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Supply & Demand PDF

Supply and demand zones are areas on a price chart where price is expected to find support or resistance as supply and demand shifts between buyers and sellers. These zones form due to the interactions between large financial institutions generating liquidity and retail traders entering positions based on patterns, with the intention of the institutions liquidating these positions for profit. Understanding how order blocks and supply/demand zones form and identifying them on charts is crucial for determining high probability areas to enter trades.

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Imran Mahdi
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739 views19 pages

Supply & Demand PDF

Supply and demand zones are areas on a price chart where price is expected to find support or resistance as supply and demand shifts between buyers and sellers. These zones form due to the interactions between large financial institutions generating liquidity and retail traders entering positions based on patterns, with the intention of the institutions liquidating these positions for profit. Understanding how order blocks and supply/demand zones form and identifying them on charts is crucial for determining high probability areas to enter trades.

Uploaded by

Imran Mahdi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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WHAT IS S&D?

• Supply and Demand is what essentially drives all markets.


• When Demand is greater than Supply (people buying) = Price Rises.
• When Supply is greater than Demand (people selling or refraining from buying) = Price Falls.
• On a Price chart, S&D is usually interpreted as Oversold (Supply running out, Demand coming in) or Overbought (Demand
running out, Supply coming in.
• Our task is to identify at what zones price will be Oversold to Buy it or Overbought to Sell it. Buy Low, Sell High.
• To do this, we utilize S&D Zones.
HOW AND WHY DO
S&D ZONES FORM
• The Psychology behind:
• BFIs do not trade with 1-100 lots like us. They trade in thousands/millions of lots.
• Trading is a Zero-Sum game – for someone to win, someone has to lose. In order for someone to sell 1 lot, someone has to buy 1 lot.
• We do not need to worry about the execution of our trades and about liquidity. But banks do!
• Example:
• Bank X wants to place 1 million lot long on EU. Respectively, they will need 1 million lots shorts at the same time, so their order can get
executed. So, how can they generate those 1 million lots shorts?
• They trick traders into Selling/Buying the market, by generating patterns we all know – Double Tops, Triple Tops, Flags, Trendlines,
Triangles. They make it look good, so a lot of people start buying and selling, building liquidity into the market.
• After the formations are ready and people are in, banks will launch a big ‘’fake’’ position, to stop out all the traders. A SL is immediately
turned into the opposite order (a SL on a Buy position turns into a Sell). If enough people are stopped out – banks get their Liquidity.
• However, they also launched a ‘’fake’’ move to stop out the traders. They still run into some drawdown. That is why they come back to
close/mitigate those orders at Breakeven and then launch again with their Own Liquidity.
BASIC S&D ZONE THEORY
CONTINUATION S&D ZONES
S&D EXAMPLES
S&D EXAMPLES
S&D EXAMPLES
S&D - DETAILS
• Banks will generate Liquidity patterns around S&D zones OR when they plan to form a new one. This is done to
gather as much LQ as possible. BFIs will trade in the opposite direction of the pattern they generate, by creating a Sell to
Buy/Buy to Sell.
• Double Top? Buy above it and then Sell.
• Bullish Flag? Sell below it and then Buy.

• Your Mindset going forward:


1. What are the patterns I am seeing?
2. What does that mean for the majority of retail traders? What position are they likely to enter?
3. What will the banks do respectively?

• Remember – HTF will always prevail. Understanding the Foundation of Market Structure is KEY.
Market Structure + S&D = Simple, yet extremely powerful system.
ORDER BLOCKS VS S&D ZONE

• According to me – almost the same, with slight differences. (many people have different rules)
• An Order Block is usually the Last Sell candle before a Big Buy. Or the last Buy candle before a Big Sell.
• Timeframe matters! There could be a series of Sell candles before a buy on the 15M timeframe, but on the 4H it can be only one
sell candle. Be aware.
• We try to find the last candle before an Engulfing occurs.
• The benefit is having a Refined Zone, which shows us exactly where the S2B/B2S occurred.
ORDER BLOCKS – DETAILS & RULES

• Always look for a Structure Break (SB) after the creation of an OB. This forms LH/HL S&D zone = Major!
• Always look for Momentum when an OB is printed. (choppy/slow break = weak)
• The OB candle must be fully Engulfed by the next one.
• The Higher the Timeframe, the Bigger the Zone, the More Important it is.
• Avoid refining too much – 4H/1H/15M/1M, etc…
• An OB is considered mitigated/fully retested at it’s 50% mark.
• We never know where price will stop – upper 25%, 50% or 75% of the zone.
• OBs are NOT perfect!
• Oftentimes price will not tap them or just kiss them and go.
Other times it will break them with a wick and then go.
That’s why we always wait for LTF Confirmation
ORDER BLOCKS DETAILS

• Those S&D Zones form in many ways and confuse you. Make your Drawings Systematic!

Always account for the


Highest/Lowest Point (wicks)
This is too little.
Use a HTF to find an Engulfed candle
and make it bigger.

Engulfed 2 candles.
ORDER BLOCKS DETAILS

• Timeframes Matter! HTF is Always better, so DO NOT refine too much.


• Better to keep a Bigger Zone and work your way on the LTF, then Refine too much and not get triggered.
• Those are Areas of Value, from which you look for entries on LTF. But if you enter Aggressively, then Refining is fine.
OB EXAMPLES 15M

Let’s explore all these on the


1 minute timeframe now!
OB EXAMPLES 1M
OB EXAMPLES 1M
OB EXAMPLES 1M
OB EXAMPLES 1M
THE FRACTAL NATURE OF THE
MARKET
• What is Fractal?
• The same things will repeat on every timeframe. Price doesn’t know Time and Time doesn’t know Price.
• There are Patterns within Patterns.

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