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in the previous lesson we looked at the actual mechanics of the market of how
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order flow so the interaction between buyers and sellers that battle of supply
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and demand is what actually leads to the price action that we then see on our
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charts right so now what we're going to do is look at how we actually draw and
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identify these areas of supply and demand in the market on our charts and
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how we can use them as high probability trading opportunities when we then
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combine them with everything that we know so far about market structure
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now time doesn't know price and price doesn't know time
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i know at first that sounds like some kind of silly little riddle that
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you might be trying to get your head around but it's actually quite simple in
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reality so as retail traders you know we can get
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quite caught up in our world of technical analysis and you know looking
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at candlestick charts all day and we can be forgiven for thinking that everyone
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who participates in the forex market you know was trading it in a reasonably
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similar fashion to the way that we kind of think about and you know look at the
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market but when you're actually going to take a
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step back and you think about what we just
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discussed in the previous lesson on market mechanics and you think about the
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order flow in the market right the seven trillion dollars that go
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through the market every single day there's literally you know no way that a
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human brain can even begin to imagine just how much money that actually is
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you know big institutions who are pretty much making up the majority of that
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order flow you know they're not necessarily sitting there and trading
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with a chart and analyzing waiting for those candle closures
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they're just putting their orders through the market and they're just you
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know facilitating those transactions so a lot of those big dealing desks and
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banks they're just working through commercial volume that comes through to
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them you know to facilitate those transactions uh you know for various and
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endless amounts of different reasons you then also have
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pretty much complicated algorithms without continuously layering orders in
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and out of the market you know whether that's for pure speculative strategies
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you know from the quantitative side or even from you know market makers whose
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job is to provide liquidity to the market et cetera
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you know there's a lot going on we don't need to understand and talk about all of
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it but what we can do is we can make sense of you know all of that kind of
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complicated uh interaction and the interplay of all of those orders of that
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battle between supply and demand between buyers and sellers and we can do that
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with candlestick price charts so the first step to doing this is
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really by understanding what arranges so a range on a price chart is just a
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sideways consolidation or correction so it's when price is just moving sideways
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to the right of the chart you know it's not really moving in any
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sustained direction and it's not breaking the swing high or the swing low
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so it's just ranging in between two of those swing points and the trend is
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pretty much you know paused so buyers will be stepping in when
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prices and the discount half of the range and sellers are stepping in when
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price is in the premium half of the range
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now ranges can obviously be found across all time frames and this is where
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sometimes jumping up a time frame it can then show you more clearly that
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price is actually stuck in a range you know sometimes you're a bit too zoomed
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in on a lower time frame
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now ranges generally indicate one of two things
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one being high volume order flow where many orders are changing hands and it's
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very likely that you know large players are beginning to stack orders at a fair
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value of price so this is what you will often hear
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traders refer to as an accumulation or a distribution of orders which basically
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just means that demand and supply are exchanging quite rapidly
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but eventually you do see a large expansive move that breaks out of the
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range either to the upside or to the downside depending on which side of the
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market is in control so when the market deems that price is
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at fair value you know orders can be exchanging at quite a rapid pace and
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this is where you won't really see much movement on a price chart
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but then eventually when that imbalance between supply and demand eventually
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arises and it will eventually arise that is when you will then see price move
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rapidly in one direction why because it's trying to seek more
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orders right price needs to seek more liquidity in order to fill that
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imbalance and bring the market back to an equilibrium of fair value between
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buyers and sellers which is where price will then form another range right until
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the next imbalance then arises which will then cause price to break out of
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that range to then seek more orders to fill that imbalance and then this whole
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cycle that we've just described the whole cycle of order flow
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and that relationship between supply and demand is essentially that continuous
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heartbeat of the market so the other end of kind of what can
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form ranges i guess the other end of the spectrum is low volume
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now naturally you know high and low volume are going to be very very
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different in nature and the fact that ranges are created by both of those
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environments can obviously be a little bit confusing
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so one kind of common time which you'll see a range is towards the end of the
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new york session as the session is closing and moving into the asian
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session where price tends to range and consolidate because there tends to be
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kind of low market volume during those times and that generally you know goes
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the same for the whole of the asia session
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where volume is typically lower than you know comparison to london and new york
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so asia tends to be quite range-bound compared to those sessions
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so kind of session timing is i guess one of the obvious ways in which you can
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just assume that if you see a range right it's during asia that it's
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typically because of low volume but how can we tell whether a particular
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range you know aside from session timing how can we tell if a particular range is
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caused by high or low volume order flow if ranges are created by both of them
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well the easiest way to determine you know which environment you are dealing
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with is by just waiting to see what happens after the range is created
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right so we don't have to guess we just wait and then we ask ourselves does
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price rapidly move away from the range or does it just slowly move away from
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the range because rapid movement away from the
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range that suggests high volume which implies that a lot of orders have
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exchanged hands and that was likely institutional backing because it takes a
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hell of a lot of money you know just to move any of those major currency pairs
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by even just one pip so
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you know if we see price rapidly break out of a range then that gives us our
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first clue of you know a footprint that a large financial institution has
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stepped in or of course you know many of them
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and that is what has caused that overwhelming imbalance between supply
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and demand right to to cause price to break out of that
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range and then what we can do is start to potentially frame a trade idea around
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this when we see that occur in the market
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but if you see quite slow movement you know price sort of just trickles out
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away from the range then that will typically suggest low volume and that
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there hasn't been that you know really significant imbalance between supply and
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demand which is what really we are looking for
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because remember the whole game we're kind of playing
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here with supply and demand is to look for when the big money stepped in to
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take control of the market and we want to use that to understand
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where price is likely to move to and move from because that gives us you
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know another framework in order to read the order flow
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so again a movement away from a range should be significant to clearly
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showcase momentum being injected into the market so if price moves out of a
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range and then sort of immediately retraces afterwards
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that can be not always but can be further evidence
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of low volume so therefore would not be the creation of a supply and demand zone
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that we really should be interested in so we are not looking to trade that
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initial move that initial breakout of the range but instead we are
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concentrating on the re-test of that range as price eventually looks to
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return to that area so range-graded demand is when we see
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that sideways range followed by a rapid expansion to the upside and then we look
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for a move back into that overall demand zone to mitigate and fill any of those
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remaining buy orders that may be left in that area of interest so then we can
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look for another potential bullish move from that price level
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where that huge demand initially you know stepped in previously
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so again we don't trade the initial reaction out of the range because we
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never know for sure which way you know price is going to break out of a range
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so keep it easy we just wait for the market to show its hand and tell us
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which way it wants to go and then what we do is we patiently wait for price to
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return to that demand zone and then we start to look for our entry models
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within that zone so obviously the same thing goes for
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range created supply we see price breaks out of a range to the downside clearly
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indicating that in this case in supply managed to completely
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overwhelm demand right because it causes that imbalance to the downside so we
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wait for price to return to that range-created supply zone where then we
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look for potential entries to short the next move from that area where there is
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a lot of supply interest now the second type of the minor supply
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zone that you will see is pivot created zones
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so in the case of pivot created demand you will see a sharp down move followed
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by a sharp retrace to the upside so what's happening here is that supply
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is in control as price is moving down and assigning an overwhelming amount of
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demand steps into the market causing price to then rapidly reverse to the
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upside and that creates that demand zone that
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we are now interested in and we wait for price to return to that pivot demand
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zone to look for potential long entries so then pivot supply is obviously the
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same but you know the opposite where we see a small sharp movement to the upside
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that is then rapidly reversed with an expansive move to the downside showing
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that demand has then overpowered supply causing that imbalance to the downside
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where we will then you know look for price to return to that pivot created
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supply zone to potentially look for short entries
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so these ranges and these pivot created zones these really are the footprints of
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institutional orders in the market that shows us where they are stepping in with
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large orders to cause those imbalances we never need to guess we literally just
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wait for the breakouts to occur to create those supplier demand zones and
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then we await the return to the zone in question and then we look for potential
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entries there once price gets there because the probability it's not a
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certainty but the probability of price causing a similar move uh as it
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mitigates and fills the remaining you know those large passive remaining
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orders that are sitting in the order book at that price level
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that gives us a very strong edge in the market
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for us to potentially surf on the coattails of that large institutional
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money entering and exiting the market that causes those huge imbalances and
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therefore those huge moves for us to capsize on
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now as we go on of course we will cover entries in a lot more detail and how we
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use the lower time frames for confirmation and refinement etc but for
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now all i want you to understand and all i want you to think about is just how
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these zones are created and how they form in the market and what they
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represent because remember all these zones are
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doing is they are visualizing the action of the order book so that order flow and
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that's the language of the market that we are essentially reading with
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candlesticks on our charts so now we understand the concept of how
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these zones are created with these range and pivot zones but how do we actually
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see and draw these on our charts well as you can see here with candles
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if it is a range created zone we just draw our zone to cover the entire range
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so we draw from the lowest point to the highest point of the range before where
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price rapidly then broke out of that range and it's the exact same you know
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whether it's supply or demand for pivot created demand we draw the
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zone from the bearish candles that are then engulfed by the bullish candle that
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breaks out to the upside so we sometimes refer to this as the
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sell to buy for pivot created supply we draw the zone from the bullish candles
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that are then engulfed by the bearish candle that breaks out to the downside
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and we sometimes refer to this as the buy to sell
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so that's how they both look when we map these on our candlestick charts
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now whether a zone is a supply zone or a demand zone that will always be
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categorized by which direction price breaks out of the range
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so if price breaks out of a range or pivot to the upside this is caused by
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demand right giving us the demand zone and if price breaks out of a range or a
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pivot to the downside this is caused by supply giving us a supply zone
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but what determines if those zones are continuation zones is essentially which
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direction price was traveling in before the zone was created
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so for a demand zone to be a continuation price will be bullish and
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moving upwards before the zone is created so then when demand breaks out
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of that range it is a continuation of that bullish trend right
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so for a supply zone to be a continuation price will be bearish and
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moving downwards before the zone is created so then when demand breaks out
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of that range to the downside it is simply a continuation of that bearish
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trend so for a zone to be then classified as a reversal again it just
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solely depends on which direction price was moving before the zone was created
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so in the case of demand you know if price was bearish and moving
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to the downside and then demand stepped in into the market to over to overpower
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supply causing a bullish move
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this is then a reversal against the previous bearish trend right so that
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demand zone essentially becomes a reversal
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so therefore in the case of supply if price was bullish and moving to the
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upside before the range or pivot was formed then when supply steps in causing
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price to fall to the downside this is a reversal against that bullish
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that previous bullish move right so you know if i flick between kind of
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these continuations and reversals you can just clearly see that you know
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supply and demand are always in the same direction it's just what direction price
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was moving in previously before those zones were created that determines
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whether or not you classify it right as a reversal or a continuation
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so again just to quickly summarize we have two main types of zones
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either range created or pivot created supply and demand
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range and pivot are your essentially your two main types of zones
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but a pivot created zone can also be just one candle so it doesn't have to be
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multiple candles and you can also then have what is
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called a fractal zone now we'll talk about these fractal zones
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in a lot more depth in just a minute but essentially you are refining the candle
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to just the wick as this will be a zone on a lower time frame
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so this is how uh how all four of these types of zones would look like uh as
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continuation supply zones and then this is how all four of those
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types of zones would look like as you know reversal supply zones so it's
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always supply no matter what because price broke out to the downside but what
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determines whether it's a continuation or reversal is again just dependent upon
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which direction price was moving before the zone was created
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so we've seen how these four zones could look like on their own whether it can be
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a whole range of multiple candles or just a sharp pivot where you have a few
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or just one candle and then finally when you can refine that further to just the
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fractal wick but all of these four types can also be
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refined from just one range so if you see this range on the far left
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hand side of your screen you can draw your zone from the entire range right
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drawing the bottom of the zone from the lowest wick all the way up to the
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highest point of the range to the highest wick
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but then you could refine that exact same range to just the
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pivot point of that range before price broke out where you can see that supply
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stepped into the market right in the second example so essentially you refine
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that whole range to just those last two bullish candles where you get that pivot
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where you get that buy to sell that broke out of the range
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you can then take that pivot and refine this even further to just the last
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single candle of that pivot point within the range and then finally if you want
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even further refinement you can draw the supply zone from just the wick of that
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last bullish candle of that pivot point within that entire range okay so you can
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just see how going from left to right you can see that they are all the exact
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same price action example but you were just refining it further and further as
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you go across to the right so why would we bother to refine zones
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just like this well it all has to do with our trade
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entries really now we're going to talk about entries in way more depth in
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future lessons but for now it is a bit of a good time to just start looking at
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and just conceptually thinking about how we will use supply and demand zones to
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place and size up our entries so essentially we will be looking to
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always no matter what always place our stop loss behind the
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zone so in this case because it's supply we are expecting price to have a bearish
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move when price returns to the zone so we would place our stop above the zone
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above the highest point of that range so if it was demand then we would place
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it below the zone right so that's pretty simple for stop-loss
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placement it always goes behind the zone which is nice and mechanical
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now for where you decide to place your entry you have a little bit sort of more
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freedom and choice but essentially you will look to enter
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anywhere on or within the zone so the lowest point that you would look to
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enter the supply zone is at the distal point which is the very start of the
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zone on the outer edge you know just like how the reward to risk tool is
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drawn here but you can enter anywhere within the zone so you could enter
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higher up but again i don't want you to worry about this right now we will talk
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about that a lot more in future lessons so for the purpose of this lesson we are
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just always going to enter on the distal which is the edge of the zone okay
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so our stop always goes behind the zone and our entry always goes on the edge of
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the zone so going back to why we could
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potentially refine our range zone to either the pivot the candle or the
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fractal refinement the reason why as you've probably already guessed comes
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down to reward to risk because as you can see if we refine that
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range supply to just the pivot supply of that range then this means that we will
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be looking to enter our short position slightly higher up at a better price but
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keeping our stop loss in the exact same position so this means that our stop
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loss will be slightly smaller compared to entering on the entire range supply
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so ultimately this improves our reward to risk ratio
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the next refinement from there is drawing the supply zone from just a
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single candle within that pivot and you can see that again this will improve the
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reward to risk of the trade and then finally refining all of those supply
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zones to just the wick to give us that fractal refinement that will give us
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even higher potential reward to risk so that's great but you may now be
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wondering if the fractal refinement gives us the highest reward to risk
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ratio you know why wouldn't we just always draw our zone that way
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why bother drawing a much bigger zone on the entire range
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well to be fair that's a pretty good question because the reason why
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is that of course there are zero guarantees that price is going to pull
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all the way back up that far to actually tag you in and enter you into your
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position because we don't know for certain you
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know where the largest amounts of orders are sitting within that supply range
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that will be enough to overpower demand to start the next bearish leg down in
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price it could literally happen at any point
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within that range when price gets there so the more that you refine a zone the
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more you increase your potential accuracy giving you higher potential
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reward to risk but it increases the probability of you not being tagged into
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a position and you may miss more trades compared to not refining
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so you know it's that delicate balance between improving your reward to risk
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ratio as much as possible but still making sure you are entering
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enough positions now of course there is no right or wrong
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balance this will be entirely dependent on each individual trader you know what
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makes most sense to you what you have the most success with what aligns most
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with your trading personality and ultimately what you find easiest on your
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own individual psychology because you know some traders may suffer
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quite bad with fomo you know with fear of missing out and maybe they would
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prefer to just enter more positions and they just want to be in the trade so
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that they don't miss the move so they may actually prefer to not refine that
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much and they will always take you know the entire range for example or maybe
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even just a pivot of multiple candles but then what they have to do is they
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have to accept right that their average reward to risk ratio may be lower than a
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trader who chooses to always refine their zone to say just a candle or even
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a fractal refinement but the trader who does refine and
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prefers that higher reward to risk they then may have to accept that they're
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probably going to miss more positions compared to the trader who doesn't
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refine right so it's that balance between kind of
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over refining to get the higher risk reward and then potentially getting less
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entries but again don't worry too much about
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this right now because we will talk about entries and refinements a lot more
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as we go along for now i just want you to really understand the the different
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ways in which valid zones can be drawn okay
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so what we're going to do is we're going to look at a few more examples of
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fractal refinements that we can use as valid zones within the market
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so we have range creator supply and pivot creator supply right and we've
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been thinking about things so far just in terms of one single time frame
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but now what i want you to start thinking about is multiple time frames
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and how these different time frames will be interacting together you know as we
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go through and flick through those different time frames so if we look at
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the range created supply on the left-hand side
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let's say for a second that this is the one-hour chart
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so we draw our supply zone on the entire range there on the one-hour chart and
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now i want you to imagine how you think that would then look like on your chart
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if you jumped up to the four-hour chart well those four one-hour candles that we
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have drawn the entire range on those four one-hour candles will make up
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one four hour candle right so if you jump up a time frame to the
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four hour time frame you will see that that one hour range supply
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is actually a four hour single candle pivot supply zone all right it's a bit
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of a mouthful but you can see that essentially on the one hour you had to
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have four candles maybe jump up to the four hour time frame that will then just
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be made into one four hour candle okay so this is what i meant at the start you
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know that kind of silly riddle that time doesn't know price and price doesn't
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know time because it's just orders going through the market right that
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interaction of supply and demand that battle between buyers and sellers but we
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then use candlestick charts and different time frames to sort of make
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sense of all of that order flow so if you see a range created zone as you then
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go up the time frames that will then be refined to even you know a few or even
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just one single candle right so that lower time frame range will very likely
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just be one higher time frame candle so ranges or pivots are the two main
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ways in which we look at supply and demand zones right however we can
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essentially anticipate and see where a pivot or range created zone may be on a
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lower time frame and we can sometimes see where they are on a higher time
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frame so these three examples here are
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essentially ways in which we can draw zones on our charts that represent pivot
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and range created zones on a lower time frame without even having to go down and
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actually view that lower time frame so the first example here is what's
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called an inside bar zone so an inside bar is very simply a candle
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that does not break the high or low of the previous candle
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so you can see in both examples uh both of these examples of inside bars that
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the white candle does not break the high or the low of the candle that formed
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before it so that's why it's called an inside bar
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because it forms inside the higher low of the previous candle
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so what that means is that when the inside bar forms that will be a range on
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a lower time frame because it's not breaking the previous cameras high or
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low right so it's just ranging in between and that's what the inside bar
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represents it represents a range in a lower time frame
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so when price then breaks out of that range with the following candle that
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will then create our zone as there is an imbalance between buyers and sellers as
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price then breaks out of that lower time frame range but we can see all of that
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lower time frame price action by simply just understanding what an inside bar is
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now an inside bar can be bearish or bullish it doesn't matter in terms of
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supply and demand so that's why i've deliberately drawn the candle as white
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in both examples here just to make that point clear
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that it doesn't matter if the candle is bullish or bearish all that matters is
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that it doesn't break the previous candles higher low and then that means
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that is a range on a lower timeframe so what then determines whether that
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inside bar is supply or demand it isn't whether it's a bullish or
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bearish candle itself but actually what happens next
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does price break out of that lower timeframe range to the upside if so then
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that inside bar is a demand zone or if that lower time frame range breaks
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out to the downside then that inside bar is a supply zone
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so whenever you are looking at fractal refinements in general if you just ask
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yourself you know how did those series of candles form
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that should help your mind to kind of understand what may be happening on a
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lower time frame so for the inside bar you can see that
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price moved in one direction and it paused it failed to break the
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higher low so it must be ranging on a lower time frame and then price
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initiates out on the next candle now in the next example we have what are
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called sell to buy wicks and buy to sell wicks so if we look at the cell to buy
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which example first at the top this is a continuation demand zone so if
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we ask ourselves you know how did these candles form
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well price was initially bullish right it's moving to the upside in that first
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candle and you can see that that candle pulls back ever so slightly because it
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leaves a little wick and then that candle closes where that body ends right
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so it closes a bullish candle but then the next candle opens up where
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the last candle body closed but price continues to move down
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slightly right so it's still pulling back since that initial wick formed so
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price then goes up so that the second candle closes with a big bullish body
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00:26:44,320 --> 00:26:48,720
so essentially what just happened is that overall move between those candles
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is clearly bullish but there was a tiny pullback in between those two candles
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forming so what that may look like is something
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like this on a lower time frame where it would show a clear pivot demand zone
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00:27:00,559 --> 00:27:03,919
so if you imagine those two big bullish candles that we were just talking about
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00:27:03,919 --> 00:27:07,919
let's say that they form on the four hour chart and then you see those sell
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00:27:07,919 --> 00:27:12,640
to buy wicks you can then draw a zone from those two wigs as that will very
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00:27:12,640 --> 00:27:16,799
likely be a demand zone on the 15 minute time frame for example and that could
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00:27:16,799 --> 00:27:20,960
look like this pivot demand zone on the right or it could even look like a range
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00:27:20,960 --> 00:27:24,720
on the left so it doesn't really matter you know if
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00:27:24,720 --> 00:27:29,760
it's a range or a pivot zone all that is really relevant is that those wicks
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those sell to buy wicks those those wicks represent a demand zone on a
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00:27:34,559 --> 00:27:37,919
lower time frame so if you can see a lower time frame
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zone that is also visible on a higher time frame then in theory all other
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00:27:42,960 --> 00:27:46,480
things being equal this could make that zone hold a little
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bit more weight right because let's say that lower time frame zone was an m15
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zone for example on the 15 minute time frame that is now also visible on the
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four hour in this case now lower time frame zones will not
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always be visible in the higher time frames but when you can see for example
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that in 15 zone on the four hour via refractive by a fractal refinement like
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that in theory that should increase the strength of that zone
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00:28:13,520 --> 00:28:17,039
and then all of that we've just spoken about of course applies to supply zones
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so where you have two bearish candles for instance that then form those buy to
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sell wicks and then on a lower time frame those wicks will represent either
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range created or pivot created supply and then the final example we have here
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is when we have large wicks so if you want to refine this further right
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because you want to make your zone smaller to increase your accuracy to
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increase your reward to risk ratio then you can just simply draw the zone
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covering only the wick rather than including the body of the
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candle too and the reason why we do this is because
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that wick will contain a zone on a lower time frame
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so when we hop in the charts and we start drawing on supply and demand zones
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these fractal refinements can be very powerful and useful
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whereby you can really understand and see that on one time
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frame actually what is happening on a lower time frame without even having to
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you know go down and look at it
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so now we've seen how supply and demand zones are created and how we draw them
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on candlestick charts however s d zones are literally going to be everywhere
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right so if you hop on your chart and you start drawing every single zone on
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your chart's going to be an absolute mess right it's going to be a show
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00:29:27,120 --> 00:29:29,840
and you're going to see some zones play out and you're going to see a lot that
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00:29:29,840 --> 00:29:34,640
don't seem to work that well and it's just going to be really really confusing
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because supply and demand zones are literally everywhere in the market
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00:29:38,720 --> 00:29:42,799
why are they everywhere well because there are constantly imbalances between
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supply and demand because if there wasn't the price would never move
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00:29:46,799 --> 00:29:50,080
because it would just be at a fixed constant fair value
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because of course in reality what the market deems to be fair value is
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shifting every second of every day so the balance between supply and demand
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is shifting constantly right now
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every single supply and demand zone it probably will form some degree of a
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reaction right when price returns to that zone you will almost always see
447
00:30:10,799 --> 00:30:15,039
price at least pause or maybe even form a small bounce as those orders are
448
00:30:15,039 --> 00:30:18,640
exchanged between hands and of course there will be some circumstances where
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price will just smash straight through but what we can do to filter out a lot
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of these zones that are most actually just not going to be worth the risk of
451
00:30:27,279 --> 00:30:30,960
trading right because we don't just want to enter a position and risk our
452
00:30:30,960 --> 00:30:35,360
hard-earned capital on just sort of any old zone that was created with you not a
453
00:30:35,360 --> 00:30:39,120
lot of money behind it that is not professional trading that's
454
00:30:39,120 --> 00:30:42,799
just gambling right if you want to do that you know go chuck
455
00:30:42,799 --> 00:30:46,399
your money on red at the casino you probably have better odds
456
00:30:46,399 --> 00:30:50,799
but we are here to be professional traders and to determine and refine our
457
00:30:50,799 --> 00:30:53,360
edge so there are certain confluences that we
458
00:30:53,360 --> 00:30:58,000
can look for to increase the probability of the zones having a large reaction or
459
00:30:58,000 --> 00:31:01,760
at least causing a larger move so one that we've looked at in depth so
460
00:31:01,760 --> 00:31:05,600
far is market structure so hopefully you should be very very familiar with this
461
00:31:05,600 --> 00:31:08,080
now so we've seen how we can use market
462
00:31:08,080 --> 00:31:13,200
structure to very effectively give us a bias on the direction of price whether
463
00:31:13,200 --> 00:31:17,039
it is bullish or bearish whether it is a you know a pro trade run
464
00:31:17,039 --> 00:31:21,200
or a counter trend pullback and of course bring an entirely new dimension
465
00:31:21,200 --> 00:31:25,679
to that by using multi-time frame analysis to look at market structure
466
00:31:25,679 --> 00:31:30,480
across multiple time frames you know to really build that story and that overall
467
00:31:30,480 --> 00:31:33,440
narrative so market structure is a very important
468
00:31:33,440 --> 00:31:37,279
tool that we can use in our analysis to help us make sure that we are trading on
469
00:31:37,279 --> 00:31:40,559
the right side of the market and that will increase the probability
470
00:31:40,559 --> 00:31:43,200
of the zones that we are looking to trade from
471
00:31:43,200 --> 00:31:46,559
causing the type of large moves that you know we actually want to position
472
00:31:46,559 --> 00:31:49,360
ourselves in so market structure will help us to
473
00:31:49,360 --> 00:31:54,320
manage our expectations of how far the move from that zone is likely to reach
474
00:31:54,320 --> 00:31:57,840
before price may potentially pull back or even reverse
475
00:31:57,840 --> 00:32:03,600
so that's why market structure is king we then looked at the concept of premium
476
00:32:03,600 --> 00:32:07,919
versus discount so essentially helping us to see if we are looking to trade at
477
00:32:07,919 --> 00:32:12,720
a level that is actually well priced so if we introduce supply and demand to
478
00:32:12,720 --> 00:32:16,960
this we can then look to buy from demand zones in discount prices and sell from
479
00:32:16,960 --> 00:32:22,080
supply zones in premium prices to help increase our strike rate and potential
480
00:32:22,080 --> 00:32:25,519
reward to risk ratio there are then some other very key
481
00:32:25,519 --> 00:32:29,600
concepts such as liquidity sweeps and mitigations which we haven't discussed
482
00:32:29,600 --> 00:32:33,840
yet and we haven't looked at yet so don't worry we will look at these uh
483
00:32:33,840 --> 00:32:37,039
in depth in future lessons so you don't need to you know concern yourselves
484
00:32:37,039 --> 00:32:41,679
about these just now but these are also some key confluence that can help us you
485
00:32:41,679 --> 00:32:45,360
know to kind of pick and choose which zones that we are actually interested in
486
00:32:45,360 --> 00:32:50,399
building solid trade ideas around okay now all of these are really great
487
00:32:50,399 --> 00:32:54,320
confluence that we should be using to make sure that we are trading with as
488
00:32:54,320 --> 00:32:58,720
high as a strike rate and as high as a reward to risk ratio as possible
489
00:32:58,720 --> 00:33:01,919
and those confluences are really nice to have
490
00:33:01,919 --> 00:33:07,440
but you know they are not necessarily a strict minimum requirement so what do i
491
00:33:07,440 --> 00:33:11,120
mean by that well if they were a strict minimum
492
00:33:11,120 --> 00:33:14,720
requirement then you would only ever buy from demand zones that were in the
493
00:33:14,720 --> 00:33:17,840
discount for example and perhaps you would only buy from
494
00:33:17,840 --> 00:33:21,840
demand zones that were also pro trend and in the discount right because that
495
00:33:21,840 --> 00:33:25,519
should in theory you know really give you that higher probability
496
00:33:25,519 --> 00:33:29,760
but what that also means is then you know you would never sell from a supply
497
00:33:29,760 --> 00:33:33,840
zone that was in the discount prices and maybe a supply zone that was also
498
00:33:33,840 --> 00:33:38,159
counter trend because this would be you know i guess as low probability as you
499
00:33:38,159 --> 00:33:41,039
can make it and it would be a lot more aggressive
500
00:33:41,039 --> 00:33:44,399
but the reason why you know i don't say it's a minimum requirement that price
501
00:33:44,399 --> 00:33:48,000
you know needs to be a good premium or a good discount level
502
00:33:48,000 --> 00:33:51,840
or it has to be with pro trend and you can't trade counter trend is because you
503
00:33:51,840 --> 00:33:56,480
can do those things if you want to it will be a bit more aggressive and
504
00:33:56,480 --> 00:34:00,000
might be lower probability so i wouldn't really advise if you're starting out um
505
00:34:00,000 --> 00:34:03,360
but they're just not hard and fast rules so that will all depend on each
506
00:34:03,360 --> 00:34:06,960
individual trader you know how they wish to trade what makes sense to them what
507
00:34:06,960 --> 00:34:10,480
they have the most success with you know what is easiest and congruent with their
508
00:34:10,480 --> 00:34:14,480
own trading psychology which again will only come with time
509
00:34:14,480 --> 00:34:18,960
experience testing and you know constant reviewing
510
00:34:18,960 --> 00:34:23,599
so as i was saying that list there are all confluences that increase the
511
00:34:23,599 --> 00:34:28,320
probability of um supply and demand zones playing out with large and
512
00:34:28,320 --> 00:34:33,040
sustained moves but they are not necessarily a strict minimum requirement
513
00:34:33,040 --> 00:34:37,280
to validate a zone that you may want to trade from
514
00:34:37,280 --> 00:34:41,599
but there are two core methods that we use to validate a strong supply and
515
00:34:41,599 --> 00:34:46,800
demand zone that in my personal opinion you should really only be looking to
516
00:34:46,800 --> 00:34:52,240
trade from zones that at a minimum do at least one of either of these two
517
00:34:52,240 --> 00:34:55,760
methods or ideally both of them together
518
00:34:55,760 --> 00:35:00,000
in order to trade from them so what i mean by that is i personally
519
00:35:00,000 --> 00:35:04,480
view them as a minimum requirement in my trade plan so i would advise that you
520
00:35:04,480 --> 00:35:09,599
probably do also so what are these two core methods
521
00:35:09,599 --> 00:35:12,079
well again because we want to find the zones
522
00:35:12,079 --> 00:35:15,520
where there was a drastic imbalance between supply and demand so that when
523
00:35:15,520 --> 00:35:20,480
price returns to it the probability of that big money stepping in again is a
524
00:35:20,480 --> 00:35:24,000
lot higher right because those are the areas that we really want to concentrate
525
00:35:24,000 --> 00:35:27,520
on that we want to focus on and that we want to trade from
526
00:35:27,520 --> 00:35:31,599
so again what can we do to try and validate which zones are going to be the
527
00:35:31,599 --> 00:35:35,440
strongest which zones are going to be the most significant and therefore have
528
00:35:35,440 --> 00:35:38,160
that highest probability of causing a strong move
529
00:35:38,160 --> 00:35:41,520
well the main idea is to find a zone that achieved something significant in
530
00:35:41,520 --> 00:35:44,240
the market so there are two main things that we
531
00:35:44,240 --> 00:35:49,920
look for that we deem as significant in order to validate a strong zone
532
00:35:49,920 --> 00:35:53,920
the first of those is that we want to find zones that caused a break of
533
00:35:53,920 --> 00:35:58,400
structure so we wanted to see the zones that led to a bus
534
00:35:58,400 --> 00:36:02,079
so we want to find where the demand came into the market that led to price being
535
00:36:02,079 --> 00:36:06,640
able to break structure to the upside to break a high and form a higher high
536
00:36:06,640 --> 00:36:10,880
and likewise we want to find where the supply came into the market that led to
537
00:36:10,880 --> 00:36:13,839
price being able to break structure to the downside
538
00:36:13,839 --> 00:36:17,760
in order to break that low and form a lower low
539
00:36:17,760 --> 00:36:21,280
so we should you know know by now that there are three different types of
540
00:36:21,280 --> 00:36:25,119
structure swing minor and substructure
541
00:36:25,119 --> 00:36:29,680
so the more significant a level of structure that a zone manages to break
542
00:36:29,680 --> 00:36:33,119
then the more significant that that zone will be
543
00:36:33,119 --> 00:36:36,880
so with swing structure being the most significant of the three
544
00:36:36,880 --> 00:36:40,800
minor structure being less significant than swing structure and finally
545
00:36:40,800 --> 00:36:44,160
substructure being the weakest out of those three
546
00:36:44,160 --> 00:36:47,440
so this means that the highest probability zones will be the ones that
547
00:36:47,440 --> 00:36:51,599
lead to the break of swing structure so the demand zones that cause those
548
00:36:51,599 --> 00:36:56,720
swing higher highs or supply zones that cause those swing lower lows
549
00:36:56,720 --> 00:37:02,560
now all three zones boss mbos and sbos can of course be tradable but it's the
550
00:37:02,560 --> 00:37:05,760
swing zones that are going to hold the most weight and have the highest
551
00:37:05,760 --> 00:37:10,079
probability of leading to another large swing move
552
00:37:10,079 --> 00:37:15,040
and it's those swing runs that really we want to catch and position ourselves in
553
00:37:15,040 --> 00:37:18,960
so that's the first main way in which we can validate the significance of a
554
00:37:18,960 --> 00:37:23,040
supply or demand zone in the market by concentrating on the ones which
555
00:37:23,040 --> 00:37:26,880
caused a break of structure and the second main way that we use to
556
00:37:26,880 --> 00:37:30,960
validate zones as doing something and achieving something very significant in
557
00:37:30,960 --> 00:37:34,320
the market is if a zone actually manages to
558
00:37:34,320 --> 00:37:39,359
to overpower and take out another strong valid zone
559
00:37:39,359 --> 00:37:43,839
causing that zone to fail so we call these flips so supply to
560
00:37:43,839 --> 00:37:49,599
demand flips or demand to supply flips so when you find a zone that combines
561
00:37:49,599 --> 00:37:54,000
both methods so not only does it cause a break of structure but it also caused
562
00:37:54,000 --> 00:37:58,000
another zone to fail in the process then this is when you have the highest
563
00:37:58,000 --> 00:38:02,240
probability zone all else being equal
564
00:38:02,240 --> 00:38:06,320
so let's just do a super quick crash course summary of everything that we
565
00:38:06,320 --> 00:38:10,640
have covered in this lesson supply and demand zones are caused by
566
00:38:10,640 --> 00:38:13,760
overwhelming imbalances between supply and demand
567
00:38:13,760 --> 00:38:17,839
and we can identify and draw these on our charts by seeing where price broke
568
00:38:17,839 --> 00:38:22,800
out of a range and this can be in the form of range or pivot created supply or
569
00:38:22,800 --> 00:38:25,359
demand and of course we don't trade the initial
570
00:38:25,359 --> 00:38:29,440
breakout we instead wait for price to show its hand and see which direction it
571
00:38:29,440 --> 00:38:33,520
wants to go and then we wait for price to return to that zone and then look for
572
00:38:33,520 --> 00:38:38,160
our potential entry models so we look to buy from demand or we look to sell from
573
00:38:38,160 --> 00:38:40,880
supply now what determines if those zones are
574
00:38:40,880 --> 00:38:45,040
continuation zones is which direction price was traveling in before the zone
575
00:38:45,040 --> 00:38:48,400
was created so price will be bullish before a demand zone if it's a
576
00:38:48,400 --> 00:38:52,160
continuation and it will be bearish before a supply zone if it's a
577
00:38:52,160 --> 00:38:54,960
continuation if it's a reversal then price will be
578
00:38:54,960 --> 00:39:00,800
bearish before the demand zone or bullish before the supply zone
579
00:39:00,800 --> 00:39:05,440
range and pivots are your two main types of zones but a pivot created zone can
580
00:39:05,440 --> 00:39:10,079
also be just one candle it doesn't have to be multiple candles and you can also
581
00:39:10,079 --> 00:39:14,960
then have what's called a fractal zone but all of these four types can also be
582
00:39:14,960 --> 00:39:20,480
refined from just one range and we can see that here from left to right
583
00:39:20,480 --> 00:39:24,800
we look to enter on or within the zone and our stop loss will always go behind
584
00:39:24,800 --> 00:39:28,000
the zone but the more refinement of a zone does
585
00:39:28,000 --> 00:39:32,400
lead to increased accuracy giving us higher potential reward to risk but
586
00:39:32,400 --> 00:39:37,839
potentially more mistrades if price does not pull back that far
587
00:39:37,839 --> 00:39:43,200
so a range created zone or even a pivot zone that has multiple candles that will
588
00:39:43,200 --> 00:39:48,320
essentially be a pivot on a higher time frame so that lower time frame range can
589
00:39:48,320 --> 00:39:53,440
generally be cleaned up and refined to a you know a single candle if you were to
590
00:39:53,440 --> 00:39:57,599
jump up and view that same price action on a higher time frame
591
00:39:57,599 --> 00:40:00,960
we then have three main types of fractal refinements
592
00:40:00,960 --> 00:40:04,240
inside bars where the candle does not break the high or low of the prior
593
00:40:04,240 --> 00:40:08,160
candle and it is then engulfed by the next candle so this represents a
594
00:40:08,160 --> 00:40:12,800
range-created zone on a lower time frame and we don't care if the inside bar is
595
00:40:12,800 --> 00:40:16,960
bullish or bearish it's irrelevant in terms of supply and demand we're just
596
00:40:16,960 --> 00:40:21,839
looking for which way price moves after the inside bar forms so if it breaks out
597
00:40:21,839 --> 00:40:26,800
to the upside it's demand or to the downside it is of course supply
598
00:40:26,800 --> 00:40:31,839
then we have sell to buy and buy to sell wicks which represent a pullback on a
599
00:40:31,839 --> 00:40:34,880
lower time frame so within those wicks there will be a
600
00:40:34,880 --> 00:40:39,280
pivot or range created zone on the lower time frame which is visible as those
601
00:40:39,280 --> 00:40:43,680
wicks on the higher time frame and then finally we have large wicks
602
00:40:43,680 --> 00:40:47,280
there's always pretty much stuff in wicks so if you refine your zone to just
603
00:40:47,280 --> 00:40:52,400
the wick this will be a range or pivot created zone within that wick on the
604
00:40:52,400 --> 00:40:56,319
lower time frame now supply demand zones are literally
605
00:40:56,319 --> 00:41:00,240
everywhere you know almost all of them will give some form of a reaction but
606
00:41:00,240 --> 00:41:04,960
not all are necessarily one in which we want to risk our capital on and take a
607
00:41:04,960 --> 00:41:09,440
trade from so of course we build a portfolio of confluence and evidence for
608
00:41:09,440 --> 00:41:14,800
each trade to increase the probability not only for the zone to hold but also
609
00:41:14,800 --> 00:41:19,200
how far that reaction from the zone will actually be likely to move
610
00:41:19,200 --> 00:41:23,520
so we can use market structure to help us with direction premium and discount
611
00:41:23,520 --> 00:41:27,520
to see how well priced the zone is and then liquidity sweeps and mitigations
612
00:41:27,520 --> 00:41:32,079
which we will cover at a later point so all of these are pretty nice to have
613
00:41:32,079 --> 00:41:36,720
and we really do want to see them but you know they do not necessarily have to
614
00:41:36,720 --> 00:41:41,760
be a very strict minimum requirement but there are two main ways in which we
615
00:41:41,760 --> 00:41:44,880
do you know actually validate a strong zone
616
00:41:44,880 --> 00:41:49,119
so i personally want to see at least one of these occurring in the market to
617
00:41:49,119 --> 00:41:53,119
consider validating and trading from a specific zone
618
00:41:53,119 --> 00:41:56,319
so we want to find zones that actually achieve something something very
619
00:41:56,319 --> 00:42:00,000
significant in the market because this then means that they are likely to be a
620
00:42:00,000 --> 00:42:03,920
strong zone that had a lot of money backing that area
621
00:42:03,920 --> 00:42:06,560
so the first way to see this is by looking at zones that cause a break of
622
00:42:06,560 --> 00:42:10,079
structure the more significant the structure of the zone breaks then in
623
00:42:10,079 --> 00:42:14,000
turn the more significant that zone will be because it takes more money to break
624
00:42:14,000 --> 00:42:17,520
its strong structural level the second method is by looking at zones
625
00:42:17,520 --> 00:42:21,599
that cause other strong zones to fail and we call these flips
626
00:42:21,599 --> 00:42:25,440
now when you combine both flip zones and structure break zones this can give you
627
00:42:25,440 --> 00:42:31,040
very very high probability zones to build trade ideas around so over the
628
00:42:31,040 --> 00:42:34,640
course of the next few lessons we are going to look at both of these two core
629
00:42:34,640 --> 00:42:38,000
methods in depth and we're going to combine them with all of the other
630
00:42:38,000 --> 00:42:42,800
confluences that we have you know looked at so far such as market structure and
631
00:42:42,800 --> 00:42:46,839
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