Supply and Demand trading with Fibs

I am thinking about showing strong zones that Im watching on a daily basis, but at the same time I want people to learn and not just take my zones and info for granted to make some quick profits.

Absolutely fantastic. With the article I posted not long ago, Sam Seiden says time spent away from zone, longer the better, but that does not make sense, since reading the articles I posted my trading has improved tenfold. Orders to sell, orders were not all filled price comes straight back to supply so that the big boys can fill the rest of thier short orders.

Hi, I read that site you referenced and it's pretty cool, answered some questions, that had been bugging me about SD compared to observed behaviour of the market. I was just wondering if you still are using the fibo combined with this strategy and if so could you post an image, because as one poster said the images have disappeared. That would be awesome.. I've spent quite a bit of time with SD but with refreshed view I am keen to have another crack.

cheers, I appreciate the work you have put into this thread.

Now we all know it's great while markets are trending, but markets range alot more than they trend. Knowing WHT markets are ranging is alot better than just saying "this market is in range" knowing the facts behind why it's happening is priceless information.

Take the AUDCAD daily chart here I have posted, we have been in a range since around 16th August. Spotting supply and demand can allow you to see the range diameters and why this is happening. As you can see supply level was created just as market went into range, and reacted off a demand area down below, both these supply and demand areas are still contaning orders, and is why price is stuck within these 2 areas, which will break first, who knows, but we can be pretty sure where price is going to react or where a profit area is in a range market. Take price action traders for example, we see a lovely pinbar here on the daily chart, so I would think many people are shorting this pinbar into next week, but what about TP areas, knowing supply and demand we can see a perfectly excellent area to look for price reactions in the demand area down below.

Hi Minute and welcome, yes I always apply fibs to look for confluence, I do not base a trade purely off fib, but if I see a confluence, this always adds confidence to a trade. Take the AUDCAD I just posted for example applying a fib, we can see the first time price entered into supply it also bounced off the 38.2, next it entered and bounced straight off the 50 fib, this pinbar also looks like it's bouncing from the 38.2 again, so in short, yes I definately still use fibs every time I mark out a zone

cool tp .98 and the fib thx

Your welcome, you can see, if you apply the effort, it all falls into place nicely.

Time Spent Away From Zone

One of the primary rules supply and demand traders use to gauge whether a zone has a high probability of working out successfully is the amount of time the market has spent away from zone.

Apparently, according to many supply and demand teachers, the longer the market has been away from a supply or demand zone the better chance the market has of turning when it eventually returns.

This again is flawed thinking.

If the bank places a pending order to buy or sell for when the market returns to a supply or demand zone are they really going to wait a long time for this to happen ?

If we compare the old supply and demand zones (colored blue), with the more recent zones colored orange, its easy to see how trading zones which have been created recently is far more profitable than trading zones which were created a long time ago.

Lets Imagine you had traded the 6 recent zones Ive marked on the chart, each zone would have resulted in you having a successful trade, however had you traded the older zones, only one of them wouldve turned out to be a profitable trade.

So really the example above proves to us the quicker the market returns to a supply or demand zone the better the chance it has of giving you a successful trade, older zone do not tend to work out very often, therefore its better if you only place trades in zone which have been created recently.

The Strength Of The Move Away

One of the fundamental rules to trading supply and demand is The stronger the move away from a zone the higher the chance the market has of having a strong move away when it eventually returns

In other words, if you mark a zone on your charts which has a strong move away from it, how likely that zone is to result in you having a successful trade depends on how big the move which created the zone was.

If you marked a supply zone which had a huge drop consisting of multiple bearish large range candles then according to the rules the zone has a really high chance of working out successfully if you decide to trade it.

Unfortunately the likelihood of a supply or demand zone giving you a successful trade has nothing to do with whether the move out of the zone was strong or not.

How many times have you placed a trade at a supply or demand zone which has a strong move away only to see the market fly straight through it when it returns ?

A large number of times I bet.

This is because the strength of the move away has nothing to do with how strong the area is.

Common supply and demand teachings would say this is a strong area, yet as you can see the market breaches it without even stopping ! Which brings me on to my next point.

How To Determine Which Zones Are Stronger Than Others

Now we know a big move away from a supply and demand zone doesnt have any effect on the likelihood of a trade working out profitably or not we need to answer the question how do you determine which zones are stronger than others?
The answer is where is the zone in relation to the trend.

Check out this demand zone on the daily chart of EUR/USD

Whoever brought when the market was down here has a lot of money at their disposal.

To know why requires an understanding of market psychology.

As a trending movement increases in length, more and more people begin trading in the same direction. Look at the last drop you can see on the chart before the demand zone is created, at the time of this drop tens of thousands of traders are all beginning to go short expecting lower prices, in order for the market to be able to move up from here, someone needs to come into the market and buy from all the traders who are going short.

This would take a huge amount of money, probably hundreds if not billions of dollars.

The market eventually stops falling lower and begins advancing higher, creating the demand zone marked on the image. This zone has a very high probability of giving us a successful trade, not because it has a strong move away, but because we know whoever brought down here creating the zone has invested a lot of money into the market.

Why would someone spend all that money buying up all the sell orders from thousands of traders if their still expecting the market to move lower ?

Another example:

This example was taken from the 1 hour chart of EUR/USD

Apart from the change of time frame the example above is a very similar to what we looked at previously. First we have a significant downtrend which many people can easily see with one look at the chart, then we have a strong, near vertical move up. This move up tells us somebody has come into the market and brought up all the sell orders from the traders going short into the downtrend.

Again why would someone come into the market and buy from all the traders going short if they were expecting the downtrend to continue ?

The supply and demand zones which have the highest probability of working out successfully are the ones found at trend reversals. A demand zone created after the market has been going down for a long duration of time has a much better chance of working out profitably than a demand zone which forms at the beginning of a down-move.

Its the same for supply zones too.

In a situation where the market has been going up for a long time a supply zone which forms late into the lifespan of the move up has a far better chance of resulting in a successful trade than a zone which is created at the bottom of the move up.

Time Taken To Return To The Zone

There are two types of trading institutions participate in.

The first is intra-day trading, in which the aim is to capture many small market movements over the course of the trading day generating small amounts of profits in the process.

Bank traders who trade intra-day will want their trades placed during that day, none of them will hold their positions overnight, this means the market makers will have to work the price in the market to places where these intra-day traders will want to buy or sell.

The majority of theses places will be supply and demand zones.

So if we know these intra-day traders will not hold trades overnight then its likely that if the market doesnt return to these zones within a 24 hour time-frame they have a much lower probability of working out.

Heres a rule for supply and demand traders who primarily trade the 1 hour chart.

You should only trade zones which the market manages to return to in 24 hours.

If the market has failed to return to a supply or demand zone you have marked on your charts within 24 hours then the zone becomes invalidated, you dont trade it again, it has no relevance anymore.

Ive completed lots of test on this and found 24 hours is the max, anything over this and the probability of the zone decrease dramatically.

If your someone who happens to trade supply and demand zones on the daily chart, then the market must return to the zone within a month, if it hasnt returned before the end of the month the level becomes invalidated and you must not attempt to trade it if the market returns.
The reason for this is due to the other type of trading banks participate in, long-term position trading.

These long-term positions the banks take is what causes trends to occur in the forex market.

The large institutions who operate in the forex market all collaborate together in which direction their planning to take the market and then manipulate the prices so it makes everyone think the market is going to go in the opposite direction to the way in which they are going to be placing their trades.

Here is an example I found on USD/JPY

First notice how there is a significant downtrend which by this point had been in place for nearly three years, due to the fact the market has been going down for such a long time it means the majority of the traders in the market are going short.

Then out of nowhere we get a sudden up move. This is significant because of how long this downtrend has been in place, many many people are selling USD/JPY due to this downtrend, for the market to suddenly move up means the banks have entered the market and brought huge positions off all the traders who have been selling.

What the banks do then is very clever, they let the price drop, this makes everyone think the downtrend is going to continue so they all start selling again. When the market returns to where the banks initially brought, they buy again, this second round of buying coupled with the mass liquidation of losing positions by the traders who were selling is what causes the market break significantly higher and begin trending.

When large institutions place trades in the market they will want all their trades to be entered at a relatively similar price range, they will not place one trade at one location and then wait until the market has moved far away from their first trade before placing the second one, this is why the market returns to the daily demand zone shown on the image.

Trend Direction

As with most forex trading strategies supply and demand traders incorporate the concept of trend into their analysis of the market.

The problem is the way the traders implement the concept of trend.

Typically what a trader will do is go on the daily chart and see that overall the trend is down, therefore they are only going to take trades at supply zones as they have been told to always trade in the direction of the daily trend.

There is nothing wrong with this so long as the trader is taking trades off the daily chart.

If the trader is taking trades off a lower time-frame then problems can arise as they are always going to be trading against the trend on the time-frame they take trades off.

If for example the trader take trades off the 1 hour chart then they are unnecessarily going to lose on multiple trades because they believe they should be trading in the direction of the daily trend, regardless of whether the trend on the 1 hour chart is up.

People don’t realize, the trend on the time frame you place all your trades off is the one you should be following. If you trade the daily chart then you should be trading in the direction of the daily trend, if you trade the 1 hour chart you should be trading in the direction of the 1 hour trend.

Why Do Some Supply And Demand Zones Work Multiple Times ?
Something which supply and demand traders will have undoubtedly noticed in their time trading the zones is the way the market will fail to break past some zones even after being touched multiple times. Supply and demand teaches say the reason this occurs is because the pending orders which are supposedly placed at the zone by the banks have not been depleted by the first or second touch into the zone.
Today I’ll show you the real reason why some supply and demand zones have a tendency to cause the market to reverse multiple times upon being touched and why the banks will never place pending orders at supply and demand zones when they want to enter the market.

The Reason Why Some Zones Don’t Break After Multiple Touches

If a the market is failing to break past a supply or demand zone it can mean one of two things:
The banks are using the zone to either place trades or take profits.
When the banks are placing trades they are rarely able to get their entire position placed all at once due to a lack of buy or sell orders being present in the market. So what they must do is after getting what trades they can placed using the orders available they have to make the price move up and down in order to generate enough orders to fill the rest of their positions.
When this process of generating orders is underway the banks will not want the market to move past the point where they have placed their first trade.
In other words, if a bank has placed a buy trade and is now making the price drop in an effort to drum up enough sell orders to get another buy trade placed, they will not want the price to fall below the price where they have entered their first buy trade as it could cause them to lose money.
To stop this from occurring the banks will get their second trade placed as close as possible to the price of their first buy trade. By doing this they stop the market from being able to drop below the location of their first trade whilst also knowing they’ll be able to make the same amount of profit from their second trade as they’ll make on the first trade.



Here’s an example I found of this process taking place.
First we had a supply zone form due to the banks placing sell trades. The buy orders which were in coming into the market at the time of the banks placing the sell trade was not enough to get all their whole sell position placed which means they must make the market move back up to get enough people to buy so they have enough orders to fill the rest of their sell positions.
When the price moves back up to the supply zone the banks place another sell trade using the buy orders coming into the market from the traders buying on the move into the zone. It would be at this point where supply and demand teaches would say its a bad idea to trade another move into the zone because all the sell orders which were said to be placed by the banks at the supply zone when it was created have been consumed from the previous movement.
Another drop take place because 0f the banks placing their second sell trade. They still haven’t be able to get all of their sell position placed which means they need to make the price rise again to create more buy orders. The price advances back into the supply zone, the banks place their final sell trades and the market completely reverses.



You can see how each of the banks sell trades were placed at a very similar price. There is only a 33 pip difference between the price where they placed their first sell trade and the price at which they entered their second sell trade. When the main reversal gets underway each of these trades go into roughly the same amount of profit-making it easier for the banks to determine how many sell orders they might need to take profits off these sell positions.

Why The Banks Won’t Place Pending Orders At Supply And Demand Zones

In order for the banks to place close or take profits off trades they need the opposite kind of order coming into the market. If a bank wanted to place a buy trade they need other traders to be selling. The amount of orders coming into the market determines how much profit the bank is able to take off a trade or how big a trade they are able to place.
If the bank was to use a pending order to enter a buy trade placed ahead of time then it’s not possible for them to know if there will be enough sell orders coming into the market to get the pending order to buy placed.

If the banks wanted to place a buy trade upon the market returning to the demand zone above they wouldn’t know the size of the buy trade they can place until the market had entered the zone. When it enters the zone the bank will look at the order book and see how many sell orders are currently coming into the market and then decide on the size of the buy trade they’re going to place.
When they’ve decide on the size of the trade they will use a market order to get the trade placed,
If they had placed a pending order to buy at the zone soon after it formed they wouldn’t have been able to determine the size of the buy trade because there’s no way for them to know how many sell orders will be coming into the market when the price drops back into the demand zone.
In the event of the banks pending buy order being too big what will happen upon the order being executed is part of the banks pending order will be filled using the sell orders that are coming into the market, then the price will move up because all the sell orders are gone and it will continue to move up until enough sell orders are found for the remainder of the banks pending buy order to placed.
This causes the banks to have lots of different buy trades placed at increasingly worse prices. Had they just used a market order to enter a buy trade when the price entered the demand zone this wouldn’t have occurred because they would have known exactly how many sell orders were coming into the market and could have placed a buy trade which they know for sure will be filled at one price.

Now taking the above into consideration vs Sam Seiden, here is an example of a "weak" demand zone, which we have been taught would be good, due to time spent away from zone, price has been away for too long from this area for any bank or big firm to still have orders sat there, price being away for this long I would definately NOT be trading a demand zone like this.

Same chart same timeframe, now notice price come back to this supply pretty quickly compared to the other chart I posted above, this zone as price is approaching would be of very high interest and I would be taking a short here every time, this is how I trade on a daily basis, 4hr charts and daily, across most major and minor pairs, there are many oppertunities like this on a daily basis providing extremely accurate areas to trade.

Now here is a trade I actually took, Supply formed, and I marked it on my chart, price came back pretty quickly, shortly after forming, placing a fib over too we see the 50 retracement falls near to the entry of the supply zone. Sometimes the accuracy scares me with how good it is, but if you know how supply and demand works and why these areas are more consistent it's not so scary, bank/large firms, sold here. They did not sell as much as they wanted to, price comes back up, attracting buyers into the market, these buyers are now what the big firm wants to sell into, rest of order is filled and price drops sharply.

Have you located the time(s) of day during which the strong zones tend to form? Also what hours do you trade?

Thanks.

Hi Mary Welcome, most strong zones will form London Morning time and London Lunch, which is also NY open time, as traders arrive to their desk for the day.

I trade mostly London, I do have a tendency to trade the Asian session also.

Okay, thanks. I can't get to the computer til about 1 hour after NY open. (I'm West Coast, US.)