare.
It is just some theorycrafting but you said it yourself best that price is fractal. Shouldn't it be possible to trade for example 5 min and H1 to get the same results as H4 and Weekly?

Just food for thought because honestly i think i got it so it doesn't matter. As long as you play your odds consistently you should get positive results.
You don't need to get every move. It is impossible anyway.

Thanks for your thoughts and i hope you have a great weekend yourself.

You can trade any combination, add as many or as few timeframes as you want, it's all up to you and your trading plan. I'm taking into account the MN/WK/D1 in my analysis because I trade the H4/D1 zones, I've thoroughly tested it like that and it works great. If you want to trade intraday or lower it's just up to your time availability, how much you want to be in front of your computer, your risk aversion, and many other variables.

Just a reminder, TEST whatever combination you want to trade throughly for months and be consistent with the results of those tests. Trading the H1 timeframe for intraday has nothing to do with H4/D1 swing/position trading, so you can "skip" the bigger timeframes, but test it for a long time, get good and consisten at it. The lower the timeframe the bigger the noise and the bigger the number of levels to choose from. You just have to make your trading plan, test it thoroughly then demo trade then live trade.

Have a great weekend!
Alfonso

Hi Alfonso,
Do you mean if a price level breaks a trend line that price level will be called either demand or supply as the case may be.

Yes, it's one of the rules used for confirmation. If the trendline is broken on timframe X, price needs to hit 1 timeframe higher than timeframe Y in order to consider that zone as valid zone without removing opposing zone.

That is, if price hits a D1 supply, a brand new bearish imbalance on H4 is created when D1 supply is hit and H4 trendline is broken, then H4 zone is valid. If the 1 higher timeframe is not fresh then we need not only to break the trendline but remove opposing demand on H4 to validate the new imbalance.

Alfonso

Today's live webinar on how to trade the bigger timeframes has been uploaded. Thank you for your massive support!

I believe today's webinar was a very interesting and important webinar, for me personally it's one the best if not the best one I've held. We talked about many things, including how quantum mechanics and the duality of light relates trading. It may sound silly to you but the infinitesimal world is closely related to trading and all fields in life, more than we may are aware of.

The summary of the webinar below may seem long but we talked about all that, I just wanted to summarize all we discussed today. I think I described head and shoulders pattern on AUDUSD incorrectly, we need the head higher than the shoulders, but like I said, I am not very fond of those patterns so I don't am very fluid at them as you can see

We made detailed topdown analysis on some pairs, analyzed the facts why some trades were taken, always following the rules and a bit of "logic" and "common sense".

Topics we covered in today's 2 hours webinar:

1. Top down analysis of USDPLN, AUDUSD and NZDUSD, monthly down to D1 and H4 timeframes
2. Tradeble versus non tradable zones. A zone can be a zone but it won't be tradable if only one of the rules governing the creation of levels is not there, like the 2:1 imbalance at the origin of the move
3. A new imbalance will be validated once the an opposing zone is removed.In fight the winner will be the one that beats its opponent, same applies in supply and demand. If a demand level cannot remove its opposing supply zone, it won't be a strong level, it won't be confirmed as a level... UNLESS, there is no opposing level to be removed and good profit margin. We saw a few examples of this on USDPLN and AUDUSD.
4. Flip zones can used as areas of confluence together with supply and demand zones, the same way the 20 EMA is used Waiting for new zones to be created. We don't trade flip zones, only on confirmation or if there are great levels at them
5. We had a look at www.set-and-forget.com community to see how trades are posted before they happen, we went in detail through all posts on USDPLN and why the last 2 trades were taken
6. Price tends to move between supply and demand zones attracted by an invisible magnetism of those zones. No diddle in the middle
7. Backtesting. I've always encouraged and I always will, that we need to test any rules that we want to trade because before we become full time traders we need to gain confidence and master those rules, it's the only way. One of our members, Nick, was present at the webinar and gave me permission to show those results
8. Success ratio and trading results are affected by emotions. First of all you need to deal with your emotions, then consistency will come. The duality of light as a wave and a particle at the same is a "clear" example of how results are affected by observation. We need to walk away from our computers, set and forget our trades. The market, the universe will do whatever it has to do, you are no longer in control once you're in a trade, so why worrying about it?
9. Buy after a strong and un-paused drop in price and sell after a strong and un-paused rally in price. It may sound scary, in fact it is However, you must buy when price is dropping with ERC bearish candles and sell with bullish ERC candles into a supply zone. Do not buy after a strong rally, you would be doing exactly the opposite thing!
10. Gambling versus trading. In gambling you insert a coin in a slot machine expecting a winning pattern to appear, whereas in trading you see the pattern first and THEN you insert the coin. Think about it, when gambling you get 20 losses in a row, 40 losses in a row? Do you stop gambling? No you don't. You don't have the odds on your side, the slot machine does In trading, you locate a high odds pattern/entry and then you insert your coin. After a few losses in a row a few bad weeks, you feel discouraged and you will think of switching to another strategy. That's not a good choice!
11. Any strategy with a correct money management and emotions control will work. This is related to gambling. No set of rules? No trading plan? No confidence? The truth is that no matter which strategy you want to trade, it will not work. Master your strategy, trust the odds provided by your rules and take all valid setups. Remember you have the odds on your side, whereas in gambling you don't
12. Trading is an emotional game. You are your own enemy, you have to fight against yourself, not easy! This is one of the main reasons traders fail
13. Belief, patience and hard work is the perfect recipe to rally in your learning curve
14. Instant gratification does not work in trading, learn to be patient and wait for the right patterns to emerge
15. The reasons why I trade swing and position. It gives me no headaches, lot of free time and relax. Also a M15 level needs 1H or 1 and 1/2 hour to be created, a H4 level needs 1 day, a D1 level probably a week. I don't have 50 new levels a day on M15, I would be in front of the screen all day long, so I prefer to trade 50is intruments pairs, almost half of them only on D1 levels, or I would be a slave of my own trading

Today's webinar is split in 2 videos.

PART 1:

PART 2:


Have a great Monday! Enjoy this new and sunny week, at least it's sunny at my place
Cheers,
Alfonso

Hi Alfonso,

Nice vids you have there... by the way does pivots matter, while looking for tradable SD levels? if yes, how can one weed out pivot points on the charts?

Regards,

Jamaa

Hi Jamaa,

I don't use any kind of pivots. My entries are based purely on supply and demand imbalances. I use flip zones and other features as confluence for the zones, I don't use any kind of pivot zones, unless you are referring to flip zones as pivots!

Alfonso

Hi Alfanso,

I just went through your thread and I have one question. I am using your rectangle reader indicator.I can see it only draws supply and demand zone in H1 chart. Is is possible it will draw supply and demand in H and daily,weekly also? If yes then what setting I need to change in the indicator?

Hello!

The rectangle reader indicator DOES NOT draw any rectangle my friend, it's the Supply_Demand_Zones indicator that does. I am not using it for my trading, but I've added it and set it so that it draws only on H1, but if you edit that indicator's visualization properties, you can select what timeframes you want it to be displayed.

Alfonso