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Note On Forex
Note On Forex
Financial markets move in phases of the above. There are uptrends and downtrends or
price ranges.
Richard Wykoff was one of the first market analysts to explain the interaction of these
phases, giving them four labels.
1. Accumulation
2. Markup
3. Distribution
4. Markdown
How do you identify a strong supply and demand zone?
Like in any form of technical analysis or trading strategy, there are strong signals and
weak signals. To get the best trading results, we need to ignore the weak signals and
take the strong ones.
The perfect supply and demand trade setup will see the zone exhibiting all of these
features:
1. Narrow price range
If the trading range that exceeds the breakout is too wide or has too many long-wick
candles, it shows uncertainty and is less likely to represent accumulation from a whale.
2. Less than 10 candles
The demand or supply zone should ideally be between 1 and 10 candles. Accumulation
and distribution can take a while but too long and the zone may get exhausted before
the re-test later.
3. Strong price move
What we want to see in the breakout candle is an ‘Extended range candle’ or ERC. This
shows a strong price move that has significance.
4. Fresh / untested
The best zones are when the price has not revisited it since the breakout. Just like
support and resistance, the more times supply zones and demand zones are test, the
more likely they are to fail.
5. Fakeout or ‘spring’
This is when the price temporarily breaks out in the opposite direction but then quickly
reverses. This is a sign of big players ‘stop hunting’ to find extra liquidity for their
accumulation or distribution.
Supply and Demand Zone indicators
It’s possible to buy supply and demand indicators that have been custom built for the
trading platform. However, drawing supply and demand zones tends to be more of an
art than a science and some of the best-known modern supply/demand traders and
mentors like Sam Seiden draw the zones using the ‘rectangle tool’ available in most
trading platforms, including the FlowBank Pro Trading Platform, which is available on
PC, Mac and Mobile devices.
Supply and demand vs Support and Resistance
Supply and demand zones are typically drawn close to support and resistance levels
(S&R levels) but are not quite the same.
Support is drawn at the low of a candlestick that has had at least two candlesticks with
higher lows on either side.
Resistance is drawn at the high of a candlestick that has at least two candlesticks with
lower highs on either side.
Supply and demand trading strategy
Using supply and demand zones as part of a trading strategy means involving other
trading methodologies as well as a sound risk management system.
Example: The S/D with 20 DMA Strategy
Here we are using the change in trend shown by the moving average to add extra
importance to the demand or supply zone as well as to set the direction of the trade
1. Wait for the price to cross the 20 day moving average
2. Watch for a long range candlestick in the direction of the MA cross
3. Mark the Supply / Demand zone from the big price move
4. Set your entry order at the beginning of the price zone
5. Set your stop loss past the end of the price zone
6. Set your take profit order with a 3X risk: reward ratio and/or at a support / resistance
level