Original subtitles

in the previous lesson we looked at the actual mechanics of the market of how

order flow so the interaction between buyers and sellers that battle of supply

and demand is what actually leads to the price action that we then see on our

charts right so now what we're going to do is look at how we actually draw and

identify these areas of supply and demand in the market on our charts and

how we can use them as high probability trading opportunities when we then

combine them with everything that we know so far about market structure

now time doesn't know price and price doesn't know time

i know at first that sounds like some kind of silly little riddle that

you might be trying to get your head around but it's actually quite simple in

reality so as retail traders you know we can get

quite caught up in our world of technical analysis and you know looking

at candlestick charts all day and we can be forgiven for thinking that everyone

who participates in the forex market you know was trading it in a reasonably

similar fashion to the way that we kind of think about and you know look at the

market but when you're actually going to take a

step back and you think about what we just

discussed in the previous lesson on market mechanics and you think about the

order flow in the market right the seven trillion dollars that go

through the market every single day there's literally you know no way that a

human brain can even begin to imagine just how much money that actually is

you know big institutions who are pretty much making up the majority of that

order flow you know they're not necessarily sitting there and trading

with a chart and analyzing waiting for those candle closures

they're just putting their orders through the market and they're just you

know facilitating those transactions so a lot of those big dealing desks and

banks they're just working through commercial volume that comes through to

them you know to facilitate those transactions uh you know for various and

endless amounts of different reasons you then also have

pretty much complicated algorithms without continuously layering orders in

and out of the market you know whether that's for pure speculative strategies

you know from the quantitative side or even from you know market makers whose

job is to provide liquidity to the market et cetera

you know there's a lot going on we don't need to understand and talk about all of

it but what we can do is we can make sense of you know all of that kind of

complicated uh interaction and the interplay of all of those orders of that

battle between supply and demand between buyers and sellers and we can do that

with candlestick price charts so the first step to doing this is

really by understanding what arranges so a range on a price chart is just a

sideways consolidation or correction so it's when price is just moving sideways

to the right of the chart you know it's not really moving in any

sustained direction and it's not breaking the swing high or the swing low

so it's just ranging in between two of those swing points and the trend is

pretty much you know paused so buyers will be stepping in when

prices and the discount half of the range and sellers are stepping in when

price is in the premium half of the range

now ranges can obviously be found across all time frames and this is where

sometimes jumping up a time frame it can then show you more clearly that

price is actually stuck in a range you know sometimes you're a bit too zoomed

in on a lower time frame

now ranges generally indicate one of two things

one being high volume order flow where many orders are changing hands and it's

very likely that you know large players are beginning to stack orders at a fair

value of price so this is what you will often hear

traders refer to as an accumulation or a distribution of orders which basically

just means that demand and supply are exchanging quite rapidly

but eventually you do see a large expansive move that breaks out of the

range either to the upside or to the downside depending on which side of the

market is in control so when the market deems that price is

at fair value you know orders can be exchanging at quite a rapid pace and

this is where you won't really see much movement on a price chart

but then eventually when that imbalance between supply and demand eventually

arises and it will eventually arise that is when you will then see price move

rapidly in one direction why because it's trying to seek more

orders right price needs to seek more liquidity in order to fill that

imbalance and bring the market back to an equilibrium of fair value between

buyers and sellers which is where price will then form another range right until

the next imbalance then arises which will then cause price to break out of

that range to then seek more orders to fill that imbalance and then this whole

cycle that we've just described the whole cycle of order flow

and that relationship between supply and demand is essentially that continuous

heartbeat of the market so the other end of kind of what can

form ranges i guess the other end of the spectrum is low volume

now naturally you know high and low volume are going to be very very

different in nature and the fact that ranges are created by both of those

environments can obviously be a little bit confusing

so one kind of common time which you'll see a range is towards the end of the

new york session as the session is closing and moving into the asian

session where price tends to range and consolidate because there tends to be

kind of low market volume during those times and that generally you know goes

the same for the whole of the asia session

where volume is typically lower than you know comparison to london and new york

so asia tends to be quite range-bound compared to those sessions

so kind of session timing is i guess one of the obvious ways in which you can

just assume that if you see a range right it's during asia that it's

typically because of low volume but how can we tell whether a particular

range you know aside from session timing how can we tell if a particular range is

caused by high or low volume order flow if ranges are created by both of them

well the easiest way to determine you know which environment you are dealing

with is by just waiting to see what happens after the range is created

right so we don't have to guess we just wait and then we ask ourselves does

price rapidly move away from the range or does it just slowly move away from

the range because rapid movement away from the

range that suggests high volume which implies that a lot of orders have

exchanged hands and that was likely institutional backing because it takes a

hell of a lot of money you know just to move any of those major currency pairs

by even just one pip so

you know if we see price rapidly break out of a range then that gives us our

first clue of you know a footprint that a large financial institution has

stepped in or of course you know many of them

and that is what has caused that overwhelming imbalance between supply

and demand right to to cause price to break out of that

range and then what we can do is start to potentially frame a trade idea around

this when we see that occur in the market

but if you see quite slow movement you know price sort of just trickles out

away from the range then that will typically suggest low volume and that

there hasn't been that you know really significant imbalance between supply and

demand which is what really we are looking for

because remember the whole game we're kind of playing

here with supply and demand is to look for when the big money stepped in to

take control of the market and we want to use that to understand

where price is likely to move to and move from because that gives us you

know another framework in order to read the order flow

so again a movement away from a range should be significant to clearly

showcase momentum being injected into the market so if price moves out of a

range and then sort of immediately retraces afterwards

that can be not always but can be further evidence

of low volume so therefore would not be the creation of a supply and demand zone

that we really should be interested in so we are not looking to trade that

initial move that initial breakout of the range but instead we are

concentrating on the re-test of that range as price eventually looks to

return to that area so range-graded demand is when we see

that sideways range followed by a rapid expansion to the upside and then we look

for a move back into that overall demand zone to mitigate and fill any of those

remaining buy orders that may be left in that area of interest so then we can

look for another potential bullish move from that price level

where that huge demand initially you know stepped in previously

so again we don't trade the initial reaction out of the range because we

never know for sure which way you know price is going to break out of a range

so keep it easy we just wait for the market to show its hand and tell us

which way it wants to go and then what we do is we patiently wait for price to

return to that demand zone and then we start to look for our entry models

within that zone so obviously the same thing goes for

range created supply we see price breaks out of a range to the downside clearly

indicating that in this case in supply managed to completely

overwhelm demand right because it causes that imbalance to the downside so we

wait for price to return to that range-created supply zone where then we

look for potential entries to short the next move from that area where there is

a lot of supply interest now the second type of the minor supply

zone that you will see is pivot created zones

so in the case of pivot created demand you will see a sharp down move followed

by a sharp retrace to the upside so what's happening here is that supply

is in control as price is moving down and assigning an overwhelming amount of

demand steps into the market causing price to then rapidly reverse to the

upside and that creates that demand zone that

we are now interested in and we wait for price to return to that pivot demand

zone to look for potential long entries so then pivot supply is obviously the

same but you know the opposite where we see a small sharp movement to the upside

that is then rapidly reversed with an expansive move to the downside showing

that demand has then overpowered supply causing that imbalance to the downside

where we will then you know look for price to return to that pivot created

supply zone to potentially look for short entries

so these ranges and these pivot created zones these really are the footprints of

institutional orders in the market that shows us where they are stepping in with

large orders to cause those imbalances we never need to guess we literally just

wait for the breakouts to occur to create those supplier demand zones and

then we await the return to the zone in question and then we look for potential

entries there once price gets there because the probability it's not a

certainty but the probability of price causing a similar move uh as it

mitigates and fills the remaining you know those large passive remaining

orders that are sitting in the order book at that price level

that gives us a very strong edge in the market

for us to potentially surf on the coattails of that large institutional

money entering and exiting the market that causes those huge imbalances and

therefore those huge moves for us to capsize on

now as we go on of course we will cover entries in a lot more detail and how we

use the lower time frames for confirmation and refinement etc but for

now all i want you to understand and all i want you to think about is just how

these zones are created and how they form in the market and what they

represent because remember all these zones are

doing is they are visualizing the action of the order book so that order flow and

that's the language of the market that we are essentially reading with

candlesticks on our charts so now we understand the concept of how

these zones are created with these range and pivot zones but how do we actually

see and draw these on our charts well as you can see here with candles

if it is a range created zone we just draw our zone to cover the entire range

so we draw from the lowest point to the highest point of the range before where

price rapidly then broke out of that range and it's the exact same you know

whether it's supply or demand for pivot created demand we draw the

zone from the bearish candles that are then engulfed by the bullish candle that

breaks out to the upside so we sometimes refer to this as the

sell to buy for pivot created supply we draw the zone from the bullish candles

that are then engulfed by the bearish candle that breaks out to the downside

and we sometimes refer to this as the buy to sell

so that's how they both look when we map these on our candlestick charts

now whether a zone is a supply zone or a demand zone that will always be

categorized by which direction price breaks out of the range

so if price breaks out of a range or pivot to the upside this is caused by

demand right giving us the demand zone and if price breaks out of a range or a

pivot to the downside this is caused by supply giving us a supply zone

but what determines if those zones are continuation zones is essentially which

direction price was traveling in before the zone was created

so for a demand zone to be a continuation price will be bullish and

moving upwards before the zone is created so then when demand breaks out

of that range it is a continuation of that bullish trend right

so for a supply zone to be a continuation price will be bearish and

moving downwards before the zone is created so then when demand breaks out

of that range to the downside it is simply a continuation of that bearish

trend so for a zone to be then classified as a reversal again it just

solely depends on which direction price was moving before the zone was created

so in the case of demand you know if price was bearish and moving

to the downside and then demand stepped in into the market to over to overpower

supply causing a bullish move

this is then a reversal against the previous bearish trend right so that

demand zone essentially becomes a reversal

so therefore in the case of supply if price was bullish and moving to the

upside before the range or pivot was formed then when supply steps in causing

price to fall to the downside this is a reversal against that bullish

that previous bullish move right so you know if i flick between kind of

these continuations and reversals you can just clearly see that you know

supply and demand are always in the same direction it's just what direction price

was moving in previously before those zones were created that determines

whether or not you classify it right as a reversal or a continuation

so again just to quickly summarize we have two main types of zones

either range created or pivot created supply and demand

range and pivot are your essentially your two main types of zones

but a pivot created zone can also be just one candle so it doesn't have to be

multiple candles and you can also then have what is

called a fractal zone now we'll talk about these fractal zones

in a lot more depth in just a minute but essentially you are refining the candle

to just the wick as this will be a zone on a lower time frame

so this is how uh how all four of these types of zones would look like uh as

continuation supply zones and then this is how all four of those

types of zones would look like as you know reversal supply zones so it's

always supply no matter what because price broke out to the downside but what

determines whether it's a continuation or reversal is again just dependent upon

which direction price was moving before the zone was created

so we've seen how these four zones could look like on their own whether it can be

a whole range of multiple candles or just a sharp pivot where you have a few

or just one candle and then finally when you can refine that further to just the

fractal wick but all of these four types can also be

refined from just one range so if you see this range on the far left

hand side of your screen you can draw your zone from the entire range right

drawing the bottom of the zone from the lowest wick all the way up to the

highest point of the range to the highest wick

but then you could refine that exact same range to just the

pivot point of that range before price broke out where you can see that supply

stepped into the market right in the second example so essentially you refine

that whole range to just those last two bullish candles where you get that pivot

where you get that buy to sell that broke out of the range

you can then take that pivot and refine this even further to just the last

single candle of that pivot point within the range and then finally if you want

even further refinement you can draw the supply zone from just the wick of that

last bullish candle of that pivot point within that entire range okay so you can

just see how going from left to right you can see that they are all the exact

same price action example but you were just refining it further and further as

you go across to the right so why would we bother to refine zones

just like this well it all has to do with our trade

entries really now we're going to talk about entries in way more depth in

future lessons but for now it is a bit of a good time to just start looking at

and just conceptually thinking about how we will use supply and demand zones to

place and size up our entries so essentially we will be looking to

always no matter what always place our stop loss behind the

zone so in this case because it's supply we are expecting price to have a bearish

move when price returns to the zone so we would place our stop above the zone

above the highest point of that range so if it was demand then we would place

it below the zone right so that's pretty simple for stop-loss

placement it always goes behind the zone which is nice and mechanical

now for where you decide to place your entry you have a little bit sort of more

freedom and choice but essentially you will look to enter

anywhere on or within the zone so the lowest point that you would look to

enter the supply zone is at the distal point which is the very start of the

zone on the outer edge you know just like how the reward to risk tool is

drawn here but you can enter anywhere within the zone so you could enter

higher up but again i don't want you to worry about this right now we will talk

about that a lot more in future lessons so for the purpose of this lesson we are

just always going to enter on the distal which is the edge of the zone okay

so our stop always goes behind the zone and our entry always goes on the edge of

the zone so going back to why we could

potentially refine our range zone to either the pivot the candle or the

fractal refinement the reason why as you've probably already guessed comes

down to reward to risk because as you can see if we refine that

range supply to just the pivot supply of that range then this means that we will

be looking to enter our short position slightly higher up at a better price but

keeping our stop loss in the exact same position so this means that our stop

loss will be slightly smaller compared to entering on the entire range supply

so ultimately this improves our reward to risk ratio

the next refinement from there is drawing the supply zone from just a

single candle within that pivot and you can see that again this will improve the

reward to risk of the trade and then finally refining all of those supply

zones to just the wick to give us that fractal refinement that will give us

even higher potential reward to risk so that's great but you may now be

wondering if the fractal refinement gives us the highest reward to risk

ratio you know why wouldn't we just always draw our zone that way

why bother drawing a much bigger zone on the entire range

well to be fair that's a pretty good question because the reason why

is that of course there are zero guarantees that price is going to pull

all the way back up that far to actually tag you in and enter you into your

position because we don't know for certain you

know where the largest amounts of orders are sitting within that supply range

that will be enough to overpower demand to start the next bearish leg down in

price it could literally happen at any point

within that range when price gets there so the more that you refine a zone the

more you increase your potential accuracy giving you higher potential

reward to risk but it increases the probability of you not being tagged into

a position and you may miss more trades compared to not refining

so you know it's that delicate balance between improving your reward to risk

ratio as much as possible but still making sure you are entering

enough positions now of course there is no right or wrong

balance this will be entirely dependent on each individual trader you know what

makes most sense to you what you have the most success with what aligns most

with your trading personality and ultimately what you find easiest on your

own individual psychology because you know some traders may suffer

quite bad with fomo you know with fear of missing out and maybe they would

prefer to just enter more positions and they just want to be in the trade so

that they don't miss the move so they may actually prefer to not refine that

much and they will always take you know the entire range for example or maybe

even just a pivot of multiple candles but then what they have to do is they

have to accept right that their average reward to risk ratio may be lower than a

trader who chooses to always refine their zone to say just a candle or even

a fractal refinement but the trader who does refine and

prefers that higher reward to risk they then may have to accept that they're

probably going to miss more positions compared to the trader who doesn't

refine right so it's that balance between kind of

over refining to get the higher risk reward and then potentially getting less

entries but again don't worry too much about

this right now because we will talk about entries and refinements a lot more

as we go along for now i just want you to really understand the the different

ways in which valid zones can be drawn okay

so what we're going to do is we're going to look at a few more examples of

fractal refinements that we can use as valid zones within the market

so we have range creator supply and pivot creator supply right and we've

been thinking about things so far just in terms of one single time frame

but now what i want you to start thinking about is multiple time frames

and how these different time frames will be interacting together you know as we

go through and flick through those different time frames so if we look at

the range created supply on the left-hand side

let's say for a second that this is the one-hour chart

so we draw our supply zone on the entire range there on the one-hour chart and

now i want you to imagine how you think that would then look like on your chart

if you jumped up to the four-hour chart well those four one-hour candles that we

have drawn the entire range on those four one-hour candles will make up

one four hour candle right so if you jump up a time frame to the

four hour time frame you will see that that one hour range supply

is actually a four hour single candle pivot supply zone all right it's a bit

of a mouthful but you can see that essentially on the one hour you had to

have four candles maybe jump up to the four hour time frame that will then just

be made into one four hour candle okay so this is what i meant at the start you

know that kind of silly riddle that time doesn't know price and price doesn't

know time because it's just orders going through the market right that

interaction of supply and demand that battle between buyers and sellers but we

then use candlestick charts and different time frames to sort of make

sense of all of that order flow so if you see a range created zone as you then

go up the time frames that will then be refined to even you know a few or even

just one single candle right so that lower time frame range will very likely

just be one higher time frame candle so ranges or pivots are the two main

ways in which we look at supply and demand zones right however we can

essentially anticipate and see where a pivot or range created zone may be on a

lower time frame and we can sometimes see where they are on a higher time

frame so these three examples here are

essentially ways in which we can draw zones on our charts that represent pivot

and range created zones on a lower time frame without even having to go down and

actually view that lower time frame so the first example here is what's

called an inside bar zone so an inside bar is very simply a candle

that does not break the high or low of the previous candle

so you can see in both examples uh both of these examples of inside bars that

the white candle does not break the high or the low of the candle that formed

before it so that's why it's called an inside bar

because it forms inside the higher low of the previous candle

so what that means is that when the inside bar forms that will be a range on

a lower time frame because it's not breaking the previous cameras high or

low right so it's just ranging in between and that's what the inside bar

represents it represents a range in a lower time frame

so when price then breaks out of that range with the following candle that

will then create our zone as there is an imbalance between buyers and sellers as

price then breaks out of that lower time frame range but we can see all of that

lower time frame price action by simply just understanding what an inside bar is

now an inside bar can be bearish or bullish it doesn't matter in terms of

supply and demand so that's why i've deliberately drawn the candle as white

in both examples here just to make that point clear

that it doesn't matter if the candle is bullish or bearish all that matters is

that it doesn't break the previous candles higher low and then that means

that is a range on a lower timeframe so what then determines whether that

inside bar is supply or demand it isn't whether it's a bullish or

bearish candle itself but actually what happens next

does price break out of that lower timeframe range to the upside if so then

that inside bar is a demand zone or if that lower time frame range breaks

out to the downside then that inside bar is a supply zone

so whenever you are looking at fractal refinements in general if you just ask

yourself you know how did those series of candles form

that should help your mind to kind of understand what may be happening on a

lower time frame so for the inside bar you can see that

price moved in one direction and it paused it failed to break the

higher low so it must be ranging on a lower time frame and then price

initiates out on the next candle now in the next example we have what are

called sell to buy wicks and buy to sell wicks so if we look at the cell to buy

which example first at the top this is a continuation demand zone so if

we ask ourselves you know how did these candles form

well price was initially bullish right it's moving to the upside in that first

candle and you can see that that candle pulls back ever so slightly because it

leaves a little wick and then that candle closes where that body ends right

so it closes a bullish candle but then the next candle opens up where

the last candle body closed but price continues to move down

slightly right so it's still pulling back since that initial wick formed so

price then goes up so that the second candle closes with a big bullish body

so essentially what just happened is that overall move between those candles

is clearly bullish but there was a tiny pullback in between those two candles

forming so what that may look like is something

like this on a lower time frame where it would show a clear pivot demand zone

so if you imagine those two big bullish candles that we were just talking about

let's say that they form on the four hour chart and then you see those sell

to buy wicks you can then draw a zone from those two wigs as that will very

likely be a demand zone on the 15 minute time frame for example and that could

look like this pivot demand zone on the right or it could even look like a range

on the left so it doesn't really matter you know if

it's a range or a pivot zone all that is really relevant is that those wicks

those sell to buy wicks those those wicks represent a demand zone on a

lower time frame so if you can see a lower time frame

zone that is also visible on a higher time frame then in theory all other

things being equal this could make that zone hold a little

bit more weight right because let's say that lower time frame zone was an m15

zone for example on the 15 minute time frame that is now also visible on the

four hour in this case now lower time frame zones will not

always be visible in the higher time frames but when you can see for example

that in 15 zone on the four hour via refractive by a fractal refinement like

that in theory that should increase the strength of that zone

and then all of that we've just spoken about of course applies to supply zones

so where you have two bearish candles for instance that then form those buy to

sell wicks and then on a lower time frame those wicks will represent either

range created or pivot created supply and then the final example we have here

is when we have large wicks so if you want to refine this further right

because you want to make your zone smaller to increase your accuracy to

increase your reward to risk ratio then you can just simply draw the zone

covering only the wick rather than including the body of the

candle too and the reason why we do this is because

that wick will contain a zone on a lower time frame

so when we hop in the charts and we start drawing on supply and demand zones

these fractal refinements can be very powerful and useful

whereby you can really understand and see that on one time

frame actually what is happening on a lower time frame without even having to

you know go down and look at it

so now we've seen how supply and demand zones are created and how we draw them

on candlestick charts however s d zones are literally going to be everywhere

right so if you hop on your chart and you start drawing every single zone on

your chart's going to be an absolute mess right it's going to be a show

and you're going to see some zones play out and you're going to see a lot that

don't seem to work that well and it's just going to be really really confusing

because supply and demand zones are literally everywhere in the market

why are they everywhere well because there are constantly imbalances between

supply and demand because if there wasn't the price would never move

because it would just be at a fixed constant fair value

because of course in reality what the market deems to be fair value is

shifting every second of every day so the balance between supply and demand

is shifting constantly right now

every single supply and demand zone it probably will form some degree of a

reaction right when price returns to that zone you will almost always see

price at least pause or maybe even form a small bounce as those orders are

exchanged between hands and of course there will be some circumstances where

price will just smash straight through but what we can do to filter out a lot

of these zones that are most actually just not going to be worth the risk of

trading right because we don't just want to enter a position and risk our

hard-earned capital on just sort of any old zone that was created with you not a

lot of money behind it that is not professional trading that's

just gambling right if you want to do that you know go chuck

your money on red at the casino you probably have better odds

but we are here to be professional traders and to determine and refine our

edge so there are certain confluences that we

can look for to increase the probability of the zones having a large reaction or

at least causing a larger move so one that we've looked at in depth so

far is market structure so hopefully you should be very very familiar with this

now so we've seen how we can use market

structure to very effectively give us a bias on the direction of price whether

it is bullish or bearish whether it is a you know a pro trade run

or a counter trend pullback and of course bring an entirely new dimension

to that by using multi-time frame analysis to look at market structure

across multiple time frames you know to really build that story and that overall

narrative so market structure is a very important

tool that we can use in our analysis to help us make sure that we are trading on

the right side of the market and that will increase the probability

of the zones that we are looking to trade from

causing the type of large moves that you know we actually want to position

ourselves in so market structure will help us to

manage our expectations of how far the move from that zone is likely to reach

before price may potentially pull back or even reverse

so that's why market structure is king we then looked at the concept of premium

versus discount so essentially helping us to see if we are looking to trade at

a level that is actually well priced so if we introduce supply and demand to

this we can then look to buy from demand zones in discount prices and sell from

supply zones in premium prices to help increase our strike rate and potential

reward to risk ratio there are then some other very key

concepts such as liquidity sweeps and mitigations which we haven't discussed

yet and we haven't looked at yet so don't worry we will look at these uh

in depth in future lessons so you don't need to you know concern yourselves

about these just now but these are also some key confluence that can help us you

know to kind of pick and choose which zones that we are actually interested in

building solid trade ideas around okay now all of these are really great

confluence that we should be using to make sure that we are trading with as

high as a strike rate and as high as a reward to risk ratio as possible

and those confluences are really nice to have

but you know they are not necessarily a strict minimum requirement so what do i

mean by that well if they were a strict minimum

requirement then you would only ever buy from demand zones that were in the

discount for example and perhaps you would only buy from

demand zones that were also pro trend and in the discount right because that

should in theory you know really give you that higher probability

but what that also means is then you know you would never sell from a supply

zone that was in the discount prices and maybe a supply zone that was also

counter trend because this would be you know i guess as low probability as you

can make it and it would be a lot more aggressive

but the reason why you know i don't say it's a minimum requirement that price

you know needs to be a good premium or a good discount level

or it has to be with pro trend and you can't trade counter trend is because you

can do those things if you want to it will be a bit more aggressive and

might be lower probability so i wouldn't really advise if you're starting out um

but they're just not hard and fast rules so that will all depend on each

individual trader you know how they wish to trade what makes sense to them what

they have the most success with you know what is easiest and congruent with their

own trading psychology which again will only come with time

experience testing and you know constant reviewing

so as i was saying that list there are all confluences that increase the

probability of um supply and demand zones playing out with large and

sustained moves but they are not necessarily a strict minimum requirement

to validate a zone that you may want to trade from

but there are two core methods that we use to validate a strong supply and

demand zone that in my personal opinion you should really only be looking to

trade from zones that at a minimum do at least one of either of these two

methods or ideally both of them together

in order to trade from them so what i mean by that is i personally

view them as a minimum requirement in my trade plan so i would advise that you

probably do also so what are these two core methods

well again because we want to find the zones

where there was a drastic imbalance between supply and demand so that when

price returns to it the probability of that big money stepping in again is a

lot higher right because those are the areas that we really want to concentrate

on that we want to focus on and that we want to trade from

so again what can we do to try and validate which zones are going to be the

strongest which zones are going to be the most significant and therefore have

that highest probability of causing a strong move

well the main idea is to find a zone that achieved something significant in

the market so there are two main things that we

look for that we deem as significant in order to validate a strong zone

the first of those is that we want to find zones that caused a break of

structure so we wanted to see the zones that led to a bus

so we want to find where the demand came into the market that led to price being

able to break structure to the upside to break a high and form a higher high

and likewise we want to find where the supply came into the market that led to

price being able to break structure to the downside

in order to break that low and form a lower low

so we should you know know by now that there are three different types of

structure swing minor and substructure

so the more significant a level of structure that a zone manages to break

then the more significant that that zone will be

so with swing structure being the most significant of the three

minor structure being less significant than swing structure and finally

substructure being the weakest out of those three

so this means that the highest probability zones will be the ones that

lead to the break of swing structure so the demand zones that cause those

swing higher highs or supply zones that cause those swing lower lows

now all three zones boss mbos and sbos can of course be tradable but it's the

swing zones that are going to hold the most weight and have the highest

probability of leading to another large swing move

and it's those swing runs that really we want to catch and position ourselves in

so that's the first main way in which we can validate the significance of a

supply or demand zone in the market by concentrating on the ones which

caused a break of structure and the second main way that we use to

validate zones as doing something and achieving something very significant in

the market is if a zone actually manages to

to overpower and take out another strong valid zone

causing that zone to fail so we call these flips so supply to

demand flips or demand to supply flips so when you find a zone that combines

both methods so not only does it cause a break of structure but it also caused

another zone to fail in the process then this is when you have the highest

probability zone all else being equal

so let's just do a super quick crash course summary of everything that we

have covered in this lesson supply and demand zones are caused by

overwhelming imbalances between supply and demand

and we can identify and draw these on our charts by seeing where price broke

out of a range and this can be in the form of range or pivot created supply or

demand and of course we don't trade the initial

breakout we instead wait for price to show its hand and see which direction it

wants to go and then we wait for price to return to that zone and then look for

our potential entry models so we look to buy from demand or we look to sell from

supply now what determines if those zones are

continuation zones is which direction price was traveling in before the zone

was created so price will be bullish before a demand zone if it's a

continuation and it will be bearish before a supply zone if it's a

continuation if it's a reversal then price will be

bearish before the demand zone or bullish before the supply zone

range and pivots are your two main types of zones but a pivot created zone can

also be just one candle it doesn't have to be multiple candles and you can also

then have what's called a fractal zone but all of these four types can also be

refined from just one range and we can see that here from left to right

we look to enter on or within the zone and our stop loss will always go behind

the zone but the more refinement of a zone does

lead to increased accuracy giving us higher potential reward to risk but

potentially more mistrades if price does not pull back that far

so a range created zone or even a pivot zone that has multiple candles that will

essentially be a pivot on a higher time frame so that lower time frame range can

generally be cleaned up and refined to a you know a single candle if you were to

jump up and view that same price action on a higher time frame

we then have three main types of fractal refinements

inside bars where the candle does not break the high or low of the prior

candle and it is then engulfed by the next candle so this represents a

range-created zone on a lower time frame and we don't care if the inside bar is

bullish or bearish it's irrelevant in terms of supply and demand we're just

looking for which way price moves after the inside bar forms so if it breaks out

to the upside it's demand or to the downside it is of course supply

then we have sell to buy and buy to sell wicks which represent a pullback on a

lower time frame so within those wicks there will be a

pivot or range created zone on the lower time frame which is visible as those

wicks on the higher time frame and then finally we have large wicks

there's always pretty much stuff in wicks so if you refine your zone to just

the wick this will be a range or pivot created zone within that wick on the

lower time frame now supply demand zones are literally

everywhere you know almost all of them 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 so of course we build a portfolio of confluence and evidence for

each trade to increase the probability not only for the zone to hold but also

how far that reaction from the zone will actually be likely to move

so we can use market structure to help us with direction premium and discount

to see how well priced the zone is and then liquidity sweeps and mitigations

which we will cover at a later point so all of these are pretty nice to have

and we really do want to see them but you know they do not necessarily have to

be a very strict minimum requirement but there are two main ways in which we

do you know actually validate a strong zone

so i personally want to see at least one of these occurring in the market to

consider validating and trading from a specific zone

so we want to find zones that actually achieve something something very

significant in the market because this then means that they are likely to be a

strong zone that had a lot of money backing that area

so the first way to see this is by looking at zones that cause a break of

structure the more significant the structure of the zone breaks then in

turn the more significant that zone will be because it takes more money to break

its strong structural level the second method is by looking at zones

that cause other strong zones to fail and we call these flips

now when you combine both flip zones and structure break zones this can give you

very very high probability zones to build trade ideas around so over the

course of the next few lessons we are going to look at both of these two core

methods in depth and we're going to combine them with all of the other

confluences that we have you know looked at so far such as market structure and

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