5.29. Course Notes

Professional Trading With Institutional Supply & Demand
Learn to trade the financial markets consistently and profitably.

Risk Disclosure Statement
Trading financial instruments on margin involves a high level of risk which may not be suitable for all
investors. Leverage can work against you just as easily as it can work for you. Before deciding to trade
you should carefully consider your trading and financial objectives, level of experience, and appetite for
risk. The possibility exists that you could sustain a loss of some, or possibly all of your trading capital.
Therefore, you should not fund a trading account with money that you cannot afford to lose. It is
recommended that you seek advice from an accredited financial adviser if you have any doubts as to
whether trading is right for you. No representation or guarantee is offered or implied as to the trading
results that may be attained by applying concepts presented herein. Any losses incurred by traders
unsuccessful in applying these ideas or methods are the sole responsibility of the trader. By reading
this manual, you accept that TraderSimon.com, its principals, contractors and assigns will be held safe
from prosecution in any form.
Copyright © 2014 TraderSimon.com

Introduction
Hello traders and a warm welcome to my course!
I go by the name of TraderSimon on my website and Twitter. I’m a self directed trader, having
previously worked for 18 years in IT, developing trading systems for investment banks.
I’ve been trading for 6 years and in that time I’ve seen every trading book, course and method
out there. I can tell you that most of them aren’t worth the paper they are written on!
This course is a result of thousands of hours of screen time. It contains a mix of my own
methods plus information that is already out there on the web… but impossible to find in a
sea of misinformation.
With hard work, these concepts will allow you to see the market in a way you never thought
possible. It sounds like an amazing claim, but I hope to prove it to you by the end of this
course.
Introduction
MACD, moving average crossovers, stochastics or any other fancy indicator you
care to mention will always get you into a trade too late. Copyright © 2014 TraderSimon.com
Introduction
Price
Supply and Demand
Order Flow
This strategy is based on price, supply & demand and order flow alone
Section 1: The Basics

In this section, we’ll cover a few basics:
• The really simple stuff
• Support and resistance

• Trendlines
• Channels
• The basics of supply and demand

The really simple stuff
Bullish Candle Bearish Candle

High High
Close
Upper wick Open
Candle body
Open Close
Low Lower wick Low
The candle’s body will always start at the opening level and finish at the closing level. As
price bounces around, the candle wicks will mark the high and low of the time period.
The really simple stuff
Bullish Candle Bearish Candle

High High
Close Open
Open Close
Low Low
OLHC which show the Open, High, Low and Close of a given time period.

Price Action
Bearish Pinbar (sellers

had the upper hand here)
Bullish Pinbar.
(The buyers won this time).

Simple candle patterns
Example candlestick patterns.
Further reading: The Candlestick Course by Steve Nisson.
Bearish railroad tracks Bearish outside bar Doji (spinning top)
Bullish railroad tracks Bullish outside bar Inside bar

Support and Resistance
In a downtrend, price will typically move in a range until it breaks through a level.
A new range will start and what was previously support will now become resistance.
Support
becomes resistance
New support level is

formed becomes
resistance

Support and Resistance
In an uptrend the opposite is true…
a resistance level will be broken and price will find support at a higher level.
A new resistance becomes support

level is formed
Resistance becomes support

Price Pivot Zones
These areas where price attracts from either side are also known as Price Pivot Zones.
A new resistance becomes support

level is formed
Resistance becomes support

Break and Retest (BAR)
Resistance
Break
Retest at support
Price breaks a zone of multiple touches of resistance, and retests the opposite side
as support, we call this a Break and Retest setup (BAR).
A Common S/R Fallacy
Sellers are absorbed at every test

of resistance until they are all
gone and price can break free.
Resistance
Every time price visits a level, it “eats away” at the orders until there are none
left. At this point, price is free to break the level.
Trendlines
Trendlines are another form of support and resistance. They are the exact same principal,
but this time diagonal.
In this example, we see a down trendline.
Trendline acts as
resistance
Retests as
new support
Finally
breaks
resistance

This is an example of an up trendline. As the trendline support is broken, the underneath
becomes resistance.
Finally
breaks
support Retests as new
resistance
Trendline acts as
support Copyright © 2014 TraderSimon.com
Channels
In a bear channel, price moves upwards between 2 trendlines before breaking out of the
lower trendline and falling.

Channels
In a bull channel, price moves downwards between 2 trendlines before breaking out of the
upper trendline and rising.

The Fallacies of Technical Indicators

The moving average crossover is probably the most widely known trading strategy by the
general public.
It is documented in literally thousands of technical analysis books and mentioned countless

times on mainstream financial media…
…yet it is fundamentally flawed in today’s markets.
The main problem is it’s a “reactive” rather than “predictive” way of trading. The
method assumes that momentum will continue after a crossover with no thought to the current
conditions of the market.

Probably the most famous of the crossovers are the “death cross” and the “golden cross”.
• Sell when the death cross occurs (which is the 50 day moving average crossing down
below the 200 MA).
• Buy when the golden cross occurs (the 50 day moving average crossing up above the 200
MA).

So what does this look like on a chart? Copyright © 2014 TraderSimon.com

Now add some yellow lines to see where we would have got in. Copyright © 2014 TraderSimon.com
… and now compare this to entering at a supply or demand zone. Copyright © 2014 TraderSimon.com
Another use of standard indicators is to measure what is termed as “divergence”.
Stochastics, MACD or CCI.
Price
Indicator

In the highlighted section, price makes a higher high but the indicator does not. This is what is
known as bearish divergence.
Price
Indicator

On this slide, price makes a lower low but the indicator does not. This is known as bullish
divergence.
Price
Indicator

Theoretically, divergences mark turning points in the market, however you are about to see
that divergence is a common trap that leads to traders blowing accounts!
(Please refer to video)
Price
Indicator

The Basics of Supply and Demand
We are conditioned through education and trading books to buy when the price is high
and sell when the price is low.
“Buy stocks when they are rising, they can only go higher”.

And more often than not, punters end up selling their shares at knockdown prices when
the price plummets and the pain to hold them is just too much.

Yet in every other aspect of our lives, we buy when something is a bargain and try and sell it
for as high a price as we can get.
So why should this be any different in trading?
....it shouldn’t, and this is where the professionals differ from the retail crowd. They buy
low and sell high, just as your local car dealership might do.
The pro’s buy at wholesale prices and sell to the public at retail prices. At this point, a
transfer of funds takes place from retail traders accounts to the pros. The point at which this
takes place is often what we call a supply or demand zone.

The Supply and Demand Cycle
Retail Smart
buys money sells
Smart
money Retail sells
buys

Buying at a demand zone
A supply or demand zone can only be seen once price speeds away from an area on the
chart. It indicates there was professional buying or selling interest at the origin of that
move.
Retail trader see’s price

taking off, buys here.
Professional notes buying
interest from demand
zone
Retail trader closes position,

frustrated that price has fallen.
Professional has a buy order
waiting here.
Demand Zone

Selling at a supply zone
Supply zones follow the same principle in reverse.
Supply Zone
Retail Trader closes position,
frustrated that price has risen.
Professional has a sell order
waiting here.
Retail Trader see’s price

falling, sells here.
Professional notes selling
interest from supply zone

Bulllish Reversal
In this pictorial representation of a demand zone, price dropped, made a base and
rallied away very fast. This indicates there was a lot of buying pressure at the base
and further demand waiting at that level.
strong rally
drop
Buy on return to here
Demand zone
base Copyright © 2014 TraderSimon.com

Bearish Reversal
Supply zones are the same concept in reverse. Price rallied, made a base and the traders
couldn’t sell quick enough. When price comes back to that supply zone, you want to be a
seller!
base
Supply zone
rally Sell on return to here
strong drop

Bearish Continuation
There is another type of supply or demand zone which is inline with the current flow. In this
example the market drops, forms a base and makes a 2nd drop. The consolidation of candles
that it leaves behind become our supply zone.
drop
Supply zone
Sell on return here
base
drop

Bullish Continuation
This is exactly the opposite of a bearish continuation. The market rallies, forms a base and
makes a 2nd rally. This time, the consolidation of candles that it leaves behind become our
demand zone.
rally
base
Buy on return here
Demand zone
rally

A Base vs Consolidation
Good base
Small discrete block
Bad base
In consolidation range

The Correct Way to Draw Zones.
In order to draw a supply zone, position a horizontal line below the candle bodies. This
will serve as your sell entry point.
Then draw a line across the highest candle wick. Your stoploss will go a few pips above
this point
This line goes above the
candle wicks
This line goes underneath the

candle bodies

The opposite is true of a demand zone. Draw the top line (your entry) against the
candle bodies.
Draw the bottom line below the candle wicks. Your stoploss will be a pip or two below
this line.
This line goes above the

candle bodies
This line goes underneath

the candle wicks

• Candle bodies not uniform.
• Draw line where price took off and didn’t look back..
Price left the zone here and didn’t retrace

• Here’s another example with a very subtle difference.
• The circled wick is a retracement on a lower timeframe.
• It didn’t actually shoot up until it passed the orange line.
The fast move actually started here
This wick means price retraced

Zoom Out For The Bigger View
Always zoom out when looking at charts. It’s amazing how many traders look at a
letterbox view of their charts and can’t see the world around. Read it like a map.
This chart doesn’t give many clues

as to where price has been,
support/resistance levels and
supply/demand zones.
This chart has been zoomed out until the individual
candles are barely visible. This gives us a much wider
view of the action and it’s easier to pick out important
levels. Copyright © 2014 TraderSimon.com
So we’ve covered the basics and you should now be able to:
• Understand, identify and draw support and resistance.

• Recognise and draw trendlines, bull and bear channels.
• Know the difference between bearish reversal, bullish reversal, bearish
continuation and bullish continuation.
• Draw supply and demand zones… and additionally know where to place
your stoploss.
It takes time to train your eye to recognise these patterns, so don’t worry if
they are hard to see on a real chart at first.

Section 2: Your Trading Mind

In this session, we’ll talk about:
• Risk Management
• Trading Psychology
• Measuring Trading Performance
• Developing a Trading Plan
• Your Trading Day
• Session Times
• News, Rumours, Twitter and Using a Squawk Service

Your Trading Edge
There is no trading method that will give you a 100% win rate and it’s an obvious fact
that not all supply and demand zones will work! Which is why we use good risk
management.
The two factors involved in risk management are:
1) Risk/Reward ratio.
2) Win/loss rate.
During this course, we will be discussing some important concepts that will increase
both of these.

Risk Management
It has been said that trading is 20% strategy and 80% risk management.
Accepting risk means accepting the consequences of a trade or a string of trades without
emotional discomfort or fear.
Manage your risk in such a way that a losing trade or string of losing trades will not put
your account in an irrecoverable position.
Risk Management
So where do you start with applying good risk management principles to your trading
account?
Firstly, only ever risk a small percentage of your trading account at any one time in the
market… 2% is a good starting point. And look to make a larger reward with your profit.
Starting balance £10,000 Starting balance £10,000

50% loss £5,000 75% loss £2,500
Need 100% gain to get back to £10,000 Need 400% gain to get back to £10,000
Risk Management
No matter how certain a trade setup appears, remember John Maynard Keynes quote; “the
market can stay irrational far longer than you can remain solvent”.
Risk/reward is the only aspect of the market that we as traders can control. It is the ratio of
expected profit that we hope to make in relation to our risk as determined by our stoploss.
For instance, if the most we can expect to lose from a trade is £100, but the potential profit is
£200, the risk/reward is 1:2. Copyright © 2014 TraderSimon.com
Risk Management
A good trader will always keep losses small and aim for bigger winners.
By keeping trades to a risk/reward ratio of 1:2 or higher and passing on the trades that
offer lower reward, we can afford to lose 50% of trades and still make a profit.

Coin Flip Exercise
Heads/Tails £ Profit/Loss £ Total Profit
Win/loss ratio
Tails -100 -100
Heads 200 100
Risk/reward
Tails -100 0
Tails -100 -100 Edge = trading system,
Tails -100 -200 skills & experience
Heads 200 0
Heads 200 200
Tails -100 100
Heads 200 300
Heads 200 500
….. ….. …..
Trading Psychology
A huge part of trading is psychology and this is where most new traders trip up.
Emotions will play a big part in your trading. ..You will find yourself subjected to fear, greed,
elation and desperation. As traders, it is these inner demons that we have to confront.

Trading Psychology
It’s important to accept that losses are a part of trading – a cost of doing business. It’s easy
to forget that in the heat of the moment.
But after a loss, the trader should remain calm and not be desperate to make the money
back.
Another problem that manifests itself in traders of all levels is fear of taking another trade in
case they lose again.
This can be countered by having confidence in your method, taking a disciplined approach
and back testing your edge.

Trading Psychology
Struggling traders tend to let losses run in the vain hope the trade will recover and taking
small profits off the table because of fear the trade will go back to zero profit. Or even worse,
adding to a losing position.
The most important word here is . Without it, you are gambling at a casino!

Measuring Trading Performance
All trading coaches agree it is critical to keep a trade log.
Important aspect of improving performance.
Results are objective and not prone to psychological biases that interfere with our perception
of how we are really doing.
At the end of each day/week/month, review your trading log. What went well? what could be
done better? Feed this back into your plan.
What should you log?

• Trade entry – time, asset, long/short, position size, reasons for entry.
• Trade exit– time, asset, long/short, position size, reasons for exit.
• Note emotions and feelings during the trade, type of setup, profit and loss, summary
and evaluation of the trade.
• Did you stick to your plan?
Bad Trading Monitor
TRADE No. 1 2 3 4 5 STOP
TRADING!
Exited too soon
✔
Exited too late
✔ ✔
Entered too soon
Entered too late
Trade not in trading plan
Incorrect stoploss placement
Incorrect position sizing
Hesitated and didn’t take trade

✔
Developing a Trading Plan
Whole books have been written on developing trading plans, so let’s keep it simple…
Take the information in this course and make it your own.

Not having a trading plan will lead to random trading, lack of discipline, switching
systems, etc.
Treat you trading like a business:
• Strategies that you will trade, entry and exit methods.

• Which markets and timeframes.
• Stoplosses, targets, scales, trading times, when you will take breaks..
• Set yourself realistic Daily/Weekly/Monthly goals, key milestones.

Continuous feedback and improvement
Establish a continuous
process of testing, feedback Trading Plan
and improvement into your
trading.
Backtesting
Iterative Forward testing
Improvements
Statistics
It’s only by recording statistics that we can develop confidence that a trading
method will work. Copyright © 2014 TraderSimon.com
Useful Tools
• Jet Screenshot
• http://jetscreenshot.com/
• Evernote
• https://evernote.com/
• Camtasia Studio or other screen recording software

• http://www.techsmith.com/camtasia.html

Your Trading Day
It’s very easy to sit in front of the screens all day waiting for a trade. However, this is
counter-productive as it leads to tiredness, poor concentration and inevitably… losses.
Plan your day to ensure you have plenty of breaks. Decide when your most productive time
to trade is and block out all distractions during that time.
Pick a quiet area of the house, not the kitchen table or the sofa! Shut down Twitter,
Facebook and any other distractions. Take the phone off the hook and ensure you are
concentrating 100% on the task of trading.
This all sounds like common sense, but as home traders we often suffer too many
distractions that traders in an office environment wouldn’t have. We are pitting our wits
against the best traders in the world.

Session Times
Session GMT/BST
Europe Open 07:00
London Open 08:00
Tokyo Close 09:00
New York Open 13:00
New York Equities Open 14:30
London Equities Close 16:30
London Close 17:00
New York Close 22:00
Tokyo Open 24:00
First 2 hours of each session = most active times

News
Before I start the day, I do a check on the upcoming news releases and this is a habit worth
getting into. There are a few places to find this information, but www.forexfactory.com and
www.fxstreet.com are two of the most popular sites.
ForexFactory calendar example
High impact announcements are marked in red on Forex Factory, medium impact in
amber and low impact in yellow.
You should be aware there are risks of holding trades through news, such as “slippage”.
This means your stoploss could be filled at a price worse than you intended.
News
Some news items are very volatile and should be “sat out” if you are not experienced,
namely; FOMC, Non Farm Payrolls, interest rate decisions and key speeches.
ForexFactory calendar example
Also, be aware that when the market is waiting for a high impact announcement, the market
may go into consolidation mode and provide very little opportunity for trading. This is when
retail traders often get “chopped up”.

Rumours and Twitter
The market is always awash with unfounded rumours. And social media such as Twitter
are probably the worst culprits.
“Sovereign funds aggressively

buying the GBPUSD today”.
“EURUSD
respecting the 200 “Goldmans recommend
Moving Average” a sell on gold with a
target of xxxxx”
…plus there are individual trader’s opinions, backed up by the most convincing charts
you’ve ever seen. Take it all with a pinch of salt!
Using a Squawk Service
When a rumour is released, ask yourself what the motive of the person/organisation
releasing the rumour is. We receive a rumour at a time chosen by the individual publishing
it. This may or may not be the time that the “event” happened.
Often, rumours or announcements will occur at supply and demand zones providing extra
confluence to our setups.
A squawk service such as Talking Forex can be very useful for being prompted when a news
announcement is imminent or something unplanned happens.
As an example, when the Malaysian Airlines jet was downed by a missile in August 2014, the
news hit the squawk before the S&P500 fell.
However, what you will need to do with a Squawk is mentally filter what you hear. This only
comes with experience.

At this stage of the course, you should:
• Know the importance of good Risk Management and the

effect of risk/reward and win/loss ratio on your trading.
• Understand basic trading psychology and the common emotional traps a

trader will face.
• Know the importance of a trading plan and monitoring performance.
• Be aware of the news and trading session times .
• Know the pros and cons of using a Squawk service and social media.

Section 3: Advanced Supply & Demand

In this session, we’ll talk about:
• Adding to the Probabilities

• Fresh vs Tested Levels
• Supply and demand ledges
• Compression
• Market Maker Spikes
• Trend Trader Shakeouts
• The Bull and Bear Trap

Adding To The Probabilities
We’re going to learn some concepts that will increase your probabilities when taking a
supply or demand zone trade.
When choosing a zone, one of the most important factors to take into account is whether
the zone is at a “fresh” level.
The greater the number of times a zone is tested, the more likely it is to break.
A fresh zone that has not yet been tested will offer the highest probability of a bounce.

Fresh vs Tested Levels
When a demand zone is tested, some or all of the waiting buy orders are executed,
leaving less willing buyers at that level. Once all the buyers have gone, price can move
through that level to the next zone.
Demand
Demand absorbed until

there are no buyers
and price breaks through

Returns to Zones – Increasing Probabilities
How price returns to a zone is another factor that will determine the success of a trade.
If price makes a rounded or flagging retrace to a zone, it is more likely to bounce.
One of my key filters for passing on a trade is a V or upside down V return. If you see
this, it’s highly likely the zone will not hold.
Rounded retrace Flagging retrace V-shaped reversal

Ledges
As price approaches a zones, it can sometimes form mini zones (or ledges) along the
way. These ledges can hold up price.
In this diagram, a ledge has formed on the journey back to a supply zone. This little
ledge could now act as a smaller demand zone and stop price falling when we sell it
from supply.
Supply zone Don’t sell here!
Stuck here!
Ledge forms a demand zone

Ledges
Now… lets assume price has already tested the ledge before reaching the supply zone (the
more times the better).
As we have already learnt, this weakens demand by absorbing some or all of the orders… so
price is much more likely to break through.
It’s a subtle difference, but an important one!
Supply zone Sell here
Demand ledge is tested and weakened
Price now able to break through

Compression & Absorption
This brings us to the very important concept of compression.
By now you’ll know that the more a zone is tested, the weaker it becomes.
When price approaches a demand or supply zone, it will often signal it’s intentions in
advance by testing (and weakening) zones (or ledges) along the way.
When buyers or sellers are “absorbed”, the path is cleared for a later move.
A good analogy is a snow plough clearing a path through the snow so skiers can ski
unimpeded.
Don’t worry if you don’t understand this yet. We will be looking at lots of examples!

Compression & Absorption
In this diagram, we can see demand was “absorbed” on the way up to supply, paving a
path for a later drop.
Supply
Demand has gone
Price can break
through freely
Demand
Demand absorbed
Demand
Demand absorbed
Demand
Demand absorbed

Market Maker Spikes
The first test of a fresh zone is always the highest probability trade.
Take a second test of a zone under a specific condition that I call the Market Maker Spike.
A break of a price swing that doesn’t follow through… we’ll see what I mean on the next
few slides.
Gives us a huge heads-up on forthcoming price direction (or bias).

Market Maker Spikes
Investment banks, market makers or “smart money” will manipulate the market to take out
novice’s stoplosses.
Have you ever been in the situation where your stoploss is hit and the market then proceeds
to go in your chosen direction?
To understand why your stoploss was hit, you first need to realise how Investment Banks (IB)
and institutions operate in the market.
In order for the IBs to enter trades, they need liquidity to fill their orders. The liquidity is in
fact provided by you the retail trader.

Market Maker Spikes
For example, if an institution wants to sell a currency, they need a crowd of willing buyers to
absorb their orders.
They will cause price to break a resistance level at which point all the retail breakout traders
will buy.
Other traders who were previously short with a stop above resistance will also be buying as
their “buy stops” will get triggered.
Breakout traders
There will be sellers buy the break, sellers buy stops
buy stops here get triggered too
Investment Banks sell into retail buyers
Resistance Who provide them liquidity
Investment Banks profit

Market Maker Spikes
The Investment Banks will sit calmly on the offer price, selling into the retail buying,
absorbing their orders and getting short. They do this because it allows them to get short
stealthily without having to drive the market down and chase the price.
Now think about this… if you bought a currency at a certain price, what does that make you
in the future? A seller of course!
Once the retail buyers realise they are stuck in a “fakeout”, they either sell to exit or their
stoplosses get hit. These create sell orders which drive the market down and create profit
for the institutions that sold before.
In summary, one side of the market has to suffer or be forced into buying or selling in
order to create a profit for the other side of the market.

Once the market falls, the exact opposite happens – retail traders gets caught selling
and the IBs take the market higher. This is called the profit-accumulation-release cycle
and it happens every day.
Investment banks profit
Support
Investment Banks
buy into retail sellers who
There will be buyers
provide them liquidity
sell stops here Breakout traders
sell the break, buyers sell stops
get triggered too

Market Maker Spikes + Supply & Demand
We can add the market maker spike to our strategy to take a second test of a supply or
demand zone.
Price will often come back to the zone a second time, stopping out traders who stops were
not well below the demand zone. We can use this to make a second entry as soon as price
snaps back over the line.
We buy here!
DEMAND 1st test Stops taken out.
2nd test
Traders who bought here place
stops below their entry Copyright © 2014 TraderSimon.com
Trend Trader Shakeouts
Here’s a ruse used by the banks to trick trend traders and latecomers into exiting a trend
too early…
4) The market takes out their

stoploss before continuing up
3) They move their stoploss to the next swing low
2) They move their stoploss beneath this swing low
1) Traders are long from here

The Bull and Bear Trap
A bull or bear trap is a similar idea to the Market Maker Spike + supply or demand.
The market breaks a prior swing or resistance area, tempting breakout traders to enter the
market.
As soon as everyone has been wrong-footed, price promptly reverses at the next supply or
demand zone.
Let’s see what that looks like on the next page…

The Bull and Bear Trap
Support
Breakout traders panic
Breakout traders sell here
and close their trades
on the break of resistance.
flooding the market with
buy orders.
DEMAND Price hits demand. We can either buy here
or once price goes back above the purple line.

Trend and Bias
You’ll often hear the much repeated mantra “the trend is your friend” and trading reversals
is “like catching a falling knife”.
This is such misguided advice without the proper context to back it up and only succeeds in
confusing traders because nobody ever explains what it means!
And here’s a couple of choice quotes from well know market masters to back this up…
“I believe the best money is made at the market turns.
Everyone says you get killed trying to pick tops and bottoms
and you make money by playing the trend in the middle. Well
for twelve years I have been missing the meat in the middle
and have made a lot of money at tops and bottoms.”
Paul Tudor Jones
“Maybe the trend is your friend for a few minutes in Chicago but for the
most part it is rarely a way to get rich.”
Jim Rogers Copyright © 2014 TraderSimon.com

Trend and Bias
In reality, the market moves from level to level or zone to zone. Using the supply and
demand zones and support and resistance you have learnt about, you can map out the
possible path that price may take.
This can be done on higher timeframes to build up the big picture and smaller timeframes
for the more immediate picture.
Bigger timeframe supply and demand zones (such as the daily) will set out the overall tone
(or bias) for the lower timeframe moves. We want to be on the correct side of this bias.
Also, being aware of where banks have spiked stoplosses (as in the previous example) will
give us a further heads-up as to where price is likely to go.

Trading Bias – A Common Fallacy
There was a time when I believed this very tidy view of trading bias and trend:
• Neat higher highs and higher lows

• A double top to signify the end of a trend
• Lower lows and lower highs on the way down
Double top
Higher high Lower high
Higher high Higher low Lower high
Higher low Lower Low

Failed double tops and bottoms..
Double top
Higher high
Higher high
Higher low
Higher low

Out of sequence price swings.
Double top
Higher high
Higher high Lower high

Higher high
Higher low
Lower Low
lower low

Trading With The Order Flow
Trading with the order flow means following the immediate price action and trading in the
current direction that price is flowing. This is the most reliable form of trading.
As we now know, we’re not talking about the standard (and faulty) technical analysis
definition of a trend.
During a market session, there can be more than one flow direction. It can enter ranging
phases or trending phases. Our job is to see the current direction, be flexible and respond to
changes in realtime, just like the flowing stream.
Trading With The Order Flow
So how do we do this? By observing what price does at support & resistance and supply &
demand zones.
Watch for weak zones that have already been tested and traders who have become trapped
at s/r levels by market maker spikes. This will give a heads-up to future direction.
One of the key principles I use to decide on order flow is the high probability “engulf”
pattern.
The Engulf Pattern
When an important supply or demand zone is engulfed, it is often a precursor to a
change in market direction.
Price completely engulfs

DEMAND the demand zone

The Engulf Pattern
This zone before the engulf will often become the point that a trend changes
direction. Not only does it signify a change in direction, but it’s also a very high
probability setup.
A supply zone was formed

High probability short
DEMAND

The Engulf Pattern
Engulfed
Supply
Buy
Demand/origin

The Market Moves In Zones
Once a supply or demand zone is engulfed, the market will usually continue to the next
zone.
SUPPLY
DEMAND Engulf
Next zone
DEMAND
Engulf
Next zone
DEMAND
Entries: at the level vs Price Action
There are two styles of entry that I use with my method:
• Level entries
• Price action entries

A “level entry” is just that… a trade is entered at the exact level of a zone without
waiting for price action confirmation. This is achieved with a limit order.
Supply zone Sell Limit order

waiting at the
edge of the zone

With a “price action entry”, we wait for a candle pattern (such as a pinbar or some other
signal) to confirm entry at the zone.
Supply zone
Pinbar forms.
Classic entry is to
sell on a break of
the pinbar’s low

There are pros and cons for both of these methods, but my preference is for entering at
the level.
Entering at the level:
• Smaller stoploss.
• Can profit or close at breakeven, even if wrong on direction.
• Price less likely to return to your point of entry on a retrace.

• Often a trade will be in profit before traders using confirmation
have even entered!

Entering with price action confirmation:
• Price shows it’s intentions first.

• Psychologically easier for beginners.
• Useful for 2nd touches of a zone to monitor for a market maker spike.
Lower timeframes = smaller stoploss and closer, easier target.

Another factor that will decide on how you enter is the personality of the asset you are
trading.
Emini S&P Future is a very “rotational” asset.
Waiting to enter with confirmation will give up a lot of your reward to risk which changes
the whole risk management equation that we talked about earlier.
This is where getting in at the level will save you a lot of trouble, because:
• There’s more chance to take some profit before price turns against you.
• You will have an easier chance of holding the trade for good risk reward.

Let’s take a look at that diagram again to put this into context…
Stoploss
Supply zone
Level entry
Price action entry

Level 1xR target
Price action 1xR target

Psychologically speaking, entering (blindly) at the level is a lot more difficult than waiting
for confirmation.
The market will sometimes plough straight through a supply or demand zone in seconds,
without looking back.
This reinforces a negative feeling in the trader’s mind - the next time the trader tries to
take a trade, that past experience will be remembered, uncertainty will creep in and it will
be harder to pull the trigger without waiting for confirmation.
However, the market is counter intuitive, and we need to override these feelings.

Looking Inside Timeframes
Whichever timeframe you trade, you should always to drill down to lower timeframes to
see the whole story. Gold 1hr chart:
For instance, on this 1 hour gold chart, you can hardly see the supply zone, so why did price
bounce at the spike? Copyright © 2014 TraderSimon.com
If we drill down to the 5 min chart, the reason that price bounced becomes apparent.
We can now see the supply zone, and price has bounced off it to the tick.
Often, lower timeframe price action can be concealed inside a higher timeframe
candle bar, so it always pays to look inside. Copyright © 2014 TraderSimon.com
Another good reason for drilling down timeframes is to tighten your stop, and hence,
increase reward to risk.
Risk
Reward
This supply zone on a 1hr gold chart would require a large stoploss and provide reasonable
reward to risk, but lets see what happens if we drill down to the 5 min. Copyright © 2014 TraderSimon.com
As you can see on the 5 minute chart, there’s a much smaller zone hidden inside,
allowing a tighter stoploss and better reward to risk:
1hr supply
5 min supply
Risk
Reward

Break and retest Most traders

(BAR) sell here
Most educators teach a break and retest

setup as follows:
Sell when price comes back to test the underside as resistance.
However, if we zoom down to a 5 minute
chart, we notice 2 things:
1.The zone that

started the
entire move
down was here.
2.Compression -supply
has been used up here.

Supply
The same compression again, but this time on

a 1 min timeframe.

Targets
Knowing your targets in advance of entering a trade avoids the deadly emotions of...
Fear and greed

No exit plan = account disaster.
Your targets will vary depending on the timeframe and instrument you are trading.
We look to exit a trade at an opposite supply or demand zone.
This exit zone should fall within the boundaries of how far price is likely to move.

Scaling Profit
One way to manage a trade is scale partial profits at various targets.
For instance, you could close 50% of the trade at the first minor opposing supply or
demand zone that you encounter (roadbump).
The profit could finance your stoploss and could then try to run the remainder of the
trade for a larger profit.
There are advantages and disadvantages to this way of trading.

Scaling Profit
Advantages:
• Banking some profit is psychologically easier.
• Less Losses.
• Risk on remainder of trade is covered.
Disadvantages:
• You are only running half your trade to the final target.
• The risk is still the same at the beginning of the trade.

At the end of this section, you should:
• Know about fresh vs tested levels, ledges and returns to
zones.
• Understand compression and absorption.
• Know about market maker spikes, bull and bear traps and trend trader
shakeouts.
• Learnt the concept of engulfing and the Quasimodo pattern.
• Understand trading bias, order flow, price zones and how the previous
concepts influence these.
• Know the pros and cons of entering at the level vs with price action.
• Know the value of “looking inside” timeframes.
• Understand targets and scaling.
Section 4: Exercises

For exercises, please see separate course notes.

Understanding Tick Charts
5 tick chart = 5 volume chart =
5 minute chart
A new bar every A new bar every
A new bar every 5 mins
5 price changes 5 contracts traded
Price
1210
1
1
1209
3
1208

Section 5: Conclusion

Conclusion
Congratulations! You’ve reached the end of this course.
Supply and demand trading is a very intuitive way of seeing the markets.
This is just the beginning, so what are your next steps?...

Next Steps…
Just like any other profession, be it a doctor, lawyer or accountant, it takes time to
excel at anything.
1) Practice all the exercises in this course across many financial instruments and
timeframes.
2) Open a demo trading account, start logging every trade in a journal and attempt to
double the account and then triple it over a series of trades.
3) If… and only if you have done this are you ready to trade with real money.
4) When you open a live trading account, start really small. It is possible to trade micro
lots for as little as 10 cents a tick.
5) If something goes wrong, go straight back to the first step.

Further Reading
Keeping a level head whilst real money is at risk in the market is one of the hardest
things for a new trader.
Trading Psychology Books…

My Website
www.TraderSimon.com

Contact Details
If you require help on any aspects of this course, the best way to reach me is via a
Udemy message. I will aim to respond with 72 hours, but please bear with me!

Wishing you every success and a big thank you for taking my course!

This course is copyright © Simon Kloot (TraderSimon.com) 2014.
Legitimate copies of this course may only be found at www.udemy.com

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Professional Trading With Institutional Supply & Demand

Learn to trade the financial markets consistently and profitably.

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

• The really simple stuff

• Support and resistance

Copyright © 2014 TraderSimon.com

Bullish Candle Bearish Candle

Bullish Candle Bearish Candle

Copyright © 2014 TraderSimon.com

Bearish Pinbar (sellers

Copyright © 2014 TraderSimon.com

Bearish railroad tracks Bearish outside bar Doji (spinning top)

Bullish railroad tracks Bullish outside bar Inside bar

Copyright © 2014 TraderSimon.com

New support level is

Copyright © 2014 TraderSimon.com

A new resistance becomes support

Resistance becomes support

Copyright © 2014 TraderSimon.com

A new resistance becomes support

Resistance becomes support

Copyright © 2014 TraderSimon.com

Sellers are absorbed at every test

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

It is documented in literally thousands of technical analysis books and mentioned countless

…yet it is fundamentally flawed in today’s markets.

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

So what does this look like on a chart? Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Retail trader see’s price

Retail trader closes position,

Copyright © 2014 TraderSimon.com

Retail Trader see’s price

Copyright © 2014 TraderSimon.com

base Copyright © 2014 TraderSimon.com

rally Sell on return to here

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

Copyright © 2014 TraderSimon.com

This line goes underneath the

Copyright © 2014 TraderSimon.com

This line goes above the

This line goes underneath

Copyright © 2014 TraderSimon.com

Price left the zone here and didn’t retrace

Copyright © 2014 TraderSimon.com

The fast move actually started here

This wick means price retraced

Copyright © 2014 TraderSimon.com

This chart doesn’t give many clues

• Understand, identify and draw support and resistance.