S&D Zone Creation
Supply & Demand
Time doesn't know price and price doesn't know time.
The majority of institutional market activity is just commercial orders and transactions being put through the market, often with sophisticated algorithms.
But we make sense of all of that complicated interplay of those orders by using candlestick charts across multiple timeframes.
Range -> sideways correction/consolidation
Ranges generally indicate either:
1. High volume -> many orders are exchanging hands & likely larger players are stacking orders at a fair value of price (accumulation/distribution)
2. Low volume -> minimal market activity
We wait to see what happens after the range has been created:
High volume = rapid & sustained breakout away from the range
Low volume = price trickles out slowly
We're interested in high volume breakouts of a range, as this indicates a clear imbalance between supply and demand, which signals institutional interest at that price level.
S&D ZONE CREATION
S&D zones are caused by overwhelming imbalances between supply and demand.
We can identify and draw these on our charts by seeing where price broke out of a range.
This can be in the form of range or pivot-created supply or demand.
We don’t trade the initial breakout, we instead wait for price to show its hand and see which direction it wants to go first.
Wait for price to return to that zone and then look for your potential entry models.
Buying from demand or selling from supply.
What determines if those zones are continuation or reversal zones, is which direction price was traveling in before the zone was created.
S&D Continuations:
Demand continuation -> price is bullish before
Supply continuation -> price is bearish before
S&D Reversals:
Demand reversal -> price is bearish before
Supply reversal -> price is bullish before
S&D ZONE REFINEMENTS
A range-created supply can be refined to just the pivot, the pivot candle, or even the fractal wick.
We look to enter any on or within the zone and our stop loss will always go behind the zone.
More refinement of a zone leads to increased accuracy, giving you higher R:R, but potentially more missed trades if price does not pull back that far.
A range created zone, or even a pivot zone with multiple candles will be a pivot on a higher timeframe
3 main types of fractal refinements:
Inside bars -> represents a range created zone on a lower timeframe
It's where the candle does not break the high or low of the prior candle, and it is then engulfed by the next candle
We don’t care if the inside bar is bullish or bearish, it's irrelevant in terms of supply and demand, we just look for which way price moves after the inside bar forms.
Demand = upside break. Supply = downside break.
STB & BTS wicks -> represent a pullback on a lower timeframe
Within those wicks there will be a pivot or range created zone on the LTF which is visible as those wicks on the HTF
Large wicks -> this will be a range or pivot created zone within that wick on the lower timeframe
STRONG S&D ZONES
S&D zones are everywhere, almost all will give some form of a reaction, but not all are necessarily one in which we want to risk our capital on and take a trade from.
We want to find zones that achieved something significant
There are 2 main methods we use to validate a strong S&D zone:
1. Zones that cause a BOS -> the more significant the structure, the more significant the zone (BOS > mBOS > sBOS)
2. Zones that cause other zones to fail (flips)
Combining both methods together gives extremely high probability zones to build trade ideas around, especially when used in conjunction with other analytical concepts we use (market structure / liquidity etc).
