Supply and demand using the reversal bar / engulfing pattern

I have a series of youtube videos that illustrate the concept of supply and demand. The concept is the reversal bar or engulfing pattern in candlestick terminology. To see the series of videos explaining the concept go to the youtube link below.

Supply and demand is a little different from support and resistance. Swing support and resistance levels are only psychological levels unless there are buyers or sellers at that level. This is the main reason that breakout trades fail when they fail. For example, price breaks out above resistance as noted by a prior swing high. After a breakout there will typically be a reaction test. A reaction test is not the same as a re-test. A retest occurs after a turn back down, while a reaction test is a pullback that occurs before a turn.

Using the concept of supply and demand one will know the exact bar where buyers or sellers are located as well as where the stops are located. This information tells you where you should enter, exit and place your stops.

Here is a valuable secret of trading...Short sellers cause a market to rise and long buyers cause a market to fall.
Now, that's what is meant by the term that trading is counter intuitive. The common perception is that buyers cause prices to rise and sellers cause markets to fall. However, this is only partially true. And the reason is...

1. Markets rise when the stops of the short sellers are hit. The shorts have to buy to exit the trade. Short sellers are only short sellers when they enter the trade. After entry they are by necessity...buyers...

2. 1. Markets fall when the stops of the long buyers are hit. The longs have to sell to exit the trade. Long buyers are only buyers when they enter the trade. After entry they are by necessity...sellers...

Thus, Long buyers cause markets to fall and short sellers cause markets to rise.

While it is commonly taught that markets bounce between support and resistance this is not necessarily the case.
Markets bounce between supply and demand and, if there is a psychological ( swing line ) there it's all the better.

Often, traders will set their profit target at the next swing high or low and are surprised when price reverses on them before reaching the target. That is because, in between that swing high or low is a bar that has sellers in it if you are long or buyers in it if you are short.

Would you enter long if you knew price was smack into a wall of sellers or long if price is in a wall of sellers...?
Do you know where the sellers are? Do you know where the buyers are...? They are the ones holding losing positions and just waiting for price to come back to them so they can break even. In professional terms these long holders and short holders are called...LIQUIDITY...

Price chases liquidity...When a market is consolidating it is because of a lack of liquidity. Meaning, there are not enough stops in the market to make it worthwhile for the specialists to move the market. Supply and demand are in balance. This situation will usually hold until a news or data release brings a cluster of new buyers or sellers into the market, swing the balance in the direction of the new market participants.



Cheers...

Multi time frame supply & demand...eurusd

The chart is displaying supply and demand lines on the daily, weekly, and monthly time frames. Whatever time frame I'm looking to make a move off, I use the next higher time frame. Of course the longer time frame levels are going to be stronger than the shorter time frame. It's just a fact of volume. There are going to be more participants in a weekly than a daily bar. More in a monthly than a weekly, etc... In this case I'm looking to make a move off the daily, 4h,or 1hr.

The blue and red lines on the chart are weekly and monthly supply and demand lines and the brown lines are weekly swing support and resistance. Not to be confused with supply and demand. Support and resistance also works as markets are driven by psychology.

What I would expect for the eurusd to pull back up to the supply line. Remember, supply means sellers are there and demand means buyers are there. So, I expect a pullback to test supply but if that does not happen it's no big deal. If price continues down break down and close below the demand level where it opened, that line would then become supply and I would expect price to continue down to the weekly swing support.

70% of the time, supply/demand or support/resistance will hold. Therefore, I look to enter long on a reversal signal off of support or short on a reversal signal off resistance. Notice I said signal off the levels and did not say touch the level. Huge difference.

There is more that can be done with the concept but my intent here is to give you the basics. And...of course trend, momentum, and volume play a part but here my intent is only to introduce you to the concept of supply and demand.

Cheers

Ok Majic, fair enough. I took you off my ignore list because after reading your last post I detect a shred of honesty so I'm willing to give it a fair shake. But I want you to understand my take on how this whole crock of BS got started. First I started my thread with no clue you ever existed. My thread is based on material I've learned from the PIE thread and James 16. It is also based on my experience using pretty much every indicator out there so my thread shuns them. I merely want to run a clean thread. Then you come along and make your post which at first went completely over my head. It wasn't until the other guy posted and you responded to him that I thought otherwise. First I thought you thought I pirated your stuff. I googled "The Laws of Charts and Men" and found your website and this is when I thought you were just spamming my thread because it was getting a little traffic and would serve you well. So I admit I went into defense mode and lashed out at you. I admit I have distaste for the commercial section and all the BS posted there and I have made this well-known. I have no doubt that 99% of the commercial members couldn't trade profitably to save their lives but they make plenty selling delicious looking systems to clueless newbies. Although I am responsible for you being in the commercial section in all honesty it is where you belong. I offer my apology and withdraw my accusatory statements. I deleted the posts here with most of the trash talk. I wish you all the best Majic.

I accept that and think that shows you are a stand up guy. I will delete my comments from your thread. I am humbled by your maturity.

Cheers

REVELATION 1 - BUYERS CAUSE DOWN MOVES - SELLERS CAUSE UP MOVES... Have you ever heard the phrase, " Trading markets is counter intuitive? Okay...fine. Whenever you heard anyone say that, did they tell you what that means? It means that market moves are not caused by traders entering the market. Moves are caused by traders exiting position. That defies all logic...wouldn't you say? Logic implies that a market cannot rise unless more buying comes into the market and the market falls when more selling enters the market. That logic is correct, however...what is the cause of more buyers or more sellers entering the market...? Well, when the short stops are triggered buying comes into the market and when long stops are triggered selling comes into the market. This effect is more heightened when those holding long or short positions are retail traders. Retail traders are the prey. Prey are predictable. Since the prey is predictable, so are the predators. Prey gathers at the watering hole and therefore, the predators can be found there also. I could go into all the details of why this is the cause but, the important thing is to know that it is a fact. That's what I trade...FACTS. Fact is where the orders are located. .. It is common knowledge that 95% of retail traders lose their accounts. The reason is simple. Everything is cause and effect. Traders constantly focus on the effects instead of the causes of market moves. I hear a lot of talk about price action trading and this is not a bad thing because price action forms patterns. But what is the cause of these patterns? It is order flow...buying and selling. In one word...VOLUME. I trade price action but that price action must be confirmed by the flow of volume...the orders...the cause. But, enough talk. Let's take it to the charts.

SEE VIDEO FOR ILLUSTRATION OF THE CONCEPT

MARKET REVELATION 2 - MARKETS HAVE MEMORY In Market Revelation 1 -part 1 we isolated retail traders and so how the markets react to the retail traders in a predator vs prey relationship. In Market Revelation 1 - Part 2 we saw how markets react to the rest of the market participants holding long and short positions. In this video ...MARKET REVELATION 2 - MARKETS HAVE MEMORY... we prove that markets have memory.

LIVE AUDUSD UPDATE MON SEPT 15 2014

MARKET REVELATION 1 - PART 2 - ORDER FLOW REVERSALS ALL PARTICIPANTS

I am often asked where I get my trading concepts from because they are so, well, out of the box... What is the box that I am out of? For lack of a better phrase I call the box...THE MATRIX. All knowledge is ancient. I don't care what all of your scientists tell you, they have never discovered anything. They RE- discover the ancient wisdom and tell you it's something new. As above, so below...As within, so without...For Man... Man is the measure of all things...So taught the ancients. Let it be done...and it is done. The Man...is on the charts...

REDO- FIRST INSERTION HAD TECHNICAL ISSUES...

A market is either, running, walking, stopping, or reversing.

When a market is moving, just like you, it has a destination in mind. This destination is commonly called Support or Resistance.
This is what a market seeks. When you fall, the first thing you instinctively do is to start flailing your arms in the air. Why do you do that? You are seeking something. What are you seeking? Anything you can grab. Why are you seeking to grab something? You are seeking support to catch/brake your fall. You do not think about it do you...? It is automatic...therefore, it is a REACTION.
See my video on the action reaction principle. In short, you are seeking balance... I could say more, but that's what the videos are for...

Okay, whenever I'm focusing on order flow I get into trouble. By some sure stroke of coincidence I always have technical issues when I'm exposing order flow because this is the way the brokers and bankers trade. So, I'm having to update you by chart for now.
EURUSD CHART UPDATE TUE SEPT 16 2014 @ 8 57 AM Notice that the short sellers are piling up at the buyers line and yet, price is not falling. Therefore, I must conclude that this pair wants to rise. With all that selling price should be falling but it's not. We call that a volume/price divergence. The market knows that it wants to rise but, see's all that selling just overhead. It is gathering it's strength for the attempt to move up. When price moves above the consolidation area, all those short stops will be triggered to battle those selling lines above. Bottom line is, when you've got a gang of resistance impeding your progress you need to call for some help. Call your boys in to match up with the opposition. Typically, that's what consolidations are for. Now, you and your boys may lose the fight but the important thing for us as traders is that we know the fight is brewing. If price should close below the bar that made the low 5 bars ago, price will have gone below potential buying and you and your boys will have lost the fight.

nice job majic...i heard about you from a friend....and i see u really knw how the market works..........

Thank you very much. And yes, When people find me that is usually how they find me...through those whom I have helped since 2003. my work is much suppressed in this industry. Some secrets are for the few and not for the masses and the industry intends to keep it that way.

Cheers