Thread by @PAVLeader

@Traders82 Today I will start a new chapter of #PriceAction trading & the topic is -

#Chapter4: Understand Supply & demand zones

So are you excited? I heard YES. So let's start!

Now that U understand what a market structure is & what are the 4 stages of a stock or index, the next logical step is to understand the supply & demand zones & how to use them with structure to spot high probability trades. This is different than single line S/R so pay attention

Recap: A structure is nothing but spotting higher high, higher low, lower high & lower low on any given chart to know the trend & to understand the context in the left as to what a stock has been doing. #BankNifty daily chart shows the structure for 1 year.

I have marked pivot high by red circle/oval & pivot lows by red rectangle. See how simple it is to spot HH, HL, LH & LL. This helps you to understand the trend.

Tip: You may be thinking how many candles/bars are good enough to understand the structure. Right?

While every individual has a different way to interpret charts but I prefer to have around 200-240 candles visible on the chart to get a clear picture but you can go with what you are comfortable with. Let me make it simpler for you -

If you are trading 15M chart then 1 day will have 25 candles so to see 200 candles, you need 8 days of data on the chart.

So set the chart as per your needs so that you get a good view about the structure & trend.

Now I will talk about S/R so get ready!

Support & Resistance

Now I am attaching same BankNifty chart but with simple horizontal lines to mark support & resistance. Notice the spikes & gaps in certain areas. These lines are good enough to spot areas of support & resistance.

but many times the price either spikes up the resistance or leaves a gap in support line which leaves you surprised as to what happened? Sometimes price moves up in your original trade direction after taking your SL. Why that happens?

The reason is simple that price needs certain area to breathe in respective support & resistance zones. You cannot be 100% precise always in drawing these lines hence it is recommended to create a zone giving price some buffer to breathe.

When the stops are very obvious, operators hunt for your stops & then move in the same direction as you thought. Giving your stops little room helps you trade with little higher probability though this also doesn’t guarantee 100% accuracy.

Now that you understand the concept of Support & Resistance, lets move to understand "Demand & supply zones".

Demand & supply zones

Here is how the same BankNifty chart with “demand & supply zones” look like.

Notice how it covers a broader area & gives price the breathing space it needs in key areas of support & resistance. Price has memory & it leaves footprint & it always reacts to it at least once when it reaches these zones.

Also these zones acts as magnet & they attract price. Stronger the zone, stronger the sell-off or rally from these zones. So if price is quickly reacting to these zones then it may not break the support or resistance.

However, if price stays near to these zones & doesn’t fall much then there is a high probability that they will break the zone. So watch out for price action once price reaches these zones. Candlestick patterns like Pin bars or Gravestone Dojis can give good signals for reversals

Also notice the volume on these reversal. Candles forming with high volume followed by low volume test are good signs & they are high probable trades.

Adding a couple of more charts for Tatasteel & SunPharma to explain this on a longer time frame

Hope this concept it clear now & you will be able to spot these zones easily to improve your trading. Practice, practice & practice & that’s the only way to train your eyes. The only way to get better in price action trading is via screen time.

More you screen a stock or index, better you get at spotting high probability trades. After learning a new concept, all you have to do is practice. So I leave you with an old saying “Practice makes a man perfect”.

So we end this chapter of "Supply & Demand zones".

Please leave your feedback or comments below so that in next topic I can improve on those things. I’m eager to hear from you!

Over to you @chief_vk

Dear Trading Legends & Price Action Gurus,

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Also share your feedback so that I can improve!

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