Deal => I believe you do see value in my post as it can enhance your trading edge further, which is very impt.
At the same time, I do understand the seemingly lack of interest in your thread; I’ve encountered ‘similar problems’ with my own thread as well, but over time, the ‘right people’ do and will show up at your doorstep. So, don’t worry! =)
Great. Yeah, I guess this doesn’t seem very simple at first glance and people prefer an easier way out :). But the ones who invest time and effort will also reap… I’ll be back soon with more info.
Description
This is another thing I look at. Basically, profit potential refers to distance travelled from the origin of the imbalance to the next area of balance. It couples well with the angle of the move, because it also hints at the “strength” of the imbalance. The bigger the energy at the origin, the farther price should shoot before consolidating again.
Scoring
If this distance is twice the size of the original consolidation, I will give it a score of 1. If it is any less than that, it gets a score of ZERO. If it’s three times bigger, it gets a score of 2 and if it’s even greater than that, I will give it 3 points.
Examples
Let’s look at a couple of areas from the previous posts and measure the profit potential.
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You can see that we have more profit potential in the second example, even though, strength-wise, the gap should be much stronger (so should have travelled a lot more). This is because the consolidation at the origin of the gap is much larger than the one in the second example, where there wasn’t any gap. This made the risk much bigger and since reward is measured in comparison to risk, that’s why it gets a smaller score. We aren’t just interested in how strong a level is, but also: is the risk worth it for the reward available? Purely speaking of energy, the GAP has more residual energy inside it, because price moved over 80 pips until it stalled, compared to just 30 pips in our second example. This is also important to take note of, because we could jump into a second retracement, more deeper into the gap, with smaller risk.
I do not take trades if the profit potential gets zero points!
There’s at least two of us. 
I haven’t been very vocal but I don’t think I’ve really had anything beneficial to add up to this point. I’ve been studying and testing various trading methods for many months now. In my quest, I stumbled upon Supply and Demand trading via Sam Seiden’s teachings. I started digging into market microstructure after this because I had to understand a bit as to why these levels work, and it’s all about supply and demand for liquidity. I now strongly believe that finding the “correct” levels is the way to get a real edge.
I like your teaching style, toplessons, so yes, please continue.
Nick
Description
After residual energy is left behind (consolidation followed by strong move outside the area), price will eventually come back and test that area. Each time it does, part of that residual energy is absorbed (i.e. supply or demand gets consumed). We can measure the level of energy absorption by looking at the number of tests and how deep price went into the level each time it tested it.
Scoring
If a residual energy area has not yet been tested, it gets a score of 3. After one test, it receives a score of 2. After two tests it scores 1 point. After that, the level cannot be traded anymore and we assume that all the energy has been absorbed (this doesn’t necessarily have to be the case, but statistically, this is what happens most of the time and we need the odds on our side).
VERY IMPORTANT: Whenever price goes more than 50% into the residual energy area, we consider it absorbed!
Examples
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Take a careful look at the chart above. I marked with red X each test and the score before and after the test. I also marked the middle of the original consolidation area with a red line and you can see that it was never breached. However, after 3 tests, we leave the level alone and stop trading it. Also, if you want to be very strict, you can look at the time spent at each test. For example, on the first test of the area, there were actually 3 wicks touching the area. Each of those wicks absorbs part of the residual demand. If you’re a conservative trader, you would thus stop trading that level after the first test because of the spikes. Generally, on strong areas, price will barely touch them and make a V-shaped sharp reversal. I am more aggressive, though, and usually keep the level as long as price hasn’t spiked more than 50% into it.
Thanks, Nick! Sam Seiden also got me into this sort of analysis, though he only gets into the basics and hesitates to share much, possibly because taking an XLT course with him costs about $12000 :D… You are right about the levels. It’s all about picking the right ones and that has a lot to do with the factors you use to measure just how strong each level is. I will try to cover all the details here, along with money management techniques and trading plan development. Thanks for watching
Description
The main force behind residual energy are limit orders, i.e. orders in a tight area that didn’t get filled because of too much competition (and, thus, a move that was too quick, too sharp). The more time price spends consolidating, the more traders will get filled on their orders and the less energy is left behind. So, the less bars in an original consolidation, the greater the force inside it, the greater the imbalance ensuing.
Scoring
1 to 3 bars = score of 2
3 to 6 bars = score of 1
more than 6 bars = ZERO score
You can still take the trade if the total scoring is ok, so this is not the most important factor. Even though less limit orders might be there, traders, including banks and institutions will still notice the area and the strong move originating from it and place fresh limit orders in there, so if the other factors (like angle of imbalance, price-wise absorption etc.) are very good, we can still take trades that score a ZERO on this factor.
Examples
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Description
Regardless of timeframe, the same energy patterns occur. This is called fractal nature of the markets or fractality. This factor looks at a higher timeframe to determine where we are on the highter timeframe supply/demand curve.
Scoring
If on a higher timeframe, price is moving from DEMAND to SUPPLY and it is closer to the DEMAND than to SUPPLY, then smaller timeframe DEMAND areas receive a score of 3. If, though moving from DEMAND to SUPPLY, price is closer to the SUPPLY, the smaller TF DEMAND areas will have a score of 2. If price on the higher timeframe is moving the other way (from supply to demand), but price is closer to demand, the lower timeframe demand areas get a score of 1. They score 0 when price moves from higher TF supply to higher TF demand and are closer to supply.
Similar logic goes for scoring supply areas.
Example
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That was a picture of a daily chart, where I marked the areas of supply and demand closest to current price. Clearly, we are moving from DEMAND into SUPPLY and we are now inside a daily supply area, so closer to SUPPLY than DEMAND. Now, let’s score the fractality of a recent H1 demand area:
Since we are moving from Daily DEMAND towards SUPPLY, but closer to the supply, the score for that hourly demand will be 2. But we are interested in what the score will be once price visits the area, because that’s where we will be thinking of possibly going long. In this case, once price gets to that point, the DAILY candle will be bearish (price will be below the open of the day), which will mean that price is travelling from SUPPLY to DEMAND and is also closer to Daily Supply. This gives the H1 demand area a score of NIL/SQUAT/ZERO/NADA/NULL :). Take your time with this example and make sure it sinks in. It’s a very important factor.
Optionally, you can also factor in what we generically call higher timeframe trend (determined either by using a moving average, some other trend indicator or pure price action, i.e. distribution of recent highs and lows). It is something I also look at.
Hi, all. Just thought I’d continue the discussion a bit over the weekend…
Description
Bricks upon bricks refers to pockets of residual energy stacked like bricks, one on top of each other. This makes the entire area even stronger (because if the first area doesn’t absorb all the counter force, the second one will have even higher chances of doing so).
Scoring
The area closest to price gets a score of 1, the next gets a 2 and the third (or higher) get a score of 3. If there aren’t any bricks, it gets zero points.
Examples
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In the above image, I have identified an area of bricks upon bricks. There are three supply levels, stacked one on top of each other. Basically, these are pockets of supply building up as price moves down. Price will have a tough time absorbing them on the next visit. Let’s see what happened (and don’t focus on targets for now, we will have some detailed posts on that after we’re done describing all factors):
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I marked the first touch of each “brick” area with a red X. You can see that each of these rejected price and the first level had the smallest rejection. Level 2 had just a tad bigger rejection, but level 3 yielded the most pips and was the highest probability. It reached our projected first target, with a risk/reward above 1:2. And all this happened in the context of huge bullish momentum and against fractality (price was moving from demand towards supply on the daily). Here is the context of the rejection:
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So, to sum it up, a level scoring 2 or 3 on the “bricks upon bricks” factor will have a much higher probability of success compared to levels scoring a zero or 1, simply because by the time price gets to such areas, it is already weakened by the preliminary areas/bricks. Pretty neat, huh?
Description
This is the last of the main factors (we will also discuss corelation, which is the optional factor, later) and one of the most important. It refers to the location of residual energy areas. Did they form mostly as a reaction to previous residual energy areas? Or did they form in relatively “fresh” areas, i.e. areas where price hasn’t been consolidating for a very long time? If they are merely reactions, they aren’t 100% fresh, so they will be lower probability than fresh areas.
Scoring
A fresh area will get a score of 5, while the other areas get zero.
Examples
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Now, here is some important piece of information:
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High range candles wipe most of the residual energy in their range clean! This means that the first consolidations to form in the range of such candles are considered fresh.
Oops, I forgot to talk about “fresh obstacles” after fractality. I left that one behind, but will discuss it in the next post. Sorry about that
Description
Due to the nature of supply/demand , we can set our profit targets based on the original imbalance (it is the first consolidation occuring after the imbalance/break from the original consolidation). If you aren’t quite sure as to why this is so, just ask and I’ll clear you up on this issue. Though we do this, we still have to pay attention to price activity near the time of our entry. Fresh obstacles refer to new supply/demand zones formed near the time of the entry, that can act as barriers between price and our initial profit target.
Scoring
Clean, sharp moves into our entry will get a score of 2. If price consolidates one or more times in our “profit margin” area, before reaching our entry point, then the area scores zero points.
Examples
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This finally ends our energy measurement factors. The next post will summarize all of them, along with the scoring for each one. We will also add up all the scores to make up our “total energy” score for each area. We will only take trades based on areas with a minimum energy score.
Hi, guys. Enjoy trading this week!
Let’s go through a summary of what we discussed regarding residual energy measurements.
GAP = 3 points
High Range Candles quasi-vertical drop/rally = 2 points
Gradual = 1 points
Weak = 0 points
> 1:3 = 3 points
1:3 = 2 points
>= 1:2, < 1:3 = 1 point
< 1:2 = 0 points
no tests = 3 points
one test = 2 points
two tests = 1 point
three or more tests = 0 points
1-3 bars = 2 poitns
4-6 bars = 1 point
>6 bars = 0 points
For demand areas: If on a higher timeframe, price is moving from DEMAND to SUPPLY and it is closer to the DEMAND than to SUPPLY, then smaller timeframe DEMAND areas receive a score of 3. If, though moving from DEMAND to SUPPLY, price is closer to the SUPPLY, the smaller TF DEMAND areas will have a score of 2. If price on the higher timeframe is moving the other way (from supply to demand), but price is closer to demand, the lower timeframe demand areas get a score of 1. They score 0 when price moves from higher TF supply to higher TF demand and are closer to supply.
Similar logic goes for scoring supply areas.
Clean, sharp moves into our entry will get a score of 2. If price consolidates one or more times in our “profit margin” area, before reaching our entry point, then the area scores zero points.
The area closest to price gets a score of 1, the next gets a 2 and the third (or higher) get a score of 3. If there aren’t any bricks, it gets zero points.
A fresh area will get a score of 5, while the other areas get zero.
[B]Maximum total score: 24 points
Minimum total to plan trade: 18 points (this is my limit, but you can set your own, based on your own tests)[/B]
Corelation can be used to boost odds. For example, when thinking of going short the EURUSD, you can check if USDCHF is in a demand area (they are about 98% counter-corelated) or see if the US Dollar Index is in a demand area on the same timeframe that you’re trading.
For my own trading, I use corelation sometimes, along with some custom indicators I’ve coded, for astro (Gann) analysis, some advanced timing algorithms etc. But no matter what you use, the CORE is very important, i.e. the basic supply & demand model and energy measurements. Relativity, now would be a good time to add your input on what has been discussed so far. That also goes for all other readers. A little bit of interaction would be nice, so I don’t feel like talking to myself, LOL!
Anyway, I will give you guys some time to post your thoughts. After that, we will go through many chart examples and plan some live trades together.
Thanks!
My o my. I need time to absorb your work here. Either way, good work! Esp the summary.
Hehe. Thanks, Relativity. Take your time. I think I will continue tomorrow.
Let’s start diving into charts, shall we? 
We are going to look at a recent residual demand area on the EURUSD. It is visible from the H4 chart and lower timeframes. We will measure the energy on the H4 chart, then on the H1 chart and see if this trade is worth the risk.
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Here is what we have on the H4 chart:
Even though it’s a reaction to past highs (look to the left), we can consider it fresh, because breakout traders surely entered long in that area and pullback traders have their limit orders set up to go long on the next test, so it wasn’t just a case of absorbing supply, but fresh demand also entered the market. To put it shortly, it is usually ok to consider past supply as fresh demand and past demand as fresh supply. Hence, we can award 5 points here.
If we add all these points together, we get 14 points if fresh obstacles scores 0 or a maximum of 16 points if we get a clean test and the fresh obstacles factor gets 2 points. It doesn’t meet our minimum requirement of 18 points. Further more, if price first tests daily supply in the area of 1.3430 - 1.3480 before testing this demand area, the fractality score will change to 0, so we will have to substract another two points from the total. This means that this area is not really a good one to trade, so I’ll probably remove my pending order and look for better opportunities.
For the sake of exercise, let’s measure the same area on an H1 chart. Always measure all factors based on ONE timeframe, don’t mix them up!
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So, the factors most likely to change when you switch from a higher to a lower timeframe are: time-wise absorption (there will be more bars on lower timeframes), fresh obstacles (smaller timeframe obstacles might not be visible on the higher timeframe) and bricks upon bricks (smaller timeframe areas not visible on higher timeframes). In this example, only the time-wise absorption differed so far (fresh obstacles might be different, we will have to see as we progress towards our entry point).
The total score here is 13 points if fresh obstacles scores 0, or a maximum of 15 points if it scores 2. Again, an area not worth the risk.
If you really want to enter a trade here, you could do one of two things:
A. trade half your normal trade size, so you won’t have much to lose if you’re wrong.
B. use a 1:1 profit target instead, which will greatly increase your odds of price hitting the target before the stop loss.
Or, how about this: stick to your bloody rules and look for a good opportunity?
Will come back with more examples soon and we will plan a good trade together.
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this is a 2 - high range candles.
this is 3 points, because our first target is almost 1:4.
We have a test (spike touching it within the level just on top), so it gets 2 points.
Just a couple bars in the consolidation, so this is 2 points.
When price gets down there, it will be moving from daily supply into daily demand and be closer to demand, so it gets 2 points.
Can be 0 or 2 points, we just have to wait and see how price behaves near our entry point.
There is one more level/consolidation just on top of this small level, so it gets 2 points.
It’s a relatively fresh level (if we look to the left, it is a reaction to prior supply), so we can award it 5 points.
The total score is 18 points, regardless of how the “fresh obstacles” factor comes out, so this is a very good area to trade a long from. My entry point is an average of the two levels, so as to increase the chances of getting filled on the next touch. I am risking 17 pips to get 65. Not bad, huh?
Hi, guys. Just wanted to show you what happened to this one. I left my pending order there, but altered my profit target to 1:1 and it was a successful trade. A conservative trader wouldn’t have taken this trade, but my style is a little more aggressive 
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Did anyone else take this scalp?
PS: The indicator on the bottom just shows the profit progress of my trade, i.e. how the floating profit evolved.
Forgot to mention that on the previous trade, the “fresh obstacles” factor was worth 2 points. It was a clean test of the area, so this was a decent trade, even though it didn’t meet the minimum 18 points.