Supply and demand trading course How to identify supply and dema…

Supply and Demand golden zone trading tactics (Detailed Text Lesson)

Supply and demand VIDE…

Supply and Demand golden zone trading tactics

(Detailed Text Lesson)
LESSON 47 MODULE 7

I think that we all have a general idea about golden zones, and we know that if we
can combine supply and demand zones with the 61.8 % and 50% Fibonacci
retracement, the results will be amazing. But you should not forget that these
Fibonacci ratios are only a factor of confluence that confirm our setup and give it
more strength, what matters most is the zone itself. Because if you trade a very
weak supply and demand zone that holds the 61.8 % ratio, chances are you will lose
the trade, because we don’t base our trade on Fibonacci retracements, we use this
tool only as a confluent factor.

Your priority is to find strong supply and demand zones, you can go back to the
previous lessons to see how we evaluate supply and demand zones, because it is
important to identify the right zones, and then we can use the Fibonacci retracement
ratios to see if they are golden zones or not. But let me remind you of the steps that
you should follow to make sure the supply and demand zone is correct:

-Top down analysis: when you identify a supply or a demand zone you should see
if it is formed with the trend or against the trend.

-Time spent in the zone: look at how did price leave the zone; strong and quick
moves give us a clear idea about the strength of the move.

-The freshness of the zone: how many times the zone was tested, fresh zones are
the better

-Candlestick size: look at the size of candles, strong candles mean strong move,
and strong moves indicates a bank order.

-The minimum risk to reward ratio: you need to see if the trade can allow you to
win at least twice relative to what you risk in case the trade goes in your favor.
because what will make you a winner in the long term is not this strategy but the risk
to reward ratio.

These elements should be taken into consideration when identifying a supply or a

demand zone, I reminded you of those steps, because I don’t want you to fall in the
trap and trade the 61.8% and 50% instead of trading supply and demand zones.
REMEMBER ,what matters most to you is supply and demand zones, we try to
follow banks and financial institutions footprints, and when we identify where banks
and financial institution did take their orders, we can then use Fibonacci
retracements as a confluent factor to see if the zone holds the golden ratio or not.
Let me now show you another example of how we identify golden zones and how we
can trade it:

The illustration above is the GBP JPY daily chart, as you can see, there are two
supply zones, we will only focus on the second supply zone, because it is the closest
zone to price.so let’s try to evaluate the strength of the zone.

Look at how the market did leave the zone; it didn’t spend too much time in an
indecision phase before moving down.so the move can be considered a strong
move. The candle that made the move is big, look at the first red candle. This
indicates that there is a bank or a financial institution behind the move. What about
the freshness of the zone? As you see the zone is going to be tested for the first time
which makes it very attractive as a supply zone.

Now let’s do our top down analysis to see if the zone is formed with the trend or
against it? so our trading time frame is the daily, and the higher time frame is going
to be the monthly. Let’s look at the monthly chart below:

This is an illustration of the monthly chart; we can gather two important elements
from it:

As you can see the market is trending down, so this is an important element that
support our daily supply zone. The second element is that the market tested a
monthly supply zone and it is likely to go down again.

I got lot of emails about top down analysis from traders who didn’t understand the
purpose from analyzing the bigger time frame, and this is a great opportunity to show
you how to use correctly top down analysis on your charts.

When analyzing a bigger time frame, we try to answer two important questions:

-we check if the trend goes in our favor or it is against us?

-we seek a technical element or a price action setup that can help us predict
what the market is going to do in the future.

In our example above, we have a downtrend, so we can simply say that the trend
goes in our favor. the second elements that support our trading decision is the
monthly supply zone that dropped the market down.

Let’s suppose that the market was trending up, what can we do in this
situation? Should we ignore the trade on the daily time frame?

It is important to trade with the trend, because trading is all about probabilities, so we
try to take all odds in our favor, but when trading supply and demand zones, we don’t
respect this rule in two cases:

1-if we have a technical element or a price action setup that can help us predict what
the market is going to do in the future I. For example, let’s suppose that the monthly
time frame is up, and it is against the daily time frame, but prices on the monthly are
going to test a powerful supply zone. This technical element will help us predict a
reversal in the market. So, this powerful supply zone on the monthly will support our
selling decision on the daily chart. I hope you can get this point. But don’t worry,
because I will explain everything to you case by case till you get the point.

2- The second case is when we identify a strong supply zone , and we have all the
elements that indicate a very strong supply zone, for example ,the move is quick and
strong, the zone is fresh ,the risk to reward ratio is attractive, we can take this trade
against the trend if we have a candlestick pattern that confirm our entry such as a pin
bar, an engulfing bar , and inside bar, and inside bar false breakout, a failed pin bar
…any way I’ll explain this in details later.

Now let’s go back to our GBP JPY chart example, we have evaluated the strength of
the zone, and we have found that the move is strong , it is also quick because the
market didn’t spend too much time in the zone, the candles size are big and the
bigger time frame (monthly ) is in our favor .so right now everything encourages us to
take the trade.

The last element that you should evaluate before you decide whether the trade is
worth it or not, is the risk to reward ratio. Let’s see if the trade has a good risk to
reward potential or not, look at the chart example below:

This is the same GBP JPY daily chart, as you can see when drawing the supply
zone, we can easily measure our risk. the risk is the amount of pips between your
entry point and your stop loss. And the profit or the reward is the amount of pips
between the entry point and the exit point. As you can see the amount of pips that
you are going to win if the market goes in your favor is four times the amount of pips
you will risk.

You will not always find trades with 1:4 risk to reward ratio, but for a supply or a
demand zone to be accepted it should provide at least 1: 2 risk to reward ratio. So,
the last element that validates the strength of this supply zone is good.

Now we have all elements that indicate that the trade has a good potential, let’s now
see if it is a golden zone or not, I mean let’s try to see if it holds 61.8 % or 50 %
Fibonacci retracement?

As you can see on the same chart, the supply zone holds the 61.8 % Fibonacci ratio
which makes it a golden zone. we didn’t start by Fibonacci retracements, we started
by evaluating the zone to see if it is valid or not, and then we used Fibonacci
retracement to see if it is a golden zone or not.

You can trade this zone without using Fibonacci retracement because it is already a
valid zone, and it is worth risking your money, you only need to wait for a
confirmation, because we don’t really know if the market will respond to this zone or
to the next one above it.

The fact that this zone holds 61.8% ratio represents a confluent factor that gives
more strength to it, because your trading decision will not be based only on where
banks and financial institutions place their orders, but you have also a golden ratio
that control the collective human trading decision.Now you have all elements on
hand, let me show what happens when the market approaches this supply zone,
look at the chart below:

This is the same GBP/JPY daily chart, as you can see, the market approaches the
50% Fibonacci retracement and drops down, but we can’t sell the market from this
level, because the supply zone is above it, and what matters most for us is the
supply zone.

When the market goes back again and approaches the supply zone that holds the
61.8% Fibonacci retracement, the market formed a pin bar to indicate that buyers
were rejected from this level and gave us a signal to sell the market from this golden
supply zone. Let me now show you how you can enter this trade.

After the formation of the pin bar candlestick pattern, you can enter the market by
placing an entry order after the close of the pin bar and a stop loss above the supply
zone. And your profit target is the next support or demand zone.

As you can see this trade provided you with approximately 4:1 reward to risk ratio,
because you risked 117 pips to win 486 pips. You can win more if you break even but
this skill is more advanced, and we will talk about it later.

Let me give you another example of a demand zone to show you how we can
identify and trade golden demand zones. Look at the chart below:

As you can see on the AUD USD 4h chart the market broke a resistance level and
went up, so we can say that we are in an uptrend on the 4h chart. So, we will look for
demand zones that are in line with the uptrend, but before doing that, let’s see the
higher time to check if our trade is going to be with the trend or against it. Look at the
weekly chart below:

The weekly AUD USD weekly market is also up trending, as you can see it broke the
resistance level and went out of the consolidation phase. So, we can say that the
AUD USD weekly chart is in line with our trading time frame which is the 4h.

Now we did our top down analysis to see if the trend is going up on the weekly chart
as well, let’s now go back to the 4h chart and see if we can identify some demand
zones.

As you can see on the chart , we have two demand zones, if we try to evaluate their
strength, we can see that they are strong, because they are formed in line with the
higher time, the move is quick, not that strong but it is accepted. And the risk to
reward ratio is good as well. So, we can say that these demand zones are worth
risking our money.

In this case you trade the second one if the market formed a candlestick pattern
when it approached the zone such as a pin bar, or an engulfing bar or any other
confirmation pattern that we talked about in previous lessons.

If the market didn’t respond to the second demand zone, you can trade the first as
well, if you identify a confirmation pattern that forms when the market approaches
the zone. But what If I told you that one of these zones is considered to be a golden
demand zone. Let’s draw the Fibonacci retracement from the beginning of the move
till the end of it to see what happens.

As you can see, using the Fibonacci retracement helped us identify a golden
demand zone, the first demand zone holds the 61.8 % golden ratio which makes it
stronger than the second one. Remember that you could make an entry if the market
gave you a signal when it approached the second demand zone. But if you can wait
for the first one, you would make the best trading decision because you are aware
that banks and financial institutions placed their order in the zone, and you also have
another mathematical element that shows you where the collective human trading
decisions will be influenced based on the 61.8% ratio which is engraved in our brain.
See what happens next.

As you can see when the market approached the second zone it was rejected, but
the pin bar that was rejected didn’t touch the demand zone. On the other hand, the
market spent time in the zone, look at how many bars that are near the second
demand zone before that the pin bar will be rejected.

This indicates that the second zone is not that interesting, because if there were big
orders that were placed by a bank or a financial institution, the market will be clearly
rejected from the second demand zone. You can trade the second demand zone
only if the red pin bar that was rejected was formed inside the demand zone or at
least it touched it.

Now look at the golden demand zone. When the market approached this zone, it
was strongly rejected, and we had a good pin bar formed as a confirmation to enter
the market.

You can ask the best supply and demand zones trader why the second demand
didn’t work and the first one worked perfectly well, nobody will give you the right
answer, in the best cases they will tell you that the first demand zone is more
powerful than the second one. But what makes it more powerful? Simply because it
holds the golden ratio that influence our collective trading decisions in the market.

This is a secret that nobody will tell you about, and you are lucky if you are taking
this course because you will see the power of the 61.8 % golden ratio which is
engraved in your brain, in my brain, and in banks and financial institutions guys who
place millions of orders from their offices. This magical number affects our collective
trading decisions, and when you can use it correctly in combination with supply and
demand zone, the magic happens in your trading account.

If you decided to work as a technical analysis for a financial company, believe me

that you will surprise your employers and your colleagues by the precisions of your
analysis if you can use correctly supply and demand zone with the 61.8% and 50%
golden ratios.

If you can show them only when the market is likely to go up or down without
showing them how you analyze the market or the tools that you use to make your
trading decisions. They will really take you for a magician.

Most of your analysis will be right, because they are based on the power of money
that drives the market, because when you identify supply and demand you are
following the guys who move the market up and down, and when you identify the
61.8% and 50 % , you are spotting areas where our collective trading decisions will
be affected. So, by doing this, you are combining the power of money and the power
of the golden ratios that governs our trading decisions.

Let’s go back to our chart and let me show you how you can enter the trade and
where to place your stop loss and profit target. see the illustration below:

This is the same AUD USD chart, as you can see this trade provides us with a good
risk to reward ratio. The pin bar confirmation pattern is a little bit longer. So, you have
two types of entries.

Either you enter after the close of the pin bar that was rejected from the golden
demand zone, or you enter at the 50% of it. This is a conservative entry that will
allow you to make more pips if the market goes in your favor, but sometimes the
market goes up without retesting the 50% of the candle. And you can miss the trade.
It is all up to you to take the type of trade that you want.

Your stop loss is going to be below the demand zone, and your profit target is the
next resistance level, the trade has a potential of more than 3:1 reward to risk ratio.

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