Sorry Bint…I wasn’t perfectly clear in my previous post. What I meant by radically different is the way one would measure such price zones to determine what will likley be most effective, and what won’t.
for example:
classical S/R states the greater number of times price is rejected from a level, the stronger it is.
Sup/Dem analysis contradicts this.
classical S/R states the longer price stays at a particular level, the stronger it is.
Sup/Dem analysis states the LESS time price stays at a particular level, the stronger it is.
etc…etc…
the FUNCTIONALITY is very similar, and in many cases nearly identical, to classical S/R.
but I think we are both basically agreeing on the same thing. Sup/Dem analysis is distinct from classical S/R analysis in severeal rather basic ways.
I personally haven’t ever been to a single trading convention. They sound fun though…maybe. I’m really kind of an “anti-consumerism” guy…so I’m not sure I want to expose myself to the countless “ad/promotion” schlop talk, dog and pony in a house of mirrors show that goes on there…to try to find the few nuggets of gold worth paying attention to. Especially considering i’m few years past trying to “figure this stuff out”
That being said…your right. it is a serious business. If more would be traders thought like this, more people would make their dream of full time retail trading a reality.
Cheers Jay,
I go along to some conventions because it gives me a chance to do a bit of networking in london. The people I listen to and take guidance from ALL say “the pros know what the amateurs do”. Well I want to know what the amateurs are being taught so I can follow them and maybe get on the other side of their trade. I’m not saying that I am a pro I just want to think like one. At the recent Money show in London there was a well known Forex broker, he gave me a freebie cup of coffee and explained their strategy based upon mobile devices and using social networks. Apparently all you have to do is find out who on the social network is having winning trades, tweet or twit (whatever the term is) with them and follow their lead.
WTF???
There also appears to be great demand for FX apps on the latest mobile devices. All I can say is BRiNG IT ON. I am more than happy to trade in the comfort of my home or on occasion with a Laptop in a sensible environment with all my safety procedures in place. If somebody wants to trade walking down the street with an iPHONE then I wanna know what their strategy is so I can be on the other side.:18::18::18::63:
Differences between Supply/Demand or Support/Resistance tend to originate from how they get defined and this can differ significantly from one person to another. At a grass roots level both revolve around orders. However, support/resistance tends to be documented as where price has previously reversed in direction (often with a doji, long wick candle or engulfing pattern at the high or low point). Supply and demand is much more specific than this, firstly in that it is more concerned where orders are STILL WAITING to be filled (not just where price has previously turned), and secondly because there are more rigid criteria required in order to call a price level an area of supply or demand (needed to quantify an expected large imbalance of buy and sell orders).
Based on these definitions, it follows that a previous level of support and resistance is not necessarily a future area of supply or demand. This is because there may no longer be any orders waiting there to get filled. Your job as a technical trader is to decide whether this is the case or not by learning to recognise the areas of supply and demand on the chart.
In terms of actually trading areas of supply and demand, you always want to trade in the direction of the trend seen in your primary trading time frame. However, you also need to ensure that you are not too close to a higher time frame area of supply and demand. If you are, then you should wait for a deeper retracement such that you can achieve the necessary risk reward ratio.
Remember that when price is in a strong trend, it takes a much greater imbalance of orders at an area of supply and demand to reverse the trend or even get a significant pullback. Only larger timeframe supply or demand is likely to achieve this. However, when price retraces, you may only need a weaker area of supply and demand from a smaller time frame for the trend to resume again. Range trading is the middle of the road where price is not trending either up or down. In this case, given similar momentum in both directions, supply and demand areas from the SAME time frame could be used to trade at the edges of the range.
Ultimately, you are trying to understand the balance between the strength of the trend compared with the strength of supply and demand zones in different time frames. For example, you don’t want to use a supply or demand zone from a significantly lower time frame to identify a reversal point for a trend as it just won’t be strong enough to cause a reversal or even a significant retracement. The best you will get is a minor bounce or pause.
Lol - this is funny. For once I have to agree, supply and demand really is a trading cliché, when in reality it’s the biggest grey area in spot FX - although my opinion is different when looking at equities. I spent far to long looking into S&R when I first started out, along with indicators (which also don’t work as signal proprietary tools).
Also funny to see a few of Eremarket’s posts in this thread, oh the good old times!!
In the most simplest terms, all you have to do is look at where the market is moving and go with the flow so to speak. Of course this is much easier said than done, but there are indeed many ways to establish a systematic approach in which you can join the market at the opportunities which offer the best probabilities for success. Sure some of these opportunities may happen to agree with historic S&R levels, but at best I have found that to use these in isolation results in a losing game.
I am an OTA XLT member & have been since 2011. I still have problems making consistent profits with S&D. The only way for me, to make money in the spot market is using Daily, Weekly & Monthly charts with the odd Daily level drilled down to 240. Patience has been key to my S&D trading. I will only take high quality setups which are few far between. Im now looking at other mechanical strategies to diversify S&D trading. I find S&D very subjective too.
If this link works it illustrates supply and resistance. Simply invert it for demand and support. S/D give birth to resistance and support. Not the other way around. S/D are simply institutional orders to sell and to buy in large quantities. In the graph Supply is identifiable by the abrupt drop in price. The opposite would signify Demand. The shaded area is in fact supply. Price did not move down solely because of the order(s) to sell. It also took a lack of buyers for price to move down a single pip. So its not just the supply but rather the imbalance between sell orders verses buy orders.
The resistance is caused by those orders to sell at that or any level. However the notion that the more times price hits a level is fallacy. The order(s) to sell is finite at any level and the more times a level is hit the more of those orders that are matched until there are none and price moves beyond that level to the next substantial order(s).
In response to the original poster as to SD being counter trend to a large degree I agree. I will point out the obvious. Newer data carries more weight than older data. Trading with the current trend is easier. Betting on what looks like supply a few days or weeks old is one thing. But the further away that perceived supply zone is the greater the risk obviously becomes simply because of the age of the data. Time changes everything. Economies and dynamics dissolve and evolve as time marches on. However the older data cannot be completely ignored either. It only carries less weight than the newer data.
The poster is or was onto something when he/she suggested trading with the trend. I hope that is what they are doing today.
Oh, I would like to briefly address volume. Volume as expressed on a chart is useless because at best it identifies the quantities executed. What matters is the quantity of unfilled orders left at a level. That is what you need to know and I’m afraid that unless your ballsy cousin works at your brokers desk or the order desk of an exchange you stand an ice cubes chance in hell of getting that information.
As far as order book or level 2 that volume is pretty much useless as well. Ever hear of icebergs and the like?
Supply means there’s sellers willing to place large orders at that price level so that it has an impact on the progression of price. This is shown as the well known dojies or two candle reversals, engulphing patterns, etc. If you trade with volume you can see a rise in activity here as price reaches the level but doesn’t progress. (logically indicating the presence of selling into the advancing buyers)
Demand, naturally, is the opposite of the above.
Support or resistance is not always actual support or resistance. Price can retrace because there was a lack of demand at the level of the ‘pivot’. So there’s no actual supply there but a lack of buy orders advancing the price. Instead of resistance we can say that there’s a lack of buyers supporting the advance of price. Volume usually stays low at these levels indicating buying activity is low(ering). There’s no real opposition there.
Traders that trade of these levels draw their lines across the pivots and turning points. That doesn’t indicate that they know if this level is actual S/R or S/D. this becomes clear when we watch how the market responds around these levels.
True supply could be absorbed by buyers in a strong market but the supply can also absorb the demand. It all depends on the strength of the market at that moment.
(Tick)Volume can tell a big part of the story in these cases.
In the case of a trending market as depicted in the schematics by the OP, the zones are no real opposition. Most supply/demand has been removed earlier and there’s much room for the market to mark up or down/trend to the next level where new professional interest leads to the stopping of the advance of price. This interest, again, is confirmed by the price action and a rise in volume at the moment of stopping of the price advance.
It’s extremely subjective, which is what dooms manual trading. There’s no developmental method to the strategic process. It’s learn a strategy, use only that strategy in a demo for 2-6 months, and then hope it works out with actual funds.
How you define all of the elements of S&D and Support and Resistance will differ from others even if you learned it in the same course. It’s all open to interpretation.
The concept of “touches” is subjective, price does linger and consolidate in a demand or supply zone. Also, the lower the timeframe, the more noise with S&D as the zones are closer to each other.
I backtested Supply and Demand and came back with mixed results. Interestingly, a few strategies that blatantly avoided Supply and Demand Zones actually fared well. I will probably test more approaches once the month ends.
What needs to be understood in the forex market is that price movements are always dynamic, sometimes the price is already in the support or resistance area, but in the area there is a breakout, then the area that was originally a support or resistance area will occur otherwise, the area will become a new area for support and resistance, the market trend is indeed dynamic, sometimes we think there will be a reversal but it turns out that there is only a retracement
My take on this is that trends do not exist. Tops and bottoms do not exist. If you do not agree please explain how a fractal could have a trend direction? An uptrend in a down trend in an up trend in a sideways range. Is price going up or down? The answer is to ignore the trend. Each timeframe will give you a different trend just like it gives you different candle patterns. It’s meaningless. Trade supply demand zones and the problem goes away. As for tops and bottoms. Tell me, if a top on a 30 min chart is only the end of a retracement of higher timeframe down move then is it a top reversal or is it trend continuation of higher time frame? See how pointless these things are for discussion? Forget all you know and look at a clean chart with fresh supply demand zone and trade between them.
Newb here. How does one go about doing this? Is this like a broad area of support or resistance? Not too sure how to plot this. Or is this indicator based? Thanks!