Thread by @joshuakuton

How to KNOW if a Demand or Supply Zone will Hold — A Simple & Advanced SMC Approach.

Even a 7 year old will Understand this.

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There are six (6) criteria for validating a supply or demand zone. Or to know if a Demand or supply will hold. They are;

➟ HTF Bias
➟ Pricing
➟ Orderflow
➟ Liquidity Sweep &
➟ Inducement

Let's take it one after the other.

Shall we?

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1. HTF Bias

First thing to do is checking your higher time frames. Understand the structure.

Is the higher time frame telling you bull or bear? If bull, you look for demands. And if bear, you then look for supply zones.

Don't go trying to sell in a bull or buy in a bear market

2. Pricing

After under the HTF Bias

Understand that the market gives us continuation of structures breaking previous highs or previous lows.

And to capitalize on the right highs or lows to make a trading decision, you need to understand pricing.

Buying low & Selling high.

In a bullish market, you wait for price to retrace into the discount level (of a structure break) to buy again. It increases your probability of winning.

And, in a bearish market, you wait for price to retrace into the premium level (of a break) to sell. It increases probability

I believe this is not the first time you are coming across this, but understanding it and putting it to use will reduce your losses as you will pick the right zones

To understand more of Pricing (Premium & Discount Levels) & how to use, read this thread

https://x.com/joshuakuton/status/1716173316560388098?t=Q74JeSBDdIZAoHFE1rJ7ZQ&s=19

3. Orderflow

This is the process of price mitigating previous levels of the market in a particular direction. And we have two type of Orderflows.

I. Bullish Orderflow
II. Bearish Orderflow.

In a bullish market from HTF, we have the Bullish OF being printed in the market.

And in a bearish market from HTF, we have the bearish OF being printed in the market.

So when we are bearish and you see price mitigating previous supply zones, you want to be on the lookout for the next zone that market can most likely mitigate.

And does that mean any supply zone work? No

We talked of pricing, if it's in a premium zone of a structure break, good. But there's more. And that brings us to

4. Liquidity Sweep

For me, it is a sweep if price broke structure and also printed a CHoCH. That CHoCH makes it valid

Liquidity Sweep is when market is done printing another low at the moment & prints a CHoCH in a bearish market

Or when market is done printing another high in a bullish market & prints a CHoCH

Seeing this, it should increase your confidence around that level to pick your zones.

5. Inducement

This is called fake POI. It's a POI / zone majority of traders trade and get taken out. It is also the first internal high or low before your actual POI or zone.

Now how does this relate with validating your zones???

IF YOU DON'T SEE AN INDUCEMENT BEFORE YOUR...

ZONE, THAT YOUR ZONE IS ACTUALLY THE INDUCEMENT.

This is a sweet way to validate a zone. Simple I must say. It saves you several stop losses and you become better.

To understand the concept of Inducement well, read these threads:

EVERYTHING INDUCEMENT


UNDERSTANDING TRADING RANGES

https://x.com/joshuakuton/status/1713639724315812205?t=0JhImsaBu5keB-XEG-5XcQ&s=19

https://x.com/joshuakuton/status/1770844134133154062?t=VZxQ4vnKHEDXn1MIAUBtfQ&s=19

And that rounds this up,

Now, you can go over the attached threads to understand more of what I just explained to you now.

To know if a zone is correct,

Is it in alignment with the higher timeframe?

Is it in the correct pricing level?

What's the Orderflow saying + HTF?

Did the zone sweep any liquidity?

And is there an inducement before it?

Combine all these together and build a high probability trading zone for yourself

And this is how you reduce losses and become better as a trader.

I hope you learnt something

Happy trading 🎉

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