Supply And Demand Zones And Case Studies

Supply and demand is another concept that we use to identify key price areas where price has a
high likelihood of seeing a turnaround. By now you can probably see already how we
can combine different concepts and techniques to slowly improve the way we analyze charts;
that’s what this first module is for.

Supply and demand is different from support and resistance and it’s important to know about the
principles to understand price charts.

Let’s recap:
▪ Supply and demand areas show the origin of strong price moves, explosive breakouts or the start of a
long trend
▪ When price comes back to a supply and demand area, there is a high likelihood that price will turn
again
▪ A reversal signal that happens at a supply/demand area has a higher likelihood of succeeding (more on
that later)

The 6 rules of supply and demand areas:

1) Before the breakout out of a supply and demand zone, price usually moves in a narrow
range. The best supply and demand zones are very narrow, followed by an explosive move
away from it.
2) Price should not spend too much time in a supply/demand area. A small range is acceptable,
but it shouldn’t take price too long to exit from it.
3) Often you can see a short move in the opposite direction of the explosive move. This is
called the Spring patternwhich could look like a breakout, but price immediately turns around
in the opposite direction.
4) The exit out of the supply/demand area has to be explosive. The stronger the exit, the better
the quality of a supply/demand zone usually is.
5) The highest probability trade usually happens when price revisits the supply/demand zone
for the first timeafter it has been created. With each subsequent revisit, the zone becomes
weaker.
6) The Amateur Squeeze happens when price comes back into a supply/demand area and spikes
right through it just before it reverses. This is the third pattern that we will explore later in this
course.

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