Supply & Demand - Bootcamp Ep.3

Hello and welcome to episode 3 of the

technical boot camp. Today we are going

deep into the concepts and topics of

supply and demand. So this is one of the

most important concepts in trading. I

know I say that quite a lot, but this

one is because this is actually what

drives market prices. So rather than

spending loads of time teaching you the

same stuff you've already seen about

supply and demand, we're going to start

by diving deep into the theory of supply

and demand and why that matters so much

to become a successful price action

trader. I'll show you how to identify

and plot supply and demand zones

correctly and why we do it that way and

how to successfully trade this theory as

a whole. So, with that said, get comfy,

get some notes ready, and we'll dive

right in. Let's go. So, supply and

demand is basically the driving force

behind all the movements that we see in

the market. Therefore, whether you're

going to use these concepts or not, it's

really important you understand what it

is that actually makes prices appreciate

and depreciate in financial markets. And

that is generally basically how much

available demand there is in a market.

Okay. So if we take a look at this

chart, we'll explain it as we break it

down. Here we have a point where demand

is at its highest. When demand is high,

supply is generally low. That's because

obviously with everyone up here buying,

supply is taken up. This happens in all

markets. Think about the housing market

in the UK right now. If you are in the

UK, of course, basically everyone is

buying houses or there's too many

people, not enough houses. Therefore,

demand for houses is really high. Supply

of houses is really low. So, the price

of houses appreciates massively, right?

So, price would look like this with high

demand and low supply. You can think of

it with diamonds as well. this argument

that this could be uh inflated value

because a company controls all the

diamonds but still they're hard to get.

So a scarce asset goes up because demand

is high and supply is low. Right now if

we go the other way and we start to see

demand decline, well what happens as

demand declines is people start selling

the asset. So the supply of the asset

will increase and flood into the market.

Right? This is true in financial markets

as it is elsewhere. If you had a gold

coin for example and everyone wanted

that gold coin, well, you could charge

pretty much exactly what you wanted

because it's a very scarce asset and the

demand is very high. However, if someone

else comes along with 100 gold coins and

starts selling them off for cheaper,

well, suddenly this is not so scarce and

they're more available and there's a

higher supply in the marketplace. So,

there's still the same amount of people

that want the gold coin, but now there's

100 more gold coins. Therefore the price

is going to decrease because people will

see this as a less scarce asset. Supply

will be higher, demand will be lower and

prices will decrease. Okay. So what we

see in the markets then is basically

high demand leads to or the other way

around low supply or low supply can lead

to high demand, right? If people are

after scarcity which creates price

appreciation. So, if we have not much of

an asset and a lot of people want the

asset, prices will go up. Think of a

Rolls-Royce. A lot of people want them,

not many people can have them. You can

charge what you want for one. People

will pay a million dollars for a car at

that point. Now, if you've got low

demand paired with either as a kind of

as an effect of high supply or creating

high supply. So, let's say, as we said

with the gold coin example, you've got

high supply now. Lots of gold coins in

the market. Not too many people are that

bothered about them anymore cuz it's not

a scarce asset. So therefore price

depreciates. Okay. So this is how supply

and demand works. And this is basically

the market psychology behind all of the

movements that we see in financial

markets. If we have a case where there's

high demand for an asset, so there's a

reason for people to want to hold a

specific asset. Then supply will be

bought up. It will get more scarce and

people who have the asset can then

charge more for it. That will mean price

appreciates. Low demand. So if not a lot

of people want to buy the asset, if

something bad happens to a currency and

people start selling it off, um then of

course the demand will decline that will

create more supply because supply will

be being sold into the market and that

creates price depreciation. Not not so

many people want it and loads of it's

available. All right. Now let's explain

then how this actually comes to be in a

financial market. How this actually

affects the prices. Okay. So obviously

we know high supply low demand creates

price depreciation. Low supply, high

demand creates price appreciation. So

with that in mind, what is it that

actually causes that then? So how does

this actually make prices go up and

down? Well, it's very much like an

auction theory. Okay, so let's say price

is trading at this level. Now suddenly

there is a reason that people want to

hold this asset. Well, now we have new

people stepping in. So these are the new

people coming over. These are the people

that hold the asset. What these guys are

going to do is now say, well, if you

want the asset, you've got to pay me

this much. Okay, here instead of this

much where they got in, someone's going

to take that. And then what's going to

happen? If there are still people coming

in for more of this asset, the next guy,

this guy here, is going to say, "Okay,

well, if you want to buy off me, you got

to pay this much." Okay? So then

someone's going to come in and take

that. And then the next guy who's

holding the asset might come in and say,

"Well, you got to pay me this much."

Right? So basically because people want

the asset so bad, they will continue to

pay higher prices which is what creates

the upward movements in the market. Now

let's say we get to a point where the

direction shifts. People are less

interested in having this asset now for

one reason or another. Maybe another

asset has become more um appealing.

Maybe this one has lost its yield or

something. Something negative's happened

and people don't want this anymore.

Well, all of these people now will start

selling. So let's say we have to hold us

again. Someone's going to be like, "Can

I sell this here?" and a buyer might

come in and buy it there. This is the

guy who's buying the top. But then as it

starts to depreciate because there are

less people in this pool than there is

in the pool of holders over here, people

that already own the asset. Well, now if

you want to sell the asset, you're going

to have to say, "Well, I'll sell it you

at this price." And then someone's going

to come and take it. But basically,

because there's less people willing to

pay these prices for the asset, the

owners of the asset will have to keep

dropping the price to meet demand. And

when demand is met, then we may see a

new drive higher when we meet a price

that people are happy to start buying in

at again. But essentially, what's going

to happen there is yeah, the price is

just continuing to depreciate to

basically meet the price of which demand

exists. Okay? So, if you wanted to buy a

car off me and I had this car and you

didn't want to buy it at this price, I

might have to lower the price down to

here. See if you'll take it. If you're

not going to, I'm going to have to keep

dropping that price. Okay, that's

basically what we're seeing happen in

the real markets. And although these

drawings have been messy, I'm pretty

sure uh you've hopefully caught along

with them. So, that's basically how

supply and demand works. It's the same

everywhere. Some reasons why just very

briefly before we get into actually

using this, why demand may increase for

an asset. Let's say we have uh the US

dollar and the interest rate on the

dollar is 4.5%. And then let's say we

have the euro and the interest rate on

the euro, these are random numbers by

the way, is 2%. Well, if you're now

thinking of holding one of these for the

long term, which one's going to be more

appealing? Probably the US dollar,

right? Because if you have $100,000 in

the US dollar, you're going to gain

$4,500 a year for holding that. Whereas,

if you have $100,000 in euros, you're

only going to gain $2,000 a year for

holding that. So there's a better yield

in US dollars which therefore is going

to make the dollar go up and the euro go

down because people holding the euro

will sell opening up more supply and

decreasing demand and they will buy US

dollars which of course minimizes the

supply or sinks the supply a bit and

increases demand. Okay, so that's one of

the reasons why we may get uh supply and

demand differentials in the market.

Another one could be what we call risk

on versus risk off. Okay, I'm sure we'll

go more into depth on these, but to

understand uh just the basics of what

drives currencies, we'll go through it

now. So, a riskoff currency uh is a safe

currency. Again, like the US dollar,

safe haven currencies, right? Uh the yen

does pretty well, the Swiss Frank, these

are seen as safe havens, safe assets to

put money in that are generally stable

in hard times. So, risk on assets when

uh market sentiment and traders are

happy to take on a bit more risk, that's

going to be pretty much everything else.

things like the euro, the pound, uh the

Aussie, these things are a little bit

more speculative. So in a bad economic

time, money will outflow these because

people want to put their money somewhere

safe. We see demand for these increase.

Therefore, we could see price

appreciation in these assets. Okay. Uh

also gold. Gold, if we take a look at

gold right now, that's exactly what's

happening, right? Let's let's just head

over there. gold right now. If we take a

look at the weekly, gold, silver, these

safe assets, these long-term assets,

they're parabolic. They look like crypto

charts. Why is this? Well, this is

simply because hard economic times.

We've got things like uh war. Okay. In

2022, I believe that kicked off, which

is yeah, where we looking about this

point somewhere around here, war kicked

off. Russia Ukraine obviously look at it

since then. We have many other economic

problems, a lot of things going on that

basically people say currencies

inflated, a danger of, you know,

geopolitical events. They're not so good

to hold. I'd rather have my money

somewhere proven and safe. So people

then put their money into gold that

creates less supply, more demand, and

this mix creates the perfect concoction

to take us to, you know, $4,600 per

ounce when a few years ago we were

trading really never above two. So

another one of those is silver. These

are two things I've been holding very

long-term trades on. I've been holding a

silver trade from down here and we are

now at $91, which is absolutely insane.

So, that trade is up like $400. Uh why?

Because simply the same reasons, right?

Around exactly the same time we started

to see war, major geopolitical events.

We were already kind of in the mix with

um COVID pandemic, things like that. But

now, silver's gone absolutely parabolic.

So, that is why that happens. we see

more demand coming in for safe assets.

People buy that and then price

appreciates because supply is shrinking

and demand is increasing. And if you're

holding silver at this level, if you for

example, if you bought in where I bought

in uh and now people are like, please I

really want some silver, you can say,

well, I'll sell it you for this much.

I'll sell it you for this much. I'll

sell it you for this much. And that is

exactly what's happening. All right,

that is how uh silver is doing as

amazing as it is doing right now. So

then another one we can look at real

quick before we get into actually

trading the theory is USD JPY. If we

look at this on the monthly perspective,

we can see the dollar has been

appreciating against the yen very

aggressively. This one comes down to

their interest rates and monetary

policy. So both of these are safe

havens. So you should expect that if one

does well, the other should do well,

right? That's how it would seem on the

surface. A safe haven currency, you

know, like we've seen gold and silver do

well. We don't see one beat the other.

um you would expect that USD and JPY

would move in pretty much the same sense

but this has the currency differential

of interest rates yields monetary policy

so as we said the US has had interest

rates are like 4% plus for the past few

years since really trying to defeat that

pandemic whereas that's because they

were they were seeing inflation right so

this was because of inflation however if

we look at the other side of the picture

at the Japanese yen. Uh the Bank of

Japan was actually seeing deflation.

So they have interest rates actually at

zero and sometimes negative, right? So

they sit in this zero and negative

range, which is pretty wild. But this is

because of deflation or disinflation. So

basically their economy is is just

really not growing. Um there's obviously

a lot of problems in Japan regarding the

the economy, population, things like

that. But their economy is so flat that

they have yields so low that borrowing

is so cheap to stimulate the economy and

get people spending money. Okay? So

that's why they do that. And then if we

think about the US, their interest rate

is high because inflation started

spiking. So they wanted to slow down the

amount of money people were spending.

They make it more attractive to save.

That creates demand to hold an asset.

and they make it less attractive or less

attractive to invest or to borrow even

less attractive to borrow. So with it

being less attractive to borrow money,

businesses slow down, take less risks,

uh and they just hold the money instead

of spending it, which of course can

create demand because people are like,

well, there's big yield here. There's no

yield here. So I'm going to move my

money from Japanese yen into US dollars

and hold that. And that is why when you

look at the charts for those years, so

let's say from 2020 around the time that

the US started hiking interest rates,

we've had pretty much nothing but direct

upside cuz around this point people

started offloading yen and buying

dollars. Okay? And that is a case where

demand increases, supply decreases, and

the US dollar massively outperforms the

yen. And that is why since around this

point, we've seen nothing but pretty

much clean upside for USD JPY. There's

that disparity between supply and demand

between the US dollar and the Japanese

yen. As we see those high yields for the

dollar and low yields for the yen, we

start to see dollar demand increase,

which creates the supply decrease. And

we see yen demand decrease, which

creates the supply increase. So with

more money going out of the yen into the

dollar, we see this on USD JPY. So now

let's talk more about how we actually

utilize this on the charts. I think I've

gotten the theory across quite well and

you should understand pretty much what

it is that drives the force behind this

concept. Okay. So now that we've pretty

much in full explained the theory behind

supply and demand, talk about how we

actually trade it on the charts. So when

it comes to identifying and utilizing

supply and demand on charts, we use

something we call supply and demand

zones. So these are basically price

areas. This is how you've got to think

of it. It's a price area that the market

has created impulsive movements from

that could therefore be utilized in the

future for us to find good points to get

into and sometimes out of trades as

well. So what we have here is basically

a indicated price move. So just imagine

this is a candlestick movement or a

price move in the market. This is

obviously a bullish price move because

the market's moved up and at the start

of the price move we have a small kind

of consolidative area where the market

moved sideways a little. Now this area

here the consolidation before the drive

higher is a demand zone. So we classify

this as a demand. Now the reason we know

this is a demand and how we spot it in

real time is basically after the small

consolidative move we have this large

impulsive bullish push. Right? This

impulse higher therefore indicates that

from this price area we saw demand enter

the market. Okay. So if you think about

the logic behind what's actually

happening, we have sideways price and

then an explosive upward move. That

shows us that somewhere in and around

this area where the market went

sideways, we saw a big influx of buyers.

Okay, so we a lot of people want to buy

there. So buyers or owners of the asset

keep pushing the price up and buyers

keep paying that increased premium. All

right, so what does that tell us? Well,

it tells us that at this point,

specifically the demand zone we have

marked, this is where buyers stepped

into the market

in large numbers.

So that is then classified as demand. So

how we use this in a market then is if

we understand where buyers are stepping

in in massive numbers. Take it back to

what I said about it being a price range

rather than just a rectangle you've

drawn on the chart. It tells us that

between 250 and 260 in this example

using these numbers over on the right we

saw lots of buying come. So if we think

about the auction theory that tells us

that between 250 and 260 this was a good

price to buy this asset. People saw this

as a discount. Okay. So because we saw a

lot of demand pushing in from the 250 to

260 area. We could then anticipate that

if the market was to return to that 250

260 range, we may see another influx of

buying which could drive us to new highs

cuz we already know this price is proven

as a discount price to buy from. So, if

the market can get back in there, well,

anyone that wanted to buy but now sees,

you know, these higher prices as too

late to buy, they will think, okay,

we've returned to a discount price.

We're at a good price range again. So,

I'm going to get in and that can set the

new baseline to drive the market higher.

Okay, so that is how a demand zone

works. It's basically a price range

between one level and another level

where buyers went heavy before and if

the market returns there again, it's

already proven as a discount price. So

providing the market is trending to the

upside, we should then be able to

basically use these pullback movements

and the demand zones that come out of

them to secure buys from there given

that a large number of market

participants already see this as a

discount or a good price to buy the

asset. So that is how a demand zone

works. We are basically identifying

where did buyers buy in force before. If

the market returns there again, that's

where we should look to buy from because

we know this is seen as a discount price

in the market and we're likely to see

another impulse from there again. Okay.

So, when we're buying in a market, we do

not want to buy on the way up. We

basically want to buy on the way down,

but in a larger upward price move. So,

if we have a movement like this, we are

not trying to buy here. We're not trying

to buy here. We're trying to buy at

these points. And this demand zone

theory that I've just showed you is

exactly how we make that happen. Now,

let's flip this upside down real quick.

This then is a supply zone. So, this is

the opposite. It works in the same way.

You probably already understand if you

got that example, but basically we are

seeing here a price range where sellers

entered the market in large numbers.

Right? So, if the sellers entered in

large numbers here before, which

obviously is indicated by sideways move

and then a large drive down. So this

impulsive movement shows seller control.

So we see sellers stepping in. [snorts]

Buyers sell the the asset to them for

this price um then this price then this

price. So sellers are basically

controlling the market. There's more

supply entering the market. Demand is

decreasing. So sellers have to sell this

off for cheaper and cheaper and cheaper

and cheaper until demand is met once

again by the buyers. Now if we then see

the market pull back to this level, we

know this is seen as a premium price to

sell the asset. So, anyone who is in a

buy will want to get out as high as

possible. So, they'll be selling into a

supply zone like this. And anyone that

is wanting to sell would want to sell

for the highest possible price because

obviously then they make a a good return

providing they're not of course short

selling the market. So, basically, if we

see the market return to here, we're

going to see people sell again. Same if

you want to short sell the market, so

you want to get in and profit from a

down move, you want to do that from as

high as physically possible, right?

because the higher you sell from, the

larger down move you profit from uh in

your short sell trade. So a supply zone

is pretty much just the opposite of a

demand zone. This is the selling version

where supply is stepping into the market

and force. This is that example where

demand is weaker, supply is stronger.

And what we want to do from those is

sell the market once we return to what

is seen by mass market as a premium

price to sell. So that's the supply

zone. Demand zone is the buy side

version. And now we'll go and look at

these on an actual candle chart. Okay, a

quick interruption, quick little note.

What you're learning here in the boot

camp about technicals is absolutely

necessary. But technicals alone are not

sufficient to get you to where you want

to go. You're not going to win just off

the charts. Whether you believe it or

not, whether you've noticed it yet, most

traders don't get stuck because of what

they see on the charts. They get stuck

because of the bad habits, risk

behavior, decision-m under pressure, and

self-sabotage patterns that develop in

their trading over time. These are

things that simply don't show up in

technical analysis. So, if you want to

get to the bottom of these and diagnose

the problems you have behind the scenes

in trading, I've got a class. There's a

link in the description. You should

finish this boot camp episode first and

then head over and watch that because

it's super valuable. There's a link in

the description after this. And with

that said, let's get back to the boot

camp. All right, so we're going to

visualize the theory now on a real

candlestick chart. This is kind of what

it's going to look like when you're in

real time trading the supply and demand

concept. The first thing is of course we

want to make sure we are moving with the

trend. Okay. So in the previous episode

of the boot camp we talked about market

structure which was the idea of trading

with high and low structure in price. So

a downtrend would be just like what I've

visualized on the chart when the market

is continually creating breaks of

structure to the downside and also then

printing what we classify as lower lows

and lower highs. So every low is lower

than the previous. All right. And every

high is also lower than the previous. So

we have lower lows, lower highs and that

constitutes a downtrend. Now if the

market is downtrending, we only want to

look at supply zones within the current

downtrending phase of price. We do not

want to look at uptrends, right? Or

demand zones because if we look at

demand zones in a downtrend, we will get

destroyed basically because supply and

demand is a concept that visually seems

to appear everywhere. That's why I

explained the concept and theory for so

long at the start of this video. We need

to understand what it actually is so

that we don't trade on the wrong side of

it. Now, if a demand zone is showing an

area where significant demand stepped in

and drove the market higher, well then

that means it has to exist in the

context of an uptrend because obviously

otherwise it didn't drive the market

higher, right? So, a zone like the one

you've just saw me mark on, which would

be like here, is not one we would be

interested in because previous prior to

that, we've got a downtrend of lower

lows and lower highs consistently

forming. So, we don't want to buy in

this scenario. We only want to look to

sell. Okay? So given that we have a

downtrending in motion here with these

lower lows and lower highs being

printed, we want to focus on supply and

we want to pretty much just totally

ignore uh any demand zones that we may

see in this market because they are not

going to give us viable information to

take trades. We don't want to buy demand

and downtrends. We don't want to sell

supply and uptrends. All right. So now

that we've determined which way the

market's going, which in this case is

down, we understand we want to focus on

supply. we would then get to marking up

relevant supply zones. So the supply

zone I've got marked here is basically

the gray candle and this is how you

actually plot supply and demand. So you

want to look for an impulsive move in

the market like what we've seen here.

And then at the start of that impulse,

you want to identify the kind of

crossover point where this move began.

Okay? So what we're looking for is the

point of which sellers took control of

the market from buyers. So if you take a

look at this candle here, this is the

point that crossover between where

buyers lost control and sellers took

control. After this gray candle with the

open there, the close there and equal

wicks either side, we had an impulsive

move to the downside. So this becomes

our supply zone. Okay, that's the point

where sellers took control of the market

from buyers. Now, as you can see, after

the supply zone, we have a large

impulsive move down. Um, and that is

going to be the impulsive selling move

that we want to basically trade off of.

It's what gives us the information. we

see okay sideways crossover point then a

big sell down from the sellers.

Therefore we see this was definitely a

premium price for sellers to sell from

previously. That means if the market

gets into here we're going to see this

is a premium selling point again and we

are likely to see a continuation of

selling take place from this zone. So as

you can see downtrending price as you

can see supply zone these two things

paired together give us good trading

opportunities. So, if we wanted to sell

this market, we won't worry about

targets for now. You would basically

sell the supply. You'd put your stop

over the zone. The idea being if the

market drives through the supply, that's

what we call a supply fail. We're going

to have a full class on supply fails

later in the boot camp. Okay? But that

would be what we classify as a supply

fail. And this is actually a bullish

sign at that point uh by examples, by

trade ideas come in from there. So, we

want to see the supply zone react

perfectly. Basically, anywhere inside

this range but not above it is fine. So,

if we're positioning stop losses, we

just put them over the supply zone. And

then targets wise, we pick a random

target will go there for this trade. But

that's how your trade would be

positioned. You're selling the supply,

stop over the high, target wherever your

target was going to be based on other

factors. Now, what you will see from the

market a lot of times is we return to

the supply zone. Okay, this is basically

the short-term buyer control and more so

from uh a buy perspective. This is often

times just what we call relief or

exhaustion from sellers. So sellers who

got in here, we'll have some taking

profits here, here, here, and so on.

Eventually, the selling control will dry

up simply because the sellers in the

move have gotten out. So when we see

this upward move taking place, if we're

in a downtrend, it's less so that buyers

are incredibly strong and more so that

sellers have stepped out of the market

with a profit and now awaiting a premium

price to be rem. So this would be the

premium price level. And obviously, as

we've discussed, we are expecting to see

this movement down. So as you can see,

after we tap that supply, we then go for

the large bearish move, which brings us

so far to around this point. Um and yeah

allows us to catch a a profitable

downward move basically by just

following the trend and using that

supply zone for our entry. Okay. So you

understand why this is happening. We

basically are seeing sellers stepping in

at a given level. We then see sellers

exhausted, a bit of relief in the market

where buyers take short-term control.

And once we reme meet a premium price,

any sellers that maybe did sell here and

want to get back in or miss the chance,

miss the mark to sell here and want to

get into this market on the short side,

they're rejoining when price trades back

between those two premium price levels,

which in this case will be between

1.1738 and 1.1755.

Okay, we get back into there. We see

that large selling move and that's what

you can capitalize on in a simple manner

by using these zones with the trend.

Now, for a demand example, here's our

zone. We've basically selected the final

candle before the impulse. In just one

moment, I'll talk through how I plot the

zones and how I choose the candle to

actually operate as demand and supply.

But we have here an uptrending market,

okay? Making higher highs and higher

lows as we know that's the the kind of

picture we want to see. So we only want

to focus on demand in an uptrending move

like this. We don't want to focus on

supply zones because the market is

telling us that structurally it is

bullish. So therefore we only want to

buy. So in a market that is structurally

bullish the impulsive moves are telling

us demand is higher than supply.

Therefore we are expecting demand to

continue. So in this move we have our

demand zone. Then we have an impulsive

push. So we're marking the consolidation

area before the impulsive move. This is

seen then as the price range between

155.24 24 and 155.04. If you look over

to the right there, that price range was

seen as a discount price to buy from.

So, as we expect, following the standard

logic, if the market returns to that

level, we're going to see that as a

discounted price to buy. Therefore, we

should see new buyers stepping in at

this level. That's where we would like

to join the market. Okay. So,

trade-wise, we do not want to buy up

here because we are likely to see some

exhaustion or relief at some point soon.

Buying here will give us terrible

riskreward. We prefer to then opt for a

buy on the demand zone with stops

beneath. Again, we just put them right

below the zone because if this zone

fails, that will change the narrative.

Uh we'll talk about supply fails in the

future. As I said, targets wherever you

were going to target. We won't worry

about targets for this class and then

simply place the order. And as you see,

the market makes its movements back

towards this area of demand and then

after tapping into the demand zone has a

rally away. Now, an important point

here, an interesting point here should I

say, is the momentum as well. In class

number one of this boot camp, we talked

very briefly about how momentum can

indicate who's in control. Everything

we're doing in the market is about

reading control between buyers or

sellers and seeing who is actually

holding, you know, the most um control

over a market, whether it's buyers being

stronger than sellers or sellers being

stronger than buyers. Here we can

clearly see strong fast impulse doesn't

take a lot of time. The candles are very

big, strong, fast, little to no wicks.

The pullback we see slow, choppy,

sideways. We don't really get strong

impulsive nature there, do we? And then

as soon as we hit this zone, we start to

see those big impulsive small wick

candles reforming and running the market

even higher. So, we're in a position

here where the momentum is on our side.

Now, in terms of supply and demand, this

does become relevant again spoken about

in in the future in the boot camp. But I

just want to show you that cuz really

what we're doing here with everything we

do in the markets is reading the story.

Okay, the story here tells us from a

momentum perspective, buyers are clearly

stronger than sellers in this instance.

All right, so there we go. That's how

demand works. We identify the area of

sideways or consolidative price action

before an impulse. When the market

returns, we buy. We take this market

higher again. Just that important note,

we don't worry about supply zones in an

uptrend. So, you know, you could see

supply here, for example, this little

sideways candle. We don't care about

that because the market is overall

telling us that we are moving to the

upside. As long as we are moving

protrend, which is why market structure

is so important, then this demand and

supply focused way of buying and selling

into markets is one of the most logical

first of all and accurate second of all

ways that you can get yourself into

trades. Okay. Okay, so something I'm

sure you probably want to know is

exactly how I plot demand zones and

supply zones and how I choose the

candles that I'll be using for supply or

demand. Now, we're going to look at this

bit of price action. It's not the

cleanest. It's not coming out the best

trend, but just focus in on the areas

I'm showing you as we go, uh, because it

will give you an understanding as to how

we plot supply and demand zones. Okay,

so we're going to focus in on this area.

First of all, if you've been in supply

on demand trading for some time or

you've watched pretty much any video

about it, the majority of people use the

simple rule the last down candle before

the up move or the last up candle before

the down move. I honestly think this is

okay if you just want to operate with

that format. I don't think you'll run

into significant problems, but I do look

at things very slightly differently um

because yeah, I kind of worked this out

myself that this seems to work better

and it makes more logical sense to me.

So what I do instead of the last down

candle before an up move or the other

way round, I use the last candle before

the impulse. So to identify an impulse,

we are looking for of course a bullish

push or a bearish push, a strong move.

Um and generally it's going to create

what we call imbalance. Now imbalance is

going to be covered in a future boot

camp class, but to explain it in the

most simplistic format so that you can

start practicing plotting zones. It's an

open price range created by a large

bullish candle or a series of large

bullish candles or bearish candles. So

here we have our indecision. We have two

indecisive candles. We know this because

the wicks either side are equal. So it

hasn't really made any movement one

direction or the other. The next candle

obviously very bullish and this would be

impulsive. The impulse has created what

we call an imbalance which is a gap

between this wick and this wick. So you

see this bit of the candle body, nothing

has traded through it yet. that creates

an imbalance between where price

currently is up here and where price was

down here. So that is how we identify

the impulsive move. Then what I'm

looking to do is basically select the

final candle before the impulse took

place. So for me in this example rather

than using the standard rule that a lot

of people use of the last down candle

before the up move, I would be using the

last candle before the impulse. So I'm

going to look at this basically as the

zone that I would want to buy from.

Okay. So should the market return to

that level, we would then be looking at

buying from the range of this blue

candle in this example cuz that's the

last candle before the impulse away. So

now if we take a look at this second

area which is going to be just here, we

have basically a little pullback

consolidative move and then we have an

impulse away. Now in this case it's

slightly different. We're not going to

use the blue candle here. Why? Because

the impulse actually came from this

initial blue candle. You see the first

imbalance created is between this wick

here and this gray candle just here. So

this blue candle in itself is actually

an impulsive candle. Therefore, it's not

the last candle before the impulse. It's

the last candle of the impulse. So the

demand zone I'd prefer to use in this

example would be this gray one. Okay? So

that would be the demand that I would

focus on. However, simple extra rule to

come in here. So I don't want to confuse

you too much. Basically, if we have seen

the demand zone candle followed by a

wick or a small pull down as a wick like

this, then I will actually cover that

wick with my demand zone as well because

I would expect that even if the market

came down to this low, providing it

stays above the low that we printed,

it's viable. This works very well. Okay,

so this is why sometimes you may see a

demand zone mark like this and get

confused. I've had people complaining

that I'm inconsistent with my demand

zones when really they just don't

understand. So, that should answer any

questions moving forward. Basically, I

will be focusing in on this gray candle.

I want it to at least meet this gray

candle, but I just cover this wick to

number one, make it neater. Number two,

account for the low that's been printed

before the impulse away. So, for this

one, I would then want to see the market

return into there to take any buys. And

that would set me up for my opportunity.

Okay. Then, we're going to look at the

third area now, which is going to be

just here. We have to decide which of

these is going to be the demand. Now, a

lot of people would use the last down

candle before the up move. Again, I

think this would be mostly fine, all

right, if you were focusing on this

broader area, but I'm looking for the

last candle before the impulse. So, if

we take a look at where the imbalance

formed or where the the move really

began, well, there is imbalance between

this candle here and this candle up

here. So, this blue candle is our

imbalance. It's not this blue one. This

is not the first impulse. This is the

first impulse. This candle, although it

is, you know, not wicky, it's confined

within the previous bearish candle. and

it didn't create a notable imbalance to

be a notable impulse. So, add demand

zone for this example is actually going

to be this blue candle here. And for

this one, I actually wouldn't go ahead

and drag it to extend under this low

because this is a previous candle. It's

not a a future candle, right? In this

example, we're using the gray one and

then the wick comes after it. So, we

would account for the wick on that case

like this. That's basically the range

we're looking at. But on this one,

because this blue candle is the final

one before the imbalance and there's no

wick beneath it, I'd focus on this area.

And if the market was to come under this

zone, I would see that more as a bearish

sign than a bullish one. So, I'd be more

interested in looking at sells there.

Again, we get to demand fails, supply

fails in the future. But that's how I

plot demand zones. Three different

examples there. This, honestly, is what

most zones are going to look like. So,

you're not going to have to do these

other things too too often. You know,

marking out above wicks or marking out

including wicks. This is what most zones

will look like. I picked a tricky

example on purpose to show you the uh

you know different formats that I will

be plotting supply and demand from. But

most will just look like one indecision

candle before an impulse away. And you

just use the last candle before the

impulse. That imbalance rule, that open

price range rule I just gave you makes

it very very simple to actually plot

these zones. Okay, so that's how I plot

them. That's how we mark supply and

demand on the charts. Now, while we're

here with these demand zones marked out,

you might have the question, how do we

select between zones when the market

creates multiple zones? Well, there are

ways and nuanced ways to actually

identify which zone is going to be the

best versus which one is going to be the

worst. And you will learn about these

more throughout the boot camp as we do

need to introduce some of the other

concepts like market efficiency in order

for you to understand how to select the

best zone. But a simplistic rule I will

give you for now so that if you are

going to practice supply and demand if

you're going to do so remember do it in

simulations don't risk real money. A

simple tip I will give you on that right

is to use some of the lessons we

discussed previously in market structure

and draw these over into your supply and

demand concept. So if we were to see the

market return to this zone rather than

just immediately buying from this zone

and hoping that it goes up, we would

look for a pattern that I call a

standard confirmation. Okay, I'm sure

this will be discussed later in the boot

camp as well, but basically what we look

for is on a lower time frame. So here on

the 30 minute, we may go to the 15minute

to identify this. We would look for a

point where the market structure shifts

from lower lows and lower highs out of

the zone into a higher high. When this

formulates, you can then look to buy

from the pullback, right? Just in the

way we would. So basically when we

create this standard confirmation, we'll

create a new demand zone on a smaller

perspective. And you can actually buy

only when that structure has shifted

from down to up on say the 15-minute

from this 30-inut chart. Now, if you

follow this format, what you're doing is

basically seeing agreement from the

lower time frame here with what you're

seeing on the higher time frame, which

is this uptrending move. If this does

not form and the market breaks through

to the next zone, well, then you just

look for the same thing from there. And

if you get the pattern there, then you

look for the opportunity. And again, if

it doesn't form and it moves down to the

lowest zone, well, this is where things

slightly change. This is the most simple

zone to buy from. So the furthest zone

away from where price is trading inside

of a leg of price action. So this is our

leg of price action. This is where price

is. This is the furthest point. This is

what we call the extreme zone. Okay. So

it's literally just you know furthest on

the extremity I suppose. But because

it's the extreme zone, it's basically

the final point of which the market

could provide a reaction to us that

would remain valid. So if the market

does not react from here, it completely

changes the bias because it would break

through the low and turn into a

downtrending market. Okay, as discussed

with reversals in the previous class. So

the highest probability in terms of

entry uh and probability of winning and

also the highest riskreward is generally

going to come from the extreme zone. So

you can actually go ahead and place the

buy limit or the sell limit as we've

discussed throughout this class for the

majority of trades at the extreme. And

this is the point where you either make

or break. You either win or you lose,

but a new opportunity opens. Now, the

reason I advise against using buy and

sell limits on middle zones and top

zones like these ones for example is

because if this zone breaks, okay, and

we end up losing this trade. So, let's

say we use a buy limit here, market goes

down to here, you've lost a trade, but

the identity of the direction of the

market has not actually changed, right?

This is still a bullish market given

that we are still within this Lego price

action. But now you've lost a trade. If

you use a buy limit here as well and the

market decides not to stop there. Well,

now you've lost two trades, but still

the identity of the market and the

overall direction is still bullish. So

you've lost two trades without even

being wrong. Okay, you're not actually

wrong on this trade. Yeah, it is still

bullish, but you've lost two trades even

though that's the case. Now with the

final zone, the reason it's okay is

because being well losing this trade

means we are wrong. It means the

directional bias of the market has

changed. That allows us to take one

clean loss and then reverse into the new

market direction. So extreme zones are

the best to use there because you are

basically taking a trade from a point

where you either win or you're wrong and

a new idea forms. Okay? So don't buy

limit every zone cuz you can be right

and still lose and that's a bad position

to ever be in. If you're going to use by

limits instant executions, you want to

do that from the extreme zone which in a

demand zone example is going to be this

one. the furthest from the high. And in

a supply zone example would be this one,

the furthest from the low that price is

currently trading at. And anywhere in

between, you just use what we've already

just showed you as the standard

confirmation where you want to see the

lower time frame structure shifting to

create higher highs. Then you use the

standard demand zone rules that we've

just been talking about in this class,

and you buy from there to take the

market higher. If you see this pattern

inside of this zone or this zone, then

you're free to take the trade. If you

don't see the pattern, then just don't

take a position and focus your buy

limits or your sell limits on the

extreme zone furthest from price. So,

that is pretty much everything we need

to discuss about supply and demand up to

this point in time. I've explained the

theory to you, how we plot supply and

demand zones on the chart, and how you

actually utilize it in line with the

trend in order to take trades. As we get

further throughout the boot camp, we'll

also talk about things like supply and

demand fails and how we can turn these

into opportunities. and we'll just go a

little bit deeper into supply and demand

as a whole and how it aligns to the

other concepts that we're going to

discuss. But for now, you understand the

foundations and you probably understand

the theory of supply and demand and why

that matters more than you ever have

previously. Or at least I would hope so.

So, with that said, that's the end of

this class. Uh, hit the link in the

description if you want to check out

that additional class that diagnoses why

you're losing your trading. And uh with

that said, I will see you in the next

episode of the boot