Supply/demand zones: How does a trader determine these areas?

Good day,


Thank you for taking the time to open this thread and pondering the idea of S/D zones, how are they created ? Do you trade S/D zones ? Highs ? Lows ?. The reason for asking is to determine a solid method of developing these zones in code. Trading these zones can result in a very precise way of trading, of course a trader is not able to only trade from a specific area and hope for it to work. Does that seem strange ? Hahaha A trader can trade these zones in a precise manner but not make money or make large amounts. Why is that ? what does a solid trader look at, to determine these zones to have strength and price break, reverse or turn consolidation period ?

More to the point of this thread, we are here to determine a suitable way of determining S/D zones so that it can be coded in a consist manner, (Yes Im aware of the other threads that thrive on this idea). Trading these zones can be very profitable learning the weaknesses or strengths when prices comes into these areas. Being a short term trader ( 6am-12pm EST) holding my positions no longer then an hour can surely allow for nice entries that result in short term gains. I have made money trading this way so I know it works but the humans (me included) make mistakes. Lets move past the mistakes of the trader and in to the hands of the algo.

Here are the first examples. Each evening analyzing the markets to see where price has found key zones of S/D, then extending these areas to the following day trading hours, of 6am-12pm EST ( my platform is 15:00-21:00). I look at highs, lows, close and where price has consolidated. I have had one idea coded using a simple method for determining these areas but we then get overlap, this is something that makes this tough, having overlapping areas is something we dont want.

To determine these areas I look to the previous days highs+close and lows+close and where price was rejected, knowing the following day these areas will play a significant roll in the current days price action, unless of course price makes new highs or new lows.

Full disclosure: I do not trade Supply/Demand Zones. I trade Supply/Demand Delta Zones via WRB Analysis. But I do know a little something about Supply/Demand Zones and I'm always willing to learn from my "zone trading cousins", if you will.

The first thing to recognize is that Supply/Demand Zones are NOT the same thing as Support and Resistance. Merely locating pivot highs and lows and calling them Supply and Demand receptively is incorrect.

Fast Forward about 9:30 minutes.

http://www.forexfactory.com/showthre...31#post8250031

I am a firm believer that Supply/Demand Zones and Support and Resistance are not trade signals in and of themselves.

As one begins his journey down the Supply/Demand path, he does need to ask himself this question: "Am I a Supply/Demand Zone signal trader, or am I a Supply/Demand Zone Price Action trader"?

A Supply/Demand Zone signal trader (aka a "touch") will be looking to place limit orders at the top of a Demand Zone or just within it. And conversely, he would be looking to place a limit order to short at the bottom of a Supply Zone or just within it. This type of trader is also called a "set and forget" trader.

The Supply/Demand Zone Price Action trader is looking for Price to do something specific once it gets to the Zone.

Take a look at the chart below.

Again, while I am not using Supply/Demand Zones as such, you can see what I mean. If you were a Supply/Demand signal trader and you had identified that green area as Demand, you would have gotten into this trade-assuming your limit order got filled. All you would need is a "touch" of the zone. A Supply/Demand Zone Price Action trader most likely would not have gotten into this trade. That depends of course on the particular Price Action he would be looking for.

Now take a look at the red area. Let's again assume this area is a Supply Zone rather than a Supply/Demand Delta Zone via WRB Analysis. The "touch" trader would have placed a limit at the bottom of the Zone and then would have been brought into the market as the White (open<close) WRB breaches the zone. Stop placement is typically at the opposite side of the Zone, and this trade would have ended up a loss. No big deal, there is loss in trading.

But this is where the Supply/Demand Zone Price Action trader would be looking to enter the market short. Whether or not a short is entered depends on the Price Action set-up the trader is looking to see.

One place where many traders go wrong is in trying to be both. It does not work. Think about it. If you are a touch trader, the more time price spends in a Zone the "less" strength of the zone. A "touch" trader wants price to touch the zone and then rocket out. This is the opposite of what the Price Action trader wants. He wants price to spend enough time in the zone to create an entry signal. That entry signal can be a 1 interval or 12 interval pattern.

Great post HG. This post speaks to me a lot, it's the exact thing thats been on my mind this past month. I am actually doing both, touch and price action, with a much heavier bias to price action and touch only with certain rules and only if volume on 1m-3m chart confirms it. Your post helped me realize I was in fact doing both (with a twist) and makes me more keenly aware of the dangers and pitfalls of trying such a thing. Volume is still king and first consideration in any decision I make. Thanks.

excellent, you describe it well

I would agree 100%, so with what your proposed as S/D how would you go about determining these areas ? When I say that, what do you say to yourself when identifying these areas ? The reason I ask, is Im looking for a way to define how to create these areas to allow for the creation of a on chart indicator that is able to consistently show these important areas. The idea is to use other tools for determining strength or weakness when price comes into to these areas for short time frames, but first we must to determine the areas.

For anyone who would like to try please use : http://prnt.sc/

and then explain how you drew your areas, thanks. Exactly like your talking out loud to yourself

the way is in my thread...but you can spell it out as follows

1. to the left only wick to the right only body.... =open supply/demand /s/r every single time

2. must be at the beginning of a move.... how you would define and code the beginning of a move i've no clue... just look at it and one can tell in a glance ...no idea what the specs for that would be....check some other code perhaps for that..... in other words its the first one.....the first one from a pivot.... that is another way to describe..... the first one from the turn around points... the most relevant one...... you will have to actually look at some charts for yourself ... maybe a third or a fifth or a seventh level fractal indicator or something.... then look for next top or bottom from there....that shows the # 1
3. skype me at dagoods1 if you wish


see yourself

http://www.forexfactory.com/showthread.php?t=532860

if we could combine my way with this guys way we'd have the best way imo

i dont know how this guy gets this info for mt4 but i wish we could

THAT would be amazing.

Check out WideRangeBody analysis. You can find info around about it. They don't seem to like anybody talking of them so just search. They have the best idea in my opinion of S&D zones. That being said, they have no concept of volume (or a very rudimentary at best) and have therefore made a convoluted rats nest of rules to go along with WRB analysis (rules that I feel are unneeded if you understand volume analysis). To be fair I've never looked into their paid information (except their so called advanced Japanese candlestick analysis) and I've only studied the free stuff a few times (also, I'm sure the creator of it and followers of it have made more money than I have in my life), but I've taken away what helps me and left the rest. That "rest" that I ignore, may be the very thing that makes somebody else a winning trader though, and I do admit that my style is unorthodox to say the least and not one to emulate (but one should take note of how I've gathered together information from other sources and made it my own method, something everyone must do to be a consistent winner in the long run and in an every changing market).
I'm not going to go over all of my methods here, I'll just post a few snapshots of last Fridays 6E N.Y. session, showing a few of the zones I drew and my thought process. I'm still discovering and creating and have gaps and holes in my knowledge as almost everyone else on here so take this as you will.
These charts will only be of my 3 minutes ones. I use 1m,3m,5m,10m,15m,30m,4h, and 12h mostly (even other stranger ones I won't even mention), so a lot will be left out, this is just 3m very basic analysis. The left chart is 3m with 7:20 (6E RTH hours) and the right is standard 3m. Some will think its weird or stupid to have multiple start time charts but its how I do things and I won't get into that here. As a side not, I have HG again to thank for 3m analysis, I never went lower than 5m before a month ago, nor below 15m 3 months ago, I now find 3m is perfect for my method. Also note: volume is relative and what I call UHV now, may later turn out to be AVG volume. Also, a warning, I advice all the squeamish post analysis haters to skip this post entirely, it will be very painful.

Here N.Y. opens, and quickly rejects a demand zone I've marked from early London. I like to wait for more information usually but candle 1 already tells me something's up. It's going down on VH volume and a NS in the form of a harami cross is printed after. I'd like candle 1 to be on the demand zone and the NS to print there as well, but practice trumps theory all day long in the market. I went long close of harami, a stop set 1 tick below its low.



Chart is annotated.


Here a wide body candle with UHV has printed. In a perfect world, I would have 3 lots put in and take one off here, and the other 2 at b/e +1. I believe I only had 2 lots and took profit on one of them earlier, before this candle finished.


Let the news play out (My TP was hit before I could move it and trail etc.). A note on news, I never look at the outcome or expectation, only the time it's going to come out. I guess I'm one of those that thinks it's all in the chart. I've erased some lines and added others here. A supply zone has been created in the middle of the range now. One rule I have is there is no touch trading a supply zone that's not at an extreme, only price action trading. Notice the wicks, big buyers and sellers keeping price in a range (a rather big one). Market profile agrees with this analysis, buying and selling tails have just been created. An ace with nerves of steel (or maybe a gambling fool) could have longed (touch trade) at the green support line at bottom (London's low), I've done so many times but not today. I haven't deleted my demand zone from London yet either. Higher prices have really been rejected w/ UHV and lower price seems to have been "hammered" out. At this point I would be more biased for a short around the top of the supply zone.


A bottom may have been found, the one 3m has a big hammer like candle. Price hasn't really shown me that my demand zone should be taken away.


Price has risen right through my supply zone. I love these candles on the right hand chart. Is it an UT? It does have potential to be one because of the weakness in the BG, but to me its much more likely a misplaced inverted hammer. Next candle or two will tell. Sorry It's hard to just stick to S&D and not add other info. Price loves to do this pattern at zones.


A new demand zone has been made. Price is going higher, to WRB of news candle probably and potentially to an uptrend, but not likely based on volume.


Price has reached the upper wick of the first news candle (some highlight this as a supply zone, I think that's a great idea), a touch trade with a tight stop could have been made, this is an extreme, not middle of the range.


I've reached the max attachments, I'll post the rest of the Friday session if people would like to see it.

You sold me on both of these principles, I also use this same approach 3 minute charts ( I confirm with HTF S/D areas with 15 min and 1hr), I add in 1 minute for my entry. And volume as a leading indicator when prices comes into these zones. Volume will show a very high correlation with price in S/D zones. That is the purpose of this thread to determine these areas for programming purposes, first before introducing volume analysis. Then looking at a few things and volume being the biggest to confirmation of weakness or strength.

With that said, how do you go about determining your S/D areas, hieronymus ? I noticed dagoods1 also posted about WRB analysis and I will look over this some more, it seems like a small group of candles to confirm the pattern. I will have this developed once I have my head rapped around this theory. But this IMO has low occurrence rate and Im hoping to find something that gives a higher occurrence rate with the confirmation of volume on a lower TF.

I add my friday analysis page, with a detailed approach, the image breaks it down. Above I included the same chart but with only the S/D zones because at this point, Im taking it one step at a time, and trying determine how theoretically to approach drawing S/D zones.

side note: I use cumulative volume index for my volume analysis, at one point I used OBV. They are very similar but I find cumulative to be more active and accurate when price comes into to key zones of S/D. SO very similar approach to the volume analysis!!

Here is a thread I posted some things about CVI

http://www.forexfactory.com/showthre...97#post8238697

Happy to see this in action

I use very basic WRB zones as you can see. HG is the master when it comes to that, and there is a free tutorial on WRB. Look at the images I posted and you can see how they are drawn, wicks of candles before and after WRB etc. On the extremes I think of them as S & R and in a range when I draw them I use them as interesting PA areas to keep an eye on and they are a sort of sentiment bias for me. They happen rather frequently I think, at least the type I draw, that should be frequent enough. Sounds like our methods are similar in a few ways. I've never looked into CVI, I have to see volume per interval for my analysis, but it looks rather interesting. I also use 1m tf anytime I have to dissect a higher tf interval's volume. I also use 12h and 4h ultra high volume candles for areas on s & d, I just put a line on the body and or wick of each of them, depending on what I think is more important. Good luck with the coding.

looks like volume spread analysis to me. VSA is very well known strategy and it proponents swear by it.

WRB and VSA are not remotely the same thing (I take it that's what you were saying?). I've studied both and have my own ideas on both, they are great ideas each.

was obvious from your notes on how you read the volume.

Sorry I thought you were saying VSA=WRB. Yes, I believe my volume analysis is rather more advanced than standard VSA, but wouldn't be where I am without it.

15 min chart.

Use RSIOMA going from < 50 to > 50 to quantify a up-swing.

For a upswing, the largest bar in that swing above or just below the 200EMA is the demand bar. Use the opening price of that bar as demand.

vice-versa,

I'd like to scratch that from the record... what an @ss I sounded like. It's really a great system the more I study it. Rules keep you safe from oneself, the greatest threat to your own trading, I probably need more of them myself.

hi，hiddengap。i never heard of support and demond delta zone。what is it？what is the difference via SD zone？eager for your answer。thx。