Supply Demand Price Action Chemmes PDF [PDF]

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The Supply and Demand Fake Out By Joe Wright | April 4, 2014 When identifying levels from which to trade, we usually consider a level to be strong if price has not been able to break through it. Once it is broken we ignore it and wait for the next setup. This is generally good practice. There are occasions however, where price will break through your pre identified level and then reverse as expected. This is known as a fake out (FO) and is the focus of this piece. Price action is a big piece of the puzzle when it comes to trading and this is why we use it in conjunction with supply and demand. What follows is a recent example of a fake out at a supply level so we’ll look at what happened and how these opportunities can be traded. The daily chart below, you’ll see both a supply and a demand level. These are the same levels we looked at in the last article on profit potential. There are also clear green candles going up towards the level which is what we like to see to ensure a reasonable amount of profit potential on the trade.



The H1 chart shows the same supply level I identified in the last article only this time you see the reaction. You will notice that price broke up through the supply level but this was just a fake out to trick you into either going long on break, or avoiding the trade altogether. Those who entered short with limit order may have stopped out of this depending the stop placed but waiting for PA to get you in as I often like to do would have led to a perfect opportunity.



The 5m chart tells the rest of the story.



As always, I mark up the nearest opposing level (demand) and wait to see what happens next. The lower demand line appeared first and held on the first test. Later that night another demand level formed further up into the H1 supply level. Price broke both of the 5m demand levels and formed new supply around the same area place as the top 5m demand. This is also a swap zone. After price reached the supply it fell right down to the last turn in price on the daily chart, the open of the green momentum candle that rallied into the level.



The great clue here that price would indeed reverse, was in the price action on the 5m chart. If price was looking to continue heading up through the supply and beyond then the price action would have let you know by: � �



Breaking straight through without looking back Breaking through the level with a confident close above before a retest and continuation.



Instead price broke the first two demand levels in quick succession and created supply. It was pretty clear that sellers were now in control and that price was heading down. This is another reason why it’s great to wait for PA to get you into a trade.



Supply and Demand with Support and Resistance By Joe Wright | December 29, 2013



First and foremost, I am a supply and demand trader and this forms the basis for all of my trading decisions. Whilst the above is true I feel that it is important for me to consider support and resistance (also called SR for short) as part of my analysis when considering potential trading opportunities. Essentially support and resistance represents the idea that the price of an instrument will stop and bounce from certain levels and conventional technical analysis teaches that these are areas which present good buying and selling opportunities. Support



Support is a level on a price chart that price is expected to rise from when it is reached. When price is moving down, a bounce or reversal is usually anticipated at these levels which would then send price up. A support level is only valid until price is able to break through it with force.



Resistance



Resistance is the opposite of support. It describes a level on a price chart that price is expected to fall from when it is reached. When price is moving up, a bounce or reversal is usually anticipated from such a level which would then send price down. A resistance level is only valid until price is able to break through it with force.



When levels reverse – the SR Flip



As is commonly known in trading, sometimes the SR levels themselves reverse. What was once support can become resistance and what was once resistance can become support. Conventional technical analysis traders also look out for these areas for buying and selling opportunities. The reversal of SR levels is the type that I am interested in for reasons which I will go into later but first I will explain these SR level reversals a little more. Support turns to Resistance



Identifying the reversal of SR levels is simple. Let’s take the scenario where a support level becomes resistance for example. You see a support level as described earlier in this article above. When price comes back the level instead of bouncing or reversing from it, price plummets straight through it. The support level is ignored. Price is clearly no longer supported at this level. When price returns to this level we would now expect price to have a reaction but this time it would be the opposite reaction. We would now expect price to drop from this level. A picture of this type of price action can be seen below:



The support level holds for a number of days before price drops through it. On return the previous support becomes resistance and continues in the direction of the initial break to the south. Resistance turns to Support



A resistance level is identified on the chart. When price comes back to the level, instead of respecting it with a reversal, price rallies straight through it. Price is therefore no longer experiencing resistance at this level. When price returns to this



level we would now expect price to rise, continuing in the direction of the initial break. A picture of this type of price action can be seen in the image below:



Here we see a resistance level holding for 3 days before price is able to break through. After the break price revisits the previous resistance level before shooting off in the direction of the break confirming that the resistance had now turned to support. What does that have to do with supply and demand?



If after reading so far you find yourself asking the question above, I am about to explain the significance right now. When choosing supply and demand levels to trade from there are a number of important factors to consider. The ones I will focus on now are the arrival and the profit potential. How price arrives at our SD level is important as it will often determine how price will leave it. A quick rally into supply will generally mean a prompt decline in price from the level. A slow creeping rally into supply can result in something totally different. Price could fall from the supply level but it could be a sign the price is about to move higher and break through the supply. Ideally we don’t want any obstacles getting in the way of our trade and affecting our profit. This is where SR analysis comes in. Occasionally you will have an SR Flip standing in the way of a nice smooth run to profit. You can handle this in a number of different ways. � � �



Take the trade and hope there is no reaction at the SR level. You are trading SD not SR so ignore it Wait for the SR level to be tested and analyse the situation after Ignore the trade



How each person deals with this situation is up to them but I’m going to show you how I use the second option to benefit from moves which on the face of it may not seem too clear.



In the images above we can see an example of how waiting for the test of an SR level could have kept one out of a losing trade. This is trade that I took. What we see in the example is a sharp movement up in price to a predefined supply level. Not too far below however, a good way before the target is an SR Flip level. Price was heavily rejected from the first level marked “SR Flip R2S” and plummeted over 100 pips from it, breaking the previous couple days’ lows as it went. When price rallied up however, it was ignored. As we know, ignored resistance



can turn into support so I wanted to wait until price had tested that level before I entered a trade as I was expecting a bounce north from there. True to form price did bounce and it went higher into the supply. 5m PA could have got me into the trade sooner but for the SR level which I thought might cause me some trouble below. After the SR bounces, price began to signal that it was now ready to move lower without any obstacles standing in the way of the target. I entered the trade and it went as planned. Touch traders would have been in with a limit order right at the lower line and the PA would never have come close to their stop. Confirmation traders however may have taken an earlier entry with the PA that was shown and they are likely to have been stopped out before price reached the target. This type of scenario where SR stands before profit happens all the time in the markets and one can easily enter too early and take unnecessary losses. This is why I feel that understanding and analysing SR is important. I do not trade from SR levels in the conventional way, but I do make sure that they are not standing in the way of my profit when I trade from SD levels.



Supply and Demand with Compression By Joe Wright | December 29, 2013



This describes a particular type of price action where price swings up and down absorbing supply and demand levels as it goes. It's important to understand what exactly is happening here so that when this price action develops we know how we can react to it. Compression into Supply



As price rises creating higher highs and higher lows, each time it swings back down after a rally its absorbs demand. There is a reason why price does this. These demand zones are standing the way of a nice big short so the buy orders at these levels need to be absorbed before price can fall freely through this area. Pro money moves price in this fashion to clear the path for a short whilst using the buy orders to build their short positions. When you see this happen below a supply level, once the last demand level is absorbed and the supply level is reached, price will often fall quite easily down through the area. This area or this type of price action is known as compression.



Compression into Demand



The same price action can be seen going into demand zones where price absorbs supply whilst moving down. Pro money clears supply on the down move to make way for a long whilst using the sell orders to fill their long positions. Once the last supply level has been absorbed, price will often rally quite easily through the compressed area. Identifying this PA will give you a clue as to where price will turn and how far it will move.



Supply and Demand Level Test By Joe Wright | December 29, 2013 Level Test



The level test or LT is a type of PA where price leaves a level, and then comes back to test it before continuing in the original direction. They help to show the origin of the imbalance that caused a big movement in price. As a supply and demand trader I look for level tests at supply and demand levels. Short LT � �



Price drops down Price comes back up to supply before dropping in a large fashion breaking demand, SR and creating a LL



If price breaks demand or SR on the initial move down, there is more confluence for the setup.



Long LT � �



Price rallies Price comes back to demand before rallying in a large fashion breaking supply and SR and creating a HH



If price breaks supply or SR on the initial rally, there is more confluence for the setup.



A common way of identifying supply and demand levels as taught by many is to look for “fresh” levels which have not yet been tested. Many traders new to the supply and demand concept sometimes have trouble when entering with limit orders from “fresh” levels. The LT into a supply or demand level shows just how great the imbalance is at the level and acts as further confirmation that there is indeed a big imbalance there for those who need it. This type of PA is also known as a Hook.



Supply and Demand Price Spikes By Joe Wright | December 29, 2013 Spikes in Price



This type of PA is common and happens for a number of reasons. When price leaves a demand level where there is a strong supply and demand imbalance price will often rise sharply creating what I call a spike in price. The opposite is true for supply. Where price leaves a supply level where there is a strong supply and demand imbalance, price will often drop away sharply creating a spike.



Spike away from Demand



Spike away from Supply



Spike into Supply



When price arrives at a Supply level it can also arrive due to a spike. As those who trade supply and demand know, this is often due to novice buyers buyer after a rally, but it can also be pro money pushing price higher to trick novice traders into buying into supply so that they can fill their bigger short orders.



Spike into Demand



The same is true for demand levels. Where price spikes into demand, it is often novice sellers, or it can be pro money pushing price into demand to trick the novice traders into selling.



Supply and Demand and Profit Potential By Joe Wright | March 24, 2014



I want to talk a bit about profit potential as it’s one of the most important things to consider when taking trades. As I’ve mentioned before I like to see things clearly on the daily chart before looking at any of the timeframes below and recently there were some great examples of why I do this. AU Daily



Take this AU for example. There’s a nice clear supply level which formed back in December 2013. This month we saw price rally up strongly with nothing but green candles heading up to the supply level. There was nothing significant on the daily chart to stop price from falling when it reached the supply level. This is exactly what I like to see. Odds are in favour of easy move down to demand when this happens. The actual amount of profit available depends on the entry and that depends on price action on the lower timeframes for me.



H1



We are looking for a QM reversal pattern on the H1 chart away from the daily supply. The nearest H1 demand was engulfed pretty quickly which is a good sign and there was a great looking supply above which I marked up. In this particular example, price formed another supply level after engulfing the demand which is more visible on the 30 chart. Price hit this level before dropping right down to the daily demand.



If the path is clear on the daily, price usually has an easier time going where you want it to. Another example can be seen on the GBPJPY GJ Daily



On the GJ we have a daily supply which has been tested once already. The initial test resulted in a huge drop away. Price rallied back up with clear green daily candles indicating that it would have an easy time falling back through if the supply level held. As you can see that’s exactly what happened.



H1



After reaching the daily supply level, the nearest demand level on the H1 was engulfed pretty quickly and price fell away dropping hundreds of pips. I didn’t see a clear supply level on the H1 which I like to see, so there was no trade here for me. It’s a shame when the move you expect happens without the PA to get you in but this is trading at that happens.



The main point of this was to show what happens when you see great profit potential on the daily at a key supply or demand level. Setups like these are definitely worth waiting for.



Supply and Demand Targets: Knowing When To Exit By Joe Wright | April 10, 2014



Entering trades is often the easy part of trading. You conduct your analysis, wait for your signal then enter. Where some traders fall down is when it comes to the exit. In this article we’ll look at a recent trade I took and why I decided to exit at the location I did. Daily Analysis



In the image below you will see the daily chart of the NZDUSD, taken last week. Daily supply is marked in red but I have also included another line in purple. Now if you look to the left, you’ll notice that back in May 2013 there was major resistance at that level. Price dropped sharply from the area and continued to fall over 800 pips. This is also resistance from August 2011.



If you move up to the weekly chart you will further see the significance of the previous rejection at the purple line.



The supply on the daily is also clearly visible on the weekly too. Staying with the weekly chart, you can see that a big green weekly candle closed above purple resistance line last month which indicated to me that this resistance level at the purple line had now turned to support. Whilst I was quite happy to short from the supply above, this was the first point on the chart where I anticipated a possible big change in direction.



H1



As usual when price hit the daily supply level I dropped down to the H1 to see the nearest demand. When this was engulfed, I identified the supply which I believed to be the source and waited for a retrace.



Entry



Now there where two possible entries for this setup, both on the 5m chart. The one which I took is below.



I wanted for the same QM setup that I always use for shorts. Next there was a fake out just like I talked about in my previous article. Price broke the H1 supply and came back down engulfing the nearest demand levels in quick succession. If you weren’t already in the trade, this was your second chance. (the better setup to be honest). Next a supply and demand swap zone formed which was the entry point.



My stop was above the H1 supply by a few pips or so. Now price did come very close to my stop but it did not kick me out. The prices with my broker are slightly different to those on Trading View. Trade Management



Price continued to fall and I was out by the previously identified purple line. Price did fall another 50 pips or so but I had 100 safe pips and I was happy.



After my exit price did indeed turn and rally from the area I had marked and it has shot back up way past my initial entry. As I write it looks like it definitely going to continue heading north. Time will tell.



The key point here is that it’s a good idea to consider the weekly as well as the daily when looking at targets which is not something I have always done in the past. Higher Timeframes are king



How To Trade Short From Supply By Joe Wright | January 28, 2014



Here’s a trade I took last week on the AUDCAD pair. I took a short trade from a daily supply level. Here’s my analysis and reasons for the trade. Daily Analysis



I identified supply on the daily chart and set and alert on my iPhone as usual. Price fell over 400 pips from the level so it was a pretty nice level.



The Approach



Another big positive for this trade was how price arrived at this level. Price rallied nicely with nothing but green candles on the way to supply. This was great confirmation of the profit potential for the trade.



Confirmation



When price arrived at the daily supply level I dropped down to the H1 chart for further confirmation. I marked the nearest demand level and set an alert for just below it and waited for it to be engulfed. Price engulfed the demand on the H1 chart and fell quite sharply. I marked up a H1 supply level which I believed to be the cause of the break and set an alert for it.



Entry



When the price alert triggered for the H1 supply level, I observed pa on the 5m chart. Price had compressed into supply before spiking up and then engulfing the nearest 5m demand levels. There were two potential supply levels that could be used for entry and based on this price action on the 5m chart I entered the trade whilst placing my stop behind the H1 supply.



Exit



There’s a large demand level down at 0.9408 and although this was my initial target a new demand level showed up around 0.9634. This was the source of the rally into the H1 supply I shorted from. This looked strong on the daily. I observed price action at the level to see what would happen. When price got into the zone I wanted to see price break the lows around 0.9588 for me to continue holding. I noticed a 5m supply level had formed. If that supply held then I would have held the trade. A demand level formed on the way to the 5m supply so I exited the trade for 194 pips. I've also made a video about this trade too. You can check it out here:



The Daily And Weekly Charts By Joe Wright | April 22, 2014



Multiple time frame analysis is a key part of my trading from the large time frames right down to the small ones. In this article I share a recent trade where the daily supply lined up with the weekly which increased the probability of the trade working out and price did indeed fall from it as expected. Daily and Weekly Analysis



The daily chart below shows a nice looking supply with a tight base, a large candle leaving the level and a huge drop in price. I’ve had this level marked up for a long time and price finally returned to it. The weekly picture also looks good with a large red weekly candle shown in the same place. This adds confluence to shorts from this level. Price also arrived with pure green candles which I also like to see for profit potential.



H1



Looking to the H1 chart we see a QM formation from with daily supply with price engulfing the nearest demand level indicating that it wants to drop further. When price returned back up to the level it was time to look for an entry.



Entry



Price rallied strongly into the H1 supply then shortly engulfed the nearest 5m demand. I set a limit for the 5m supply source of the engulf and then waited.



Exit



Whilst the view from the daily looks like there is lots of room for price to fall, I still like to wait for price to show me what it actually intends to do. When price hit the next H1 demand level, it quickly engulfed the nearest supply indicating that it was likely to travel much higher. This was a good place to exit the trade.



Identifying High Quality Supply and Demand Levels By Joe Wright | May 20, 2014 Supply and demand levels can be found on any and all price charts, on every time frame for any instrument, but not all SD levels are created equal. Whilst we can never know for sure which levels will hold and which ones won’t, some carry a much higher probability of success than others. I have already mentioned one of the ways I use multiple time frame analysis starting with the higher time frames to find great SD levels to trade from in previous articles, and in this article I am going to share another one. A brief summary of what to look for is below: � � � �



Identify Supply and Demand on the Weekly chart Wait for a big move on the Daily chart away from a Weekly SD level Drop down to the lower time frames to find an SD level within the Daily PA caused the move Wait for a retrace and enter using small time frame PA



The above is by no means a trade plan but it shows what you can look for at a very basic level. Higher time frames are king in trading. Levels on these charts carry a lot more weight than those on the smaller time frames so it always makes sense to know where we are in relation to the higher time frames. Although I will sometimes look at the monthly chart, my trading decisions are not based on it too much. The weekly chart is the highest chart that I’ll look at as a guide for my trading decisions on a regular basis. This gives me an idea of which direction to trade in. If we are at a supply level on the weekly chart then I will be looking for an indication that price will lower until price reaches weekly demand.



The daily chart is still the main analysis time frame. This is where I look for trading opportunities. Using the example above, if we are at a weekly supply level then I will be looking for a significant move visible on the daily chart that makes a move lower. By significant I mean price must break previous levels. This could be a demand level, a prior low or another decision point on the daily chart. This can be displayed by one daily candle which might be a momo (momentum) candle, or a series of candles. When I see that happen on a daily, this is the signal to drop down to the lower time frames to try and find a supply level from which to trade. The idea behind this is the fact that for price to drop in such a fashion to create a momo candle on the daily chart and/or break a decision point on the daily chart, there must have been a big supply/demand imbalance i.e. supply overwhelmed demand. These levels of imbalance are not always visible on the daily so this is why I drop down the time frames to see if I can find a nice looking level to trade from within the daily move. This also means that I don’t have to trade with a large stop loss either. Some recent examples are below: GU



AJ



The process for finding high quality demand levels is similar to the above for supply but in reverse: � � � �



Identify demand on the weekly chart Wait for demand on the daily chart away from the weekly demand level Drop down to the lower timeframes to find the demand level that caused the move Wait for a retrace and enter



There are a few things to consider when adopting the methodology above. Less Trade Setups There will most likely be fewer trading opportunities to take depending on your current trading style. This however was not a problem for me. As traders the goal is to make money not make a certain number of trades. If you can achieve your goals by trading less then that’s a good thing as far as I’m concerned. Small Risk Looking for entry levels on the smaller time frames means that we can limit the risk on each trade. We are trading big time charts from small time frames. Longer waiting period The overall waiting time can be quite long. Long to wait for setups to appear, long to wait for the entry and long to wait for the exit, whether that be at profit or a loss. Whatever method you adopt for trading, a substantial amount of time will be spend waiting. This is inevitable. Each individual will need to decide which trading style they will adopt and for me the waiting period between trades is fine. All it means is that I have more time to do other things whilst I let my trades run their course which could be anywhere from a couple of hours, days or even weeks. Greater Profit Potential This method is based on big moves on the daily chart. The benefit of this is that the profit targets are often quite large and trades often run for over a hundred pips. Identifying supply and demand levels based on daily price action helps to filter out lower quality levels so that action is only taken when the conditions are highly in your favour.



Small Timeframe Engulfs for Entry By Joe Wright | January 20, 2014



As I’ve mentioned in previous articles, the engulf is one of the most important pieces of price action that I use for making trading decisions. Whether trading long or short term, an engulf of some kind will be used in the trading analysis. The daily chart is great for identifying major supply and demand in the market and the recent trade example showed that the engulf of supply on the H1 chart was the signal required for entry at a demand level. The opposite of course is true for trading from a supply level. Whilst I like this type of confirmation on the H1 chart, this may not suit every currency pair out there. All pairs have their own characteristics so although all price movement will be based on supply and demand on each one, the way price moves to and from the levels may differ. When price hits supply or demand, the nearest opposing level can be over a 100 pips away. Some pairs will travel 100+ pips, engulf the opposing level and continue on without coming back to the origin of the move. For pairs where this occurs, the H1 engulf confirmation wouldn’t be suitable. We could ignore these pairs and that’s fine or we can adopt another confirmation approach so that we can still benefit from these moves. The process is very similar to the one previous mentioned but for the type of confirmation. Daily Analysis



The chart below is a great example of a quality demand level. Price left a consolidated area in a very strong fashion. A large candle leaving the left shows how great the supply and demand imbalance was. This was marked up on my charts for a while.



Approach



Some nice big red candles dropped back into the zone showing that there was nothing significant to stop price moving higher which was another plus for the setup.



Confirmation and Entry



We know that the nearest H1 supply is over a 100 pips from the demand zone. Pairs like the GBPAUD can easily engulf that opposing supply and not look back. An option here is to wait for an engulf of a 15m level and retrace to fresh demand prior to price reaching the H1 supply. The stop stays small and we can still get into the trade with confirmation albeit not the the H1 confirmation.



In this example we have a 15m supply and demand flip zone. The nearest 15m supply is engulfed and demand is formed in it's place right at the same spot as the previous supply. This is where you can enter.



Exit � � �



We can exit all at the H1 supply just in case price is rejected We can take partial profits at the H1 supply, move the stop to BE and hold the remainder We can hold all till the target



Your exit decision will depend on your trading style and risk tolerance. Another example occurred on the GBPAUD at the same time. You can see it here below:



Supply and Demand Trade Management: How To Let Your Winners Run By Joe Wright | June 5, 2014



I’m sure everyone involved in trading has heard the mantra “Cut your losses short and let your winners run” but what many get confused with is how to actually do that. In this article I’m going to share one way to maximise trade potential whilst minimising losses, using supply and demand levels. I took two trades last week, one on GBPAUD and the other on GBPJPY. I’ll run through the reasons why I took the trades as usual but this time I’ll share more about where I exit and why. I’ve also got some before and after screenshots for each trade. GBPAUD Daily



This was a short setup which I identified on the daily chart. Price dropped far from the level falling hundreds of pips. An attempt was already made to get back up to the supply in early May 2014 and price dropped away nicely. On this occasion price rallied strong back to the level with pure green candles on the way. This is exactly what I like to see for profit potential.



H1



When price arrived at the daily supply level I began to look at the H1 chart to see if I would get a signal to enter which will usually be a QM. In the image below you will see that I have a number of demand levels marked up in blue. After the first two were engulfed I noted the supply levels which may turn price lower. I have only marked up one as not to clutter the chart too much.



Price turned at the first level with the PA that I like to see so I entered. I’ll talk more about the entry soon but first I’ll go into more detail about why the levels are marked up. In a down trend we would expect supply levels to hold and demand levels to fail. In effect we are anticipating the start of a down trend from the daily supply level. If a demand level holds then this could signal the end of the down trend and we would no longer want to be in the short trade. If a demand level fails then we might reasonably expect that price might continue to drop to the next level. This is why multiple demand levels have been marked up, so I can see what action to take and where.



Some SD traders advice you to take profit at the first opposing level but when you have higher time frame confluence behind your trades, price can go further. If you exit at the first level then you could miss out on a lot of pips. Instead of getting out as soon as price hits an opposing you could wait for price action to indicate that price may indeed reverse. If you use a 5m engulf to get into a trade and you see the same thing at an opposing level, that’s a good reason to exit the trade. If not then you can hold. This only works if you are able to watch PA when price hits those levels. In a previous article I mentioned using a limit to exit and that’s fine if you know that you may not be around to monitor the trade as was the case. You’ll notice I marked in a weekly level which you can see in the image below. Price may have turned here so I would be watching PA at this point when price hit it. As it happens price didn’t turn so there was no action to take there.



5m



A nice QM formed on the 5m chart right at the H1 supply level I had marked up. Once it did. I set a limit for the supply level. There was hardly any drawdown in this trade at all. Price turned from the level immediately and never looked back.



Result



This trade was a winner with 168 pips profit. Looking again at the H1 chart you can see that price broke through the next demand level without and trouble but then bounced from the following one. When price hit that level I dropped to the 5m chart to look for the nearest supply level there. It was soon engulfed so I exit the trade. Had I set a limit for the previous level I would missed out on some pips.



I used a 5m engulf to enter and the same to exit.



GBPJPY Daily



I entered a long trade after identifying demand on the daily chart. This was the second touch to the demand level but the first bounce did break the high of the initial rally which was a good sign. Price did not retrace too deep into the level on the first touch either so I anticipated that there might still be some demand there. The return to the level also increased the odds for me. A sharp drop with a big red candle showing the profit potential.



H1



In the image below you’ll see I marked up the nearest H1 supply level along with other potential turning points to plan the trade. When the first supply level was engulfed I looked for demand to trade from which you can also see on the chart. The next supply level was a good distance away with no trouble areas in between so chances are price would at least make it to that one.



5m



When price hit the H1 demand (also visible on the 30m chart) I observed the 5m PA. The nearest 5m supply was quickly engulfed by a demand level that formed so I entered from there.



Result



Price rallied quite strong after my entry and soon hit the next H1 supply. It did stall for a bit but it did not engulf the nearest 5m demand level so I held the trade.



I took this trade going into the weekend which I know some people don’t like to do. I was confident with my analysis and price was a good distance from my entry so I wasn’t worried. Price soon engulfed that level so I anticipated a continuation to at least the next one which did indeed happen. I exit after a 5m engulf for over 100 pips. Another good trade.



Price has since moved on for some more but I followed my plan so I’m happy with that.



How To Trade Long From Demand By Joe Wright | January 6, 2014



Here’s a trade I took last week on the NZDUSD pair, my first trade for 2014. I took a long trade from a demand level I identified last month. What follows is a breakdown of my analysis for the trade. Daily Analysis



The main analysis chart for me is always the daily chart. In this case a demand level was identified and so I marked up the level on my chart and set a price alert on my iPhone. One of the big positives for this level was how price left. When price leaves in a strong fashion that is always a great sign as it indicates that there was a great supply and demand imbalance, more demand than supply here. This is normally shown in the form of large candles leaving the level. In this example, price gapped away from the level. Gaps also indicate a great supply and demand imbalance. A typical demand level will have the drop base rally pattern which wasn’t present here. Supply and demand levels don’t always look perfect but they can still be traded if you can see the imbalance. The gap here was a great plus for the setup.



The Approach



The approach back to the demand level is always very important. I don’t like to see any opposing levels standing in the way of my trades and there were no supply levels or other trouble areas on the daily chart for this setup. Just pure red candles which is a great indication that price will rally straight up. Confirmation



Sometimes even the best looking supply and demand levels don’t hold and that’s fine. You can’t win them all and there will always be more levels to trade from. I still like to tip the odds a little more in my favour by waiting for further confirmation that the level will hold and for this I drop down to the H1 chart. The confirmation I look for is an engulf. I want to see an engulf of the nearest supply level on the H1 chart. Price must completely engulf the supply level in a strong fashion. This indicates that the daily demand level is indeed a solid one. I set a price alert for just above the opposing level, again on my iPhone and wait for it to trigger. Once the price alert triggers I open the chart to see how price broke the supply levels and if there is a decent looking demand level present. In this case there was a nice looking demand level on the 30m chart. The next thing I did was set a price alert for the 30m demand level and wait. Please see the charts below for the engulf and demand level:



Entry



When the price alert triggered I opened the charts again to see how price came back to the demand level and observe price action on the 5m chart. Price dropped sharply back to demand which can be seen on the H1 and 30m charts. This is another plus for the trade. For a 5m entry the confirmation I look for is the same as for the H1 chart; an engulf of the nearest supply level. This happened pretty soon after the 30m demand was hit. Price engulfed the 5m supply, retraced and then closed higher so I entered. My stop was behind the 30m demand. Exit



The target was daily supply so I set an alert and waited until price reached it. After price hit the level the following day I exited I the trade. It really was a simple as that. Price doesn’t always move to target as quickly as this but that’s trading.



You’ll notice that there was a bit of a retrace before price moved higher and that’s to be expected. The target was based on the daily so there’s not much to do until price hits the stop or target. This didn’t require much screen time at all, just a few things to look for when the price alerts triggered. I hope you found this useful.



Keeping It Simple With Supply And Demand By Joe Wright | June 27, 2014



The approach I have to trading is a simple one and those of you who have been following Maximum Lots for a while will know that my trades are pretty much all the same. This time is no different. Another 100 pips profit simply trading from one level to another. Demand to Supply in this case. EURAUD Daily



Now the EA is not a pair that I have traded much before but when I was scanning through pairs months ago, I noticed a high quality demand level on the daily chart that really caught my attention. You’ll notice in the image below that after the base formed, price rallied strong, engulfing opposing levels and breaking highs as it went. I’ve had this marked up for a long while now and when price dropped back into the zone earlier this month with nothing but red candles I was even more interested.



H1



I marked up the nearest H1 supply as usual and waited for price to engulf it from a strong demand level but that didn’t quite happen. Price did engulf the supply level, albeit by a few pips, but there was no demand from which to go long and hence no trade yet. It wasn’t until the next week that the pair started showing signs of opportunity for me. After price went deeper into the daily demand zone another H1 supply level formed. This was then engulfed by a strong rally from a demand level on the same time frame so I waited for an opportunity to get long on the return.



5m



Price engulfed the nearest 5m supply and there was a little demand level which I went long from. My entry happened to be on a Friday just before the weekend and whilst some traders won’t enter trades at this time for fear of gaps, there’s nothing in my trade plan to stop me from doing so. If I’m in a trade around a weekend I’ll stay in and if I want to get into a trade at this time then I will. I was confident given the high quality of the daily demand level that I was trading from. Having said that, price did creep down below the H1 demand level but fortunately this was just a fake out. Price came very close to my stop but it did not stop me out.



Result



Price rallied for a couple of days before hitting a H1 supply level I had marked. I exited after price engulfed the closest 5m demand level for just over 100 pips. Price then fell heavily from that level all the way past where I had initially placed my stop. I clearly came out at the right time.



If your trading seems complicated try to simplify it. Ensure you have solid rules for entry and exit with an understanding of supply and demand and engulfs, then and let the market handle the rest.



The Quasimodo Reversal Pattern By Joe Wright | December 29, 2013



Using reversal patterns is a great way to add confluence to your trades. Having confirmation for your intended trade direction by way of a price action pattern can help make sure you trade in the right direction. One of the best reversal patterns to use in trading is the quasimodo. When combined with supply and demand analysis it can be very powerful indeed. Short reversal



When looking for a short reversal one of the things generally considered is when price starts to make lower highs (LH’s) and lower lows (LL’s). However the following pattern presents some very good opportunities to enter short trades earlier and with more confluence. Price reaches an extreme point, in this case a high or supply. Price then rallies above that extreme point creating a higher high. Next price drops below the original extreme with a great force breaking lows. This shows that selling pressure is now in control. This can also annotated as follows H – L – HH – LL That is high – low – higher high – lower low. There are two reasons why I adopt this approach. 1. The typical series of LH’s and LL’s can take a while to form whereas the above combination enables me to spot the direction change sooner. 2. I like a bit more confirmation than simply looking for LH’s and LL’s



This acts as better confirmation for me as it shows that selling pressure in now in control. High – Price is moving up Higher Low – Further proof that price is moving up Higher High – Are we seeing an uptrend? Lower Low – Price drops below the previous high and the previous low. Only big selling pressure could cause that. Lower High – Price reversal confirmed before a period of consecutive lower highs and lower lows. There will often be a supply level that forms after the HH and before the LL. This represents some great selling opportunities. I look to enter these trades after a return to the supply level after I have seen the LL. I look for the above pattern at or near higher timeframe supply.



Long Reversal



The long reversal is similar to the short reversal but simply reversed as below: When looking for a long reversal one of the things generally considered is when price starts to make higher highs (HH’s) and higher lows (HL’s). However the following pattern presents some very good opportunities to enter long trades earlier and with more confluence. Price reaches an extreme point, in this case a low or demand. Price then drops below that extreme point creating a lower low. Next price rallies above the original extreme with a great force breaking highs. This shows that buying pressure is now in control. This can also annotated as follows: L – H – LL – HH That is low – high – lower low – higher high. There are two reasons why I adopt this approach. 1. The typical series of HH’s and HL’s can take a while to form whereas the above combination enables me to spot the direction change sooner. 2. I like a bit more confirmation than simply looking for HH’s and HL’s



This acts as better confirmation for me as it shows that buying pressure in now in control. Low – Price is moving down Lower High – Further proof that price is moving down Lower Low – Are we seeing a down trend?



Higher High – Price rallies above the previous low and the previous lower high. Only big buying pressure could cause that. Higher Low – Price reversal confirmed before a period of consecutive higher highs and higher lows. There will often be a demand level that forms after the LL and before the HH. This represents some great buying opportunities. I will look to enter these trades when price returns to the demand level after I have seen the HH. I look for the above pattern at or near higher timeframe demand.



Supply and Demand Swap Zones By Joe Wright | December 29, 2013



Conventional technical analysis teaches how support turns into resistance and resistance turns into support (you can find more on that here). What is also true, and more significant for me as supply and demand trader, is that supply can turn into demand and demand can turn into supply. Where this occurs we have a swap zone or flip zone as it’s sometimes known, so called because of the transition that takes place. Learning how to identify this when it happens on a price chart can lead to increased probability for trading opportunities. These levels are important because they can indicate a change in direction, a shift in control from buyers to sellers or vice versa. Short



Price makes a significant rally from a demand level. When price returns the level a base is formed before price drops in a big fashion. This clearly shows that although buyers were previously in control at that level, sellers have now changed the direction which is now down. The decision to take price down was made around the same place where the previous decision was made to take price up. An example of this can be seen in the image below:



Long



Price drops sharply from a supply level. When price returns to the level, a base is formed before price rallies in a strong fashion. This clearly indicates that although sellers were previously in control, buyers have now changed the direction to



head north. The decision to move price up will often be made around the same place where the previous decision was made to take price down. An example of this can be seen in the image below:



S upply and demand swap zones can be traded in different ways. In the first image above the swap zone was a sell zone on a 30m chart which could be traded as a swing trade. When these appear on a higher timeframe it can be a great indication of a trend reversal. The second image was of a swap zone on the 5m minute chart which represented a buying opportunity. When small timeframe swap zones appear at or around higher timeframe supply and demand levels, they can be taken as short term trades or they can be used as small timeframe entries for longer term swing trades (my preferred style). The formation of these swap zones on the smaller timeframes adds confluence to the higher timeframe trade direction, increasing the probability of the trade. I hope you found this article useful. Happy Trading.



The Supply and Demand Engulf By Joe Wright | December 29, 2013



An engulf is simply price action that breaks a significant level. We are interested in engulfs of supply and demand levels to confirm if higher timeframe levels will hold, and to identify possible changes in direction. This type of price action is particularly useful for those who don't want to touch trade with limit orders straight from supply and demand levels. Waiting for the engulf of opposing levels provides a safer way to trade. Opposing levels must be completely engulfed, not merely touched. Price must also engulf the level in a strong fashion. Creeping price action that engulfs levels are of no interest to me. Once an engulf has been identified, you must have a supply or demand level confirming your intended direction in order to trade. Engulf at Supply



When looking to trade short from supply, a good indication that price will fall is if a demand level is engulfed after the supply level is hit. This adds confluence to the trade.



Engulf at Demand



When looking to trade long from demand, a good indication that price will rally is if a supply level is engulfed after the demand level is hit. This adds confluence for the trade.