Supply And Demand Zones And Case Studies

Supply and demand is another concept that we use to identify key price areas where price has a high likelihood of seeing a turnaround. By now you can probably see already how we can combine different concepts and techniques to slowly improve the way we analyze charts; that’s what this first module is for.
Supply and demand is different from support and resistance and it’s important to know about the principles to understand price charts.

Let’s recap:

▪ Supply and demand areas show the origin of strong price moves, explosive breakouts or the start of a long trend
▪ When price comes back to a supply and demand area, there is a high likelihood that price will turn again
▪ A reversal signal that happens at a supply/demand area has a higher likelihood of succeeding (more on that later)

The 6 rules of supply and demand areas:

1) Before the breakout out of a supply and demand zone, price usually moves in a narrow range. The best supply and demand zones are very narrow, followed by an explosive move away from it.
2) Price should not spend too much time in a supply/demand area. A small range is acceptable, but it shouldn’t take price too long to exit from it.
3) Often you can see a short move in the opposite direction of the explosive move. This is called the Spring patternwhich could look like a breakout, but price immediately turns around in the opposite direction.
4) The exit out of the supply/demand area has to be explosive. The stronger the exit, the better the quality of a supply/demand zone usually is.
5) The highest probability trade usually happens when price revisits the supply/demand zone for the first timeafter it has been created. With each subsequent revisit, the zone becomes weaker.
6) The Amateur Squeeze happens when price comes back into a supply/demand area and spikes right through it just before it reverses. This is the third pattern that we will explore later in this course.