#TATip | Supply & Demand
A short primer on one of the most fundamental aspects of trading.
i) Premise
ii) Types
iii) Identification
iv) Factors of Strength
v) Trading
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i) Premise The primary reason price of any asset moves is because of an imbalance between supply (sellers) and demand (buyers). The larger the imbalance, the stronger the move. • Supply > Demand: Price falls • Demand > Supply: Price rises • Supply = Demand: Consolidation
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ii) Types There are several types of supply/demand zones, but broadly speaking they fall into two categories: • Reversal: Price rallies (falls), consolidates, and reverses to fall (rally). • Continuation: Price rallies (falls), consolidates, and continues to rally (fall).pic.twitter.com/gZjWRmCI15
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iii) Identification As noted above, supply/demand zones always from during the consolidation (the base) b/w rallies and drops. Method 1 (Clusters): • Demand: Use the low of the base and the highest candle body. • Supply: Use the high of the base and lowest candle body.pic.twitter.com/EwkhPgIqET
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Method 2 (Single Candles): More commonly known as order blocks (OB), you'd have seen these all over Twitter in the past few weeks. • Demand: A down candle before an up move that leads to a higher high. • Supply: An up candle before a down move that leads to a lower low.pic.twitter.com/28jd1HlOkJ
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iv) Factors of Strength a) Force of breakout: The more explosive the breakout from the base, both in terms of speed and distance of ensuing rally/drop, the stronger the buying/selling power at the base, ergo, the stronger the zone. Re: A clean move away, no wicks.pic.twitter.com/sPntnOTCTB
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b) Freshness: The best reactions to a supply/demand zone will always be on the first return to the zone. With every subsequent retest of a zone, the supply/demand at said zone depletes, ultimately leading to a break of the zone. Some examples.https://twitter.com/HsakaTrades/status/1004835241578524672 …
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c) Length and width of the base: The less time spent forming the base, the stronger a zone is, since that connotes the buy/sell strength out there is greater than its counterpart. A narrower base is stronger. Too many wicks above/below the base depletes supply & demand.
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d) Miscellaneous: • Reversal zones > Continuation zones • The best zones form around key high time frame support or resistance levels • An exception to the supply/demand depletion factor is if there's an extremely important price from a fundamental/psychological perspective.
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v) Trading Aggressive: Bid/offer the upper/lower limit of the zone with a tight stop loss below/above the zone. Conservative: Scatter your bids throughout the zone at various intervals and place the stop loss at idea invalidation. Note: Zone retesst can be traded upon a break.pic.twitter.com/jSIZnE9H8X
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Perfect. thanks a lot.
Thanks. Twitter will use this to make your timeline better. UndoUndo
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