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Smart Money Concept The Ultimate SMC - Market Structure,
Volume Profile Analysis, Liquidity, Order Block, BOS, Order
Flow, Price Action,
Supply and Demand Trading Concept
International Trade (Toulouse Business School)
Studocu is not sponsored or endorsed by any college or university
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SMART MONEY CONCEPT
ALL IN 1 SMC TRADING CONCEPT FOR
ALL FOREX TRADER’S
The Ultimate Market Structure, Volume Profile
Analysis, Liquidity, Order Block, BOS, Order Flow,
Price Action, Supply and Demand SMC Trading
Concept
DAVID WOODS
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Copyright ©2022 DAVID WOODS
All rights Reserved
No part of this publication may be reproduced, distributed or transmitted in any form or by any means
including photocopying, recording, or other electronic or mechanical methods, without the prior written
permission of the publisher.
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DEDICATION
I David Woods, has written this book SMART MONEY CONCEPT as a trading guide and it’s
dedicated to all Forex trader’s, learner’s and newbies who are interested in learning and trading in the
forex market including old traders as well with little or no experience, but still dedicating time and
effort in doing what it takes to win in forex trading, instead of giving up and shying away from their
dreams of becoming a successful trader. Without you this book wouldn’t have been written and
published. I hope you read carefully, understand and implement everything learnt in this book and I
wish you all the best in your trading journey.
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Section 1
LIQUIDITY
The Liquidity definition refers to the extent to which a particular asset can be
bought or sold quickly on the market without having a significant effect on its
price. Liquidity is an important factor that investors assess when making their
trading decisions since it has an effect on their trades. It lets them know how
quickly they can gain access to the market and how fast they can profit from
trading a particular asset.
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Types of liquidity:
Trendline liquidity, support and resistance—which I will also classify as a
range in some cases—and EQL and EQH—which I will classify as double
bottom and double top in other cases—are the three types of liquidity that I
focus on because I believe they are the most important to be aware of.
Traders who are looking for uptrend liquidity want to buy near trendlines or
wait for breakouts to go short, and vice versa when looking at downtrend
liquidity.
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As we can imagine, this creates a lot of liquidity in these areas, so the market
will typically manipulate to grab liquidity prior to a larger move.
If we enter EU, we will, for instance, be looking at a down trendline,
indicating that we are clearly bearish, putting in LLs and LHs. We performed
three taps on this trendline; notice how precisely the wicks are moving.
Now, this isn’t just a coincidence because we know that people with a lot of
money or big institutions know that people in the retail industry are looking
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for these kinds of patterns and will manipulate them to get them to join the
market.
Now that we have to look at the third tap of the trendline, we can see that we
had a nice reaction, a retrace candle, which gives us all the signs that we
should enter.
Retail traders, on the other hand, are looking for this trend to continue, and
their stop loss will likely be above this high, which is also above the
trendline.
This is the deal, so let’s see how it goes. We get a nice push down, and they
are making money. However, the price has reversed, and we have broken
above this high and the trendline.
The liquidity in this trade is basically taken from the sellers. However, there
are also breakout traders who see this as a break of the trendline, a break of
the higher trendline. They have buy stop orders above the trendline, so
something like this, and they probably want to target the 90% at this
descending channel.
Since we are aware that they trigger the buy stop, what is likely to occur?
Retail traders are making a small profit, and then the price ranges, forming an
EQH, and finally reaches that new low.
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We have therefore taken liquidity away from sellers and buyers, giving us the
fuel to actually move the market.
We will now examine the second type of liquidity, support and resistance—
which, in my opinion, can be considered a range in some instances.
Therefore, traders believe that support is a good place to buy; if we examine
this chart, we can see that the price has moved up and down three times.
However, this also serves as a form of support and resistance because the
price has remained the same three times.
As a result, we have buyers who are selling and traders who are looking to
buy more; as a result, there is a lot of liquidity above and below support.
Because of our position sizes, we are able to buy and sell at any time, which
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is unlike us as typical traders. However, this is not the case for large financial
institutions and banks, who have a lot of money and need to buy and sell.
Now, from this pattern, we typically observe a support where liquidity is
typically taken before price reverses and takes liquidity from this resistance
or by side liquidity before reversing once more.
As a result, backing up the chart, we will demonstrate that the trendline
liquidity, support, and resistance are all manipulated. So, as we can see, there
is an up move in the trendline, with four touches perfectly matching the
trendline. On the third tap, maybe buyers are getting involved, but on the
fourth tap, there are definitely buyers getting involved. Stop losses should be
below this low, and we should be looking for higher prices.
Although price does rise, we form EQH in this region, and price then
reverses, suggesting possibly some BE, price did not break any structure from
any highs.
Because we know that there is liquidity at every market high and low, which
price tries to move to in order to get that needed liquidity, price returns to
take liquidity from any buyer from before. If we have buyers who got
involved at the third tap, it is likely that they will be, if they are holding their
trade.
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As you can see, we wick it here, pull back, we BOS, and we break this
trendline, so we have sell stop traders or people with the breaking retest
looking at this to get involved short for anyone seeing a break of the
trendline.
As the price rises again, we establish EQH, also known as resistance.
As a result, sellers are getting involved, and the price pushes off and then up.
Therefore, this is merely a liquidity sweep of these highs. We have taken
liquidity into account, and we can see that the next two candles have a lot of
momentum. These two candles are the same size as the whole range here, so
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price is moving now.
As a result, there is a push down to this low point; we will EQL and observe
what transpires next.
So the price fell below that low and then rose again, probably as a result of a
leftward-moving area. However, what can we notice about this price turn?
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Since we have EQL here, we are aware that liquidity exists below it. As a
result, price wicks it here, merely grabbing liquidity, and then price reverses
and BOS.
As a result, if we look at the following example on USDCHF of EQH, we can
see that we previously had a series of LLs and LHs, so we BOS, and what we
can do to LTF now is refine this down.
As we have already learned, this 1 hour wick I have marked off with this
zone is just an AOI on LTF; consequently, this 15 minute wick will be an OB
or a supply zone where we can short.
But if we zoom in, we can see that we are still below the LH, that we are
breaking structure, that we are pushing up and actually breaking above this
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structure here to mitigating this wick, and that we can see that mitigating
doesn’t have any momentum; it’s just a corrective candle because price is
taking liquidity from this EQH.
If we go to 15 minutes, we can clearly see the EQH, and we can see the OB,
which
is
the
MORE ON TRENDLINE LIQUIDITY
If you’re a retail trader, you’ve probably seen ads on the internet for buying
and selling trendlines. You might be wondering why you can’t make money
trading trendlines! Try not to be mixed up, I’m certain that are a few dealers
out there who are bringing in a Ton of cash using Trendline Support and
resistance!
This might be of interest to you if trendlines aren’t working for you!
This is because institutions and major players are interested in the
“OBVIOUS” trendlines, which they frequently use as a source of liquidity.
So, what does that imply?
Getting Close to the Trading Setup
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Prices are making higher highs and higher lows.
Prices are bouncing off the ascending trendline.
Clear Take Profit and Stop Loss area for execution.
We meet all of the requirements! Let’s try it!
The harsh reality
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We get stopped out and wonder what went wrong. Our way of thinking is as
follows:
We have structure in our favor because the stars were aligned. Prices are
creating higher highs and lower lows; we should expect higher highs!
Break of structure into supply zones
We are aware that this trendline COULD be an area of liquidity, anticipating
prices to break through and leave behind a Supply zone for us to SELL from.
How do we determine which Supply Zone to utilize? Zoom in on the Price
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Action, please!
Prices tapped in the first supply zone created this “Inside Bar” formation,
which retail traders might be looking for a SELL STOP order below the
Inside Bar that was activated.
However, we are aware that prices did not intend to move bearish at this time.
We did not yet observe a significant sell-side move or a structural shift.
Impatient and emotional traders enter the market at this point, eager to be first
in line.
Prices tapped into the second supply zone, gave us a “strong” rejection,
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breaking out of a minor structure (swing low), leaving imbalances and a
refined order block for us to sell from on the shorter timeframe (8 hours).
Entry Method on the Shorter Timeframe [8-hour]
There are 3 approaches we could have taken to this trading setup:
Sell limit order at the refined zone (H8)
Market Order following the breakdown of the Rising Wedge
Pattern
Market Order following the breakdown of the Wyckoff
Distribution
“Does this always work? ”
Obviously not; nothing works every time!
“How might we trade the Ascending Trendline instead? ”
1. Wait for a distinct break in the structure on the timeframe you are trading.
2. If prices intend to move higher, the break out would have left imbalances
and order blocks behind, which prices would eventually overcome.
3. We wait for the transfer of “Weak hands” into “Strong hands” via…
Wyckoff Distribution
Falling Wedge Falling
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Channel Double bottoms (I don’t use them) in order to confirm the order
blocks and refined zones.
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Section 2
MARKET STRUCTURE
How to Use Market Structure to Identify Order Blocks
Let’s just use this area so as not to confuse the example. Here, we can clearly
see that prices are making higher highs and higher lows, and that changing
trends are making lower highs and lower lows. Let’s use the change in trend
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as an example to find a clean order block.
This is what we are attempting to accomplish when looking for a trend shift,
and I believe that this actually gives us the best chance of reaching high RR.
The RR decreases when price is in an uptrend because it is moving toward a
target and won’t stay there forever. Every time it moves, it gets closer and
closer to that target. Price has reached its target or POI and is now moving
back to another (supply and demand, buyers to sellers), so you have a huge
chance of really hitting good RR. It caught price within that clear and clean
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break of the trend.
This is the 1H timeframe, so the potential on this timeframe doesn’t look
great. However, an entry here on the 1M based on bias from the 1H period?
We can obviously see that cost broke past low, and couldn’t break past high.
Due to the price breaking the structure to the downside, we now have a
change in trend and a strong order block.
When we zoom in on the area, we can clearly see our structure and order
block breaking down. Let’s say I’ve tweaked this order block a little, but you
can see that the price tapped into it before falling. And as it descends, it taps
into additional order blocks until changing trend once more. You simply need
to wait for the price to approach, refine your order block down to 1M or even
5M, and then use your knowledge of Wyckoff to help give you confluence
that this is a confirmed change in trend and price will continue to fall, giving
you huge potential with regard to RR. If you followed this chat on a higher
time frame to avoid confusion on the Lower timeframe, you will have
identified this change in trend.
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TYPES OF STRUCTURE
We use four different types of structures.
Swing Structure
Minor Structure
Sub Structure
Change of Character (CHoCH) .
Swing Structure
Swing structure truly defines the directional bias of the market. By
illustrating what we ought to expect from a “bigger picture” perspective, This
lets us know if the trade we’re taking is in favor of or against the trend. The
true HH & HL or LH & LL of the market is the swing structure, which is
always the lowest or highest point prior to a BOS.A significant event known
as a break of swing structure (BOS) has the potential to alter overall
directional bias.
Minor Structure
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Minor structure refers to a structure that was present in a previous leg but is
still contained within the swing points. As the market begins printing new
HH & HL or LH & LL, it provides us with the first real confirmation that the
pullback has ended. A break of minor structure (BOS), on the other hand, is
not sufficient to demonstrate a complete shift in directional bias.
Sub Structure
A sub structure is a structure that does not break anything in a previous price
leg. Although it is much less significant than Swing or Minor, it is useful for
continuations. Breaks of substructure (sBOS) can frequently be faked out, so
be careful with them.
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Change of Character (CHoCH)
The first time a LH (bullish CHoCH) or HL (bearish CHoCH) is removed
from a chart is known as a CHoCH. It allows us to identify the initial shift in
sentiment. It should be used after a liquidity sweep and is always used within
HTF POIs that are relevant to the timeframe you are on.
If the HTF narrative is accurate, we may use CHoCH in an excessively
aggressive manner. We will only use wick breaks and very minor structures,
like an inside bar, that we would not normally consider. By being forceful
with this, it permits us to get in at the most readily accessible open door. But
the HTN needs to be right because using such a small structure in the wrong
places can cause losses. Additionally, it provides us with the best estimate of
the extreme that may be mitigated.
To be valid, a HH, HL, or LL, followed by a LH, must occur quickly.
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What do we Understand as Market Structure in Trading?
Our knowledge toward trading opportunities is due to the structure of the
market. In the bull market we always look to buy dips, range we look for buy
low, sell high.
Principles of Market Structure
Price moves within a structural of support and resistance.
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A breakout of the structural of support or resistance will lead to price
movement in the next area of the support or resistance.
Elements of the Market Structure
The market structure is made up of Phases and Trend
Phases.
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How does the market actually function?
All financial markets work on the universal law of Supply and demand.
Law of Demand: When an item’s price is higher, there is less demand
(buyers don’t want to buy at a higher price) and when the price is lower, there
is more demand (buyers want to buy at a lower price).
Law of Supply: When an item’s price is higher, there is more supply (sellers
want to sell at a higher price) and when the price is lower, there is less supply
(sellers don’t want to supply at a lower price).
Smart money are nothing more than professional money, big hedge funds,
and institutions. If you want to be a successful trader, you need to understand
where these smart money place themselves and where their orders are. If you
don’t know this, you might get trapped by smart money
The price goes through four phases:
Accumulation
Uptrend
Distribution
Downtrend
Accumulation
Accumulation refers to being removed from the floating supply of stock by
buying. Demand coming in to gradually overcome and absorb the supply and
to support the stock at this level.
How do smart money do that? They buy as much of the stock as they can
without significantly raising the price. This continues until there are few, if
any, shares available at the price level they have been buying at. The supply
area is where the smart money makes sure that stock stays below a certain
upper level. The smart money, on the other hand, backs prices above a certain
lower line, known as the support area.
Accumulation typically takes place within a clearly defined congestion area,
where the stock appears to have no interest in either moving up or down.
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How do Trends Change or Shift
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Testing of supply (testing supply whether it is present or not) Mark up (if no
supply is found in testing action)
We will discuss this more in subsequent sections.
Stopping action (stopping the downtrend) Change of character (changing the
strength of the trend from bearish to bullish).
There are numerous different examples that imply accumulation. Some of
them are
Adjusting bottoms,
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Reverse head and shoulder
Double bottoms designs
Triple bottom pattern
Uptrend
When the supply is seen by smart money. The Smart Money can then mark
up the stock’s price when general market conditions appear favorable. First,
the market breaks out of the accumulation phase and moves steadily higher
with average volume. The insiders have bought at wholesale prices and now
want to maximize profits by slowly building bullish momentum. This is
because the majority of the distribution phase will be done at the top of the
trend at the highest prices possible. There is no rush. Again, if given the
opportunity, we would do the same.
DISTRIBUTION
The smart money will begin selling the stock back to uninformed traders and
investors in response to the rally’s higher prices in order to profit. This is in
contrast to the accumulation process.
DOWNTREND
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The Smart Money will then be able to reduce the stock’s price in the future.
Let’s combine all phase
The smart money is only playing on the markets’ emotions, which are driven
by just two factors. Greed and fear. That’s all. People will buy if there is
enough fear. People will buy if they are sufficiently greedy. Everything is
straightforward and logical. The cycle of accumulation and distribution
continues indefinitely across all time periods. They occur every day and in
every market, whether they are major or minor.
Trends:
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First, let’s define what a trend is. In a healthy bull trend, the length of the
upswing is typically longer than that of the downswing, resulting in higher
highs and lower lows. The reverse is true for the bear market.
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Why Trends Analysis for Trading
One of the most common reasons traders fail is trading against the trend,
without a trend, or with low-quality trends.
Controlled arrangement of price bars and pullbacks into supply and demand
increases the certainty that reversals at supply and demand will occur. Poor or
weak trends have lower predictability, and uncontrolled arrangement of price
bars and pullbacks into supply and demand reduces the likelihood of a
reversal.
Identifying the market trend According to the Dow Theory
The market has three primary trends. The primary trend is also regarded as
a major market trend in Dow Theory. It has long-term consequences
Secondary trend: Dow refers to a secondary trend as a correction in the
primary trend. The secondary trend will be a rally in a bearish market and a
downward movement in a bullish market.
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Short Term trend: The Minor Trend is a corrective move within the
Secondary Trend.
Which is the Best Timeframe Trend?
It depends on the time period in question.
The trend is established and dominated by longer timeframes.
If price is making higher highs and lower lows on a daily basis, we are in a
bull market.
On the other hand, if we observe a retracement of that bull move in the 30
minutes time frame, we may be in a short-term bear market despite the
overall market being bullish.
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UNDERSTANDING THE MARKET STRUCTURE THROUGH THE
SWINGS
Understanding the swing through the lens of market structure is comparable
to learning a new alphabet: once you comprehend the characters, you are able
to read the words, and once you are familiar with the words, you are able to
read the story. The main letter to dominate lets you know what market
movement causes the development of a momentary high or low. The meaning
of all market structures will begin to make sense to you once you understand
this fundamental concept.
A market swing, or up-down wave, is how the market moves. While the
opposite is true in a bear market, the length of the upswing is typically greater
in a healthy bull trend. Therefore, by observing the swing of the market, we
are able to gain insight into the structure of the market and determine whether
the market will move up or down.
Swing high and swing low
The criteria for drawing the swing high and swing low are as follows:
SWING HIGH OR SWING LOW MUST CONTAIN AT LEAST 5 BAR.
The middle bar must be higher high and higher low than the two proceeding
bars and the two following bar
Restriction for drawing swing high and swing low
If the bar high is parallel to the middle or high(LOW) bar, it does not count as
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one of the five bars in the swing HIGH (LOW) because it does not have a
lower high(HIGHER LOW) than the middle bar
TWO ADJACENT swings high or swing low may share bars
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1.
A swing high
2. B both swing high and swing low, this occurs because two
proceeding bars and two following bars are inside bars, which
fulfills the requirement of the middle bar must be the highest or
lowest point of five bar sequence
3. C both up and downswing by sharing bar
4. D requires six-bar to form a swing high as the fifth bar is equal
high to the middle bar Why important?
Why are they important
The market makes these points rather than at random. They symbolize shortterm shifts and the forces of supply and demand. The market did not rise
above the swing high for the bulls. This indicates that nobody was willing to
offer a price higher than the swing high at that time. Traders saw no value
above the swing high. In a nutshell, price action reading requires two
essential skills:
Consider how likely a swing pivot will hold up as support or
resistance.
Understand the implications of a swing pivot not holding up as
support/resistance
There are two types of swings:
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swing high and swing low.
Let me explain swing low (SL).
The market attempted to move lower. The bullish trend then resumed after it
came to an end. The market reached a new trend high after overcoming all
resistance—the swing high. To put it another way, the market’s attempt to
fall was disastrous. The lowest point it’s pushed to is called swing low.
Valid pivot only makes sense in the context of price action that is trending.
You need to know where the trend started and where the last extreme trend
high was to find a valid low. What about point B, then? Point B is called a
LOW, not a swing low.
Swing low
Every market has a short-term pullback that is shallow and some last for one
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swing . The point at which a pullback becomes deeper and lasts for multiple
swings, forming a LOW. The deeper pullback eventually ended, and the trend
resumed. When the price breaks above the previous extreme price high, a low
becomes a swing low, signaling the beginning of a bullish trend again. Let
me
show
you
an
illustration.
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All of the ideas discussed above apply to swing highs and highs.
HOW TO KNOW WHEN A LOW BECOMES A SWING LOW
When the price reaches the level above the swing high. The market must
form a price bar that is completely above the price level in order to clear a
level. This indicates that the market has cleared above a price level when a
bar low is higher than that level.
Understanding Market Swings in Advanced Candlestick Analysis
Now that we know how to determine swing high and swing low.
Let’s look at:
Swing momentum
Thrust, and pullback
Volume
to determine strength and weakness or trend.
What is momentum?
The rate at which prices change over time We are just looking at price action
to see how quickly prices move right now and how quickly they have moved
in the past. The slope (angle) of price movement can be used to identify
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momentum on a chart.
The same principle applies to price action on charts. Changes in the price
action’s slope (angle) reveal changes in momentum.
Momentum analysis does not measure momentum’s absolute value;
rather, it compares the momentum of the current price action to that of
previous price action.
We can compare through:
Candle
Swing
Momentum through candle
Compare the momentum of the current candle to that of the previous candle
(see
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BAR COUNTING
1. The number of bars in a half cycle and comparing one-half cycle to
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another (previous half cycle)
2. Comparing each swing (relative strength of move)
3.
How much time to get up or how much time to get down
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Momentum through swing
1. Compare the momentum of the current price swing to that of the previous
price swing in the same direction
2. Look at the force of the ongoing cost swing with the force of the past cost
swing the other way.
3. Is the price right now rising or falling? What is that implying?
1)
Can we make a comparison between the momentum of the current
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price swing and that of the previous price swing in the same
direction?
Now let’s remove the downswing and study what it is showing Is the price
faster or slower than before?
Compare the slopes of (a), (c), €, and (g) UP swings. Take note of the slower
speed on each of these legs, which suggests a decrease in bullish momentum.
On the optimistic side, weakness is surfacing.
Clearly demonstrates a decline in upward momentum.
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Now insert the same chart with only downward momentum.
Compare the slopes of the upswings (B), (D), (F), and (H). Each of these legs
is moving faster, indicating an increase in bearish momentum. Price swings
that are bearish are getting stronger.
By comparing the swing, it suggests that bearish momentum is growing.
Price swings that are bearish are getting stronger. It is more likely that the
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price movement will continue in the direction of strength rather than
weakness.
2) Can you compare the momentum of the current price swing to that of the
previous price swing that was in the opposite direction?
which means contrasting the previous bearish swing with the current bullish
swing; or contrasting the previous bullish swing with the current bearish
swing. Take note that the slope of (a) is significantly steeper than that of (b).
When compared to the previous downswing (a), the most recent upswing (b)
has shown signs of weakness. Strength continues to trend downward.
The bullish upswing (d) moves faster than the previous downswing. whereas
the strength is currently favorable. Strength is now clearly on the bullish side,
as evidenced by the shallow angle of downward momentum in comparison to
the steep rise of upward momentum.
The price movement is expected in the direction of strength and against the
direction of weakness.
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3) Is the current price accelerating or decelerating? What does that
mean?
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Section 3
PRICE ACTION IMBALANCE
Understanding price imbalance is crucial because it has incredible power.
Therefore, when either buyers or sellers acquire control over a certain piece
of price action, imbalances arise. Where, in essence, it creates market gaps.
We can rebalance price before continuing or continuing in that route because
that price will eventually return in the future. Therefore, if there is a bearish
imbalance, it signifies that sellers have mostly controlled the movement of
price down and that purchasers haven’t had a chance to participate. In other
words, when there is a bullish imbalance, buyers take charge and sellers stay
out of the majority of the move. As a result, imbalances exist across all
timescales. Therefore, we shall see it occurring on every timescale, from the
monthly down to even a second. And if we look at the chart to see how this
works, we will begin to see the markets differently and see how price can
sometimes properly correct imbalances before moving in the opposite way.
Price imbalance occurs when the wicks do not meet or when we acquire a
big, monumental candle. The simplest method for me to illustrate this is with
the example below, in which we will examine three consecutive bullish or
bearish candles.
1. We can see that there is selling pressure because there are three
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consecutive bearish candles in this case. Due to the fact that the wicks are
meeting, this price action can now be categorized as being balanced. What
does that imply then? If we look at the first candle’s low point, we can see
that it was down here. After that, the price rose, and this candle began to fall.
Now, the top of the third candle is touching the bottom of the first candle. As
a result, it is clear that there is no longer any imbalance. Price has decreased,
pulled back a little bit, decreased once more, and then pulled back to
rebalance and meet the top of the third wick and the bottom of this wick.
2. An imbalance would be this, where we have the same situation with three
candles, but we can see how the bottom of the first wick is not touching the
top of the third wick. Therefore, this entire movement from this wick to this
wick, this bit of trading in here, and this selling pressure are referred to as an
imbalance. We can therefore see where the wicks do not meet. So an
imbalance is essentially that. This is not effective.
3. Now that we have three consecutive bullish candles, we have the bullish
example.
Because the top of the first wick and the bottom of the third wick are
touching, this price action is balanced, which is another word for efficient.
Thus, the price action is effective.
4.
With regard to the imbalance, the same thing can be seen: there is
a space between the top of the first wick and the bottom of the
third wick. So, this is where the imbalance is.
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I’m going to travel through EU now. I have therefore identified certain OBs
and imbalances.
Zooming in on this portion of price action, we can see that there is a bearish
push with 3 candles coming down. If we take the low from the first candle,
which is here, and the high, we can see that there is an imbalance, and I have
put it on, so the line here from this wick to this wick, we can see that there is
an imbalance, so from here to here, price is likely to refill that before
continuing. However, if we also see a push down BOS and
We can see that after tapping into the OB, we rebalanced that area of
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inefficiency and moved on.
As can be seen from this price movement, there has been a low, high, low,
and a high. Every time we reach a low, we sort of draw back. Because all the
wicks are sort of coming together with these downward pushes, which are
more noticeable on an LTF, we can characterize this price movement as
efficient. This effective price action moves in a certain way.
Now that we have a BOS and 3 bearish candles, the imbalance would be
visible if we compared the low of the first candle to the high of the third.
As a result, we can observe that an OB will likewise be present here due to
the arrival of momentum. Price therefore drops all the way here until we
eventually recover, pullback, recover, and rise once more in order to
rebalance. Therefore, as we can see, this wick here completely
counterbalances that inefficiency. At this point, we do just miss the OB, but
we could refine it down to a 15m and participate in that transaction.
Therefore, if we look here, we have a low, LH, the price then impulsively
moves up, and we get three consecutive bullish candles. However, if we look
at this candle, which is three candles, and we take the high and low of this
candle, we can see that there is an imbalance. The price then pushes up and
pulls back, just tapping into that imbalance, but there is still quite a bit of
room for refilling. We then BOS, we tap into this imbalance, before rejecting,
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we create some liquidity in this region, but then we do tap into it, and we can
see the bottom of the imbalance is here, we have an OB, the price has
dropped down to tap into OB to rebalance that inefficiency correctly, before
continuing.
Once again, we have three candles after tapping in and we can see from here
that the high and low are in line, so this is what is referred to as efficient price
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movement. Since bearish candles will certainly form on an LTF’s wick when
prices decline, we may define this as efficient and expect a price increase
from this point. As we did, we can ascend to new heights.
The higher this candle to the low, only a little bit of imbalance, but we can
see price wicked down before continuing to the upside.
The high and low, which would be the imbalance price, fall down with this
wick in the following section, but finally we push up before pushing down.
Although imbalances won’t always refill prices to a full 100%, my testing has
shown that if we get an imbalance and it comes down to refilling prices by at
least 50%, it may be sufficient to allow prices to continue in the direction
we’re looking at.
Therefore, the price won’t always go up completely.
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Another point is that it won’t always happen if we make an impulsive move
like this, thus this is an excellent illustration. In order to equalize it, the price
never goes back down after this abrupt leap up. This only indicates that it can
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be used at a later time; not every time they will. Just something to keep in
mind, then.
But if we just keep going, we’ll see that we push down, that there are three
candles here with little momentum, and that there is still an imbalance. Price
rises to at least 50% of what I had predicted it would do before continuing to
rise, but then some bullish pressure appears, and this is the imbalance I had
previously mentioned. There is a lot of buying pressure at this point, and the
price never descends to test it; instead, it keeps rising.
However, if we go on, we can see that after pushing up, we have 1 candle
here, which would be a little bit of an imbalance on an LTF, but after this sort
of move up, we have imbalance, price comes down to mostly mitigate it, so
in the end, most of this move is efficient.
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Then, we have an impulse out breaking structure with a slight imbalance that
the price fills in. We also have effective price action with these wicks, but we
do have an OB. Price eventually started to decline after tapping into that OB,
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then we tapped into the last down counter, which is located here, before
moving on.
And the price situation is exactly the same. In order to respect the OB, we
tapped in after refining the last down candle to this candle here. Since we are
obviously bullish on this pair, we are not approaching the HLs and we are
respecting the OBs that are forming here, even though this move is efficient
and has little momentum.
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The imbalance between the high and low of this candle, which we have
again, is to the upside. Price drops to rebalance, we tap into the OB and can
see that we tap in three or four times, we push off, and then we come back
down to mitigate to the 50% or just below 75% of the OB before moving
forward.
The next imbalance would be from this wick to this wick, so the entire move
was just buying. We also had a push down that was containing the move,
suggesting that this candle was most likely a news candle.
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This is all efficient, we can see how the wicks are matching, they are meeting
with each sort of move and 3 candles here, wick to wick, it’s efficient price
action.
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So moving on, we have here sort of 3 candles, this imbalance price comes
down perfectly, which is more likely to be seen in an LTF, but we come to
balance price, we push up, push back down, and then we have an imbalance
here, price comes up but then ultimately just breaks right through it
impulsively.
Next, we have an imbalance, and this imbalance is also obvious because the
price is falling.
Moving on, we BOS, the high and low price comes down to mitigate, pushes
backup, and then we do see price move to the downside. However, as price
moves to the downside, we can refine the most recent up move to this candle,
where price tapped into an OB, and if we want to claim that there was an
imbalance, we can argue that it was from this low to this high, a slight
imbalance, but we still come up to refill that.
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Now that we have an imbalance, a lot of buying pressure comes down,
pushes off, and then we fill it all here. We reject off of this OB, we wick
below, and this wick was ultimately just trying to refill this large move here,
and as we can see, we do fill around 50% of it. As I mentioned earlier, 50% is
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a good sort of level where it likes to rebalance before continuing.
The price doesn’t quite come down to fill it all, but if we keep going, we can
see the next imbalance would be here from this low to this high. We do BOS,
we have a little imbalance here. We tap into the OB, we reject it, we tap in
again, we reject it, and then imbalance here.
We can all understand how strong this is, I’m sure.
Now that there is an imbalance, we descend and an OB forms. We respect it,
tap in, break off, tap in again, leave this imbalance between the high and low,
and the price drops again, possibly as a result of some news. Wick below the
imbalance dipping into an OB, followed by strong upward momentum and a
subsequent decline in price, leaves a small amount of imbalance. As a result
of the price swing and the OB that resulted from it, we have a slight
imbalance in the market. In addition, there are many sellers entering the
market. Therefore, there is an imbalance from the candle’s low to its peak.
Price increases once more, and although we narrowly miss the OB, we may
refine down to the 15-minute chart and enter this trade there.
Now that we have imbalances, all we need to do is use them as extra
confluence when analyzing a trade; nevertheless, I never advise trading
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only on imbalances because there are simply too many other factors to
consider.
So, if we consider this to be a pushdown, a pullback, and a new low, 1 hour.
Thus, this would be our LH, from which we may try to obtain short. The
imbalance from here to here can now be used as just another confluence.
Therefore, even though we just failed short of the OB, price is now efficient
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as we have rebalanced this move, so we can still take advantage of this trade.
If we were to push down come back up and rebalance this move, but failed
short of this OB, as we can see we did before we put in a new low.
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HOW DOES PRICE ACTION ANALYSIS WORK?
The price’s movement on the chart is the subject of the Price Action
Analysis. The candlestick format clearly depicts price action, which I mean
the actions of buyers and sellers during that time period. In CANDLESTICK,
their activity is clearly visible. Therefore, in order to understand price action,
we must first understand the five steps to candlestick analysis, which are
Step1: From high to low, the size of the body
Narrow, Average, Wide.
Find the main portion of your timeframe. The candle body conveys a lot of
information, such as:
A long body indicates strength;
A narrow body indicates weakness;
Consecutive bodies increase momentum by becoming larger and
larger;
Consecutive bodies decrease momentum by becoming smaller and
smaller;
Up or down moves with greater than average body candles
indicate high volatility.
How to compare?
Current candlestick in relation to the previous candle.
Current candlestick with relation to the same swing.
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Current candlestick in relation to the previous swing
Step 2: The length of the wick.
Larger wicks indicate that the price moved a lot during the candle
but was rejected. This indicates that there is either supply or
demand at major support and resistance levels.
The candlewick expands, indicating volatility. This typically
occurs after prolonged trending phases, prior to a reversal at the
support and resistance levels.
Prices are more likely to move in the opposite direction of the
shadow the longer the shadow is.
Long wick candles do not always indicate a reversal.
If the wick of a rejection candle is engulfed by a subsequent move,
it is referred to as reverse rejection. If it appears in between the
trend, it is referred to as trend cont. as a little pullback in a more
modest time span)
While a solitary long lengthy wick shows potential costs moving
the other way of the wick, a bunch of numerous wicks
demonstrates that costs are probably going to move in a similar
heading of the wick made and assuming the body shuts the bearing
of the pattern
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Step3: The ratio of wicks and bodies
Recognizing the relationship between the open and close prices in relation to
the high and low of the current bar
price indicates where the balance between buyers and sellers was
at the beginning of that period.
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Close price indicates where the balance point was at the end of that
period
WYCKOFF BASIC LAW
1) The law of supply and demand:
States that when demand is greater than supply, the price will rise to meet this
demand, while when supply is greater than demand, the price will fall.
2) The law of cause and effect
A small amount of volume movement will only result in a small amount of
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price movement, or the effect will be indirectly proportional to the cause.
3) The law of effort versus result:
If the cause is large, then the effect will be large as well. similar to the third
law of Newton. In other words, the price action on the chart must reflect the
volume action below. Every action must have an equal and opposite reaction.
Wide spared candle
Price action – Strong bullish market sentiment is seen as the result (price),
where effort (volume) was validated. The price action has risen significantly
and reached or close to the up candle’s high.
Volume Action: As a result, the volume that is associated with this strong
sentiment ought to have a “strong” volume. As can be seen in the preceding
illustration, the price will be confirmed if the volume is higher than average
(effort vs. result). Everything is as it should be, and the smart money is
joining the upward trend.
This is a warning sign if the volume is lower than average or below average.
The price is being marked up, but it doesn’t take much effort. This is not a
genuine move. We attempt to leave whenever we are in a position. We stay
out and wait for the next signal if we are not in a position to see when and
where the smart money is currently taking this market.
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Narrow spread candle
Price action indicates a weak sentiment in the market.
Volume action
Indicates that a narrow spread candle should have low volume.
CANDLE WITH A SMALL SPREAD AND A HIGH VOLUME. How can
the spread be narrowed if the volume represented buying? On a very high
volume, a narrow spread-up candle has only two possible causes.
Either the professional money is buying into the selling (see the end of a
rising market) or there is a trading range to the left, and the professional
money is ready to take on the selling from traders who are stuck in this old
trading range.
Step 4:
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RELATIVE OR 2 CANDLE PRICE ACTION
DIRECTION OF CANDLE
The relationship of each bar’s high and low to the bar before it is shown.
An up bar starts an upswing and confirms the end of a downswing.
A down bar starts an upswing and confirms the end of a
downswing.
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Since the inside bar does not break the previous high or low, it
does not affect the direction of the current swing.
On the other hand, if the outside outside bar controls the upswing
while the outside bar controls the downswing. A price swing
typically does not end or begin with an outside bar unless there is a
down bar or a break below the swing low. An upswing will follow
the
direction
of
the
trend
with
regard
to
candle.
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A candlestick must always be viewed within the context of previous events.
Context is what the current candlestick shows with respect to the previous
candlestick
Is the current candlestick larger or smaller than the previous ones?
Which indicates momentum increases or decreases?
Does the size-change have any significance? Buying or selling
pressure
Volatility goes up or down
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Does the change occur during a period of active trading?
Candlesticks, for instance, are typically dead or inactive in the
middle of a period.
TESTING PRICE LEVELS
The term “testing” refers to the process by which a market moves toward a
price level in order to “test” whether or not the price level will accept the
market’s advances.
The wick typically functions as a zone of supply and demand, and the high
and low of each price bar are natural support and resistance levels. For
interpreting price action, the test of these levels or zones is crucial because it
reveals the market’s undercurrents.
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THREE PRICE BARS/expectation
With a clear understanding of the two-bar price action (directional,
contextual, and testing), we can expect the market in the third candle. Based
on our interpretation of the price action in the previous two bars, we would
expect that the market would move in a particular direction in the third bar.
Our price action analysis is enhanced by the confirmation or failure of our
expectations for the third bar.
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We need to make a
simple assumption about how the market should and shouldn’t behave in
order to form expectations. The market basically has momentum and inertia.
Bullishness ought to be followed by bearishness, and bearishness ought to be
followed by bullishness. We need to exercise caution whenever it deviates
from this assumption because it might signal a shift in the direction of the
market.
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Section 4
SMART MONEY CONCEPT SUPPLY AND DEMAND
The price goes through the following phases:
ACCUMULATION
REACCUMULATION
UPTREND
DISTRIBUTION
REDISTRIBUTION
DOWNTREND
ACCUMULATION smart money removes the floating supply of stock by
buying, which is called .
TREND UP smart money aggressively moves prices up.
DISTRIBUTION SM will take advantage of the higher prices obtained in the
rally to take profits by beginning to sell the stock back to the uninformed
traders/investors LAWS OF SUPPLY AND DEMAND Trading
All financial markets operate on the universal law of Supply and Demand.
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The structure of the market is the Supply and Demand Zone
Law of Demand– The higher the price of an item, the fewer the demand
(buyers don’t want to buy at a higher price) and the lower the price, the
higher the demand (buyers want to buy at a low price)
Law of Supply: the higher the price, the higher the supply (sellers want to sell
at a higher price) and the lower the price, the lower the supply (sellers don’t
want to supply at a lower price)
What are Supply and Demand Zones?
Supply-demand is nothing more than the border area of support or resistance
In the chart above, you can see a demand zone (broad support level) and a
supply zone (broad area of resistance).
What we want to find in price zones where supply outpaces demand and
supply outpaces supply.
The first is referred to as SUPPLY ZONES. The price will fall when the
market enters SUPPLY ZONES. Shorting the market can then help you earn
money.
The market DEMAND ZONE is the latter. The price will rise if demand
continues to support it. After that, you can make money from a long position.
Pullback testing from the demand zone allows you to go long.
How to Find Supply and Demand Zones in Trading
There are two steps to identifying supply and demand zones. If the supply
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zone is broken, it becomes a demand zone.
Take a look at the chart and try to spot a series of large candles.
Establish the base, usually a sideways price action area, from
which price started the quick move.
Different types of supply and demand formation
There are different supply and demand zone patterns. It is important that
price moves a lot. The following are some of the most well-known ones:
TREND CONTINUOUS BASE
RALLY BASE RALLY(RBR)
DOWN BASE DOWN (DBD)
TREND REVERSAL BASE
RALLY BASE DROP (RBD)
DOWN BASE RALLY (DBR) And the FLIP ZONE
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NOW
PUTTING
ALL
THIS
INTO
NIFTY
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STRENGTH OF SUPPLY AND DEMAND ZONE
How did the price leave the level? STRENGTH OF THE MOVE
The Logic: The stronger the price moves away from a zone, the more out-ofbalance supply and demand are at that zone. A heavy order is placed by
smart money
How much time did the price spend at the zone? TIME AT LEVEL
The Logic: The less time price spends at a zone, the more out-of-balance
supply and demand are at the price level. Smart money aggressively entering
At price levels where supply and demand are more out of balance. The price
will spend at least amount of time at the level.
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How far did the price move away from the zone before returning back to the
zone?
The Logic: The farther price moves away from a zone before returning to that
zone, the greater the reward to risk and probability.
We know where the buyers (demand) are and, more importantly, where they
are not when the price returns to that supply level for our short entry.
How many times is the price approaching the zone? FRESHNESS OF BASE
First-time stock retrace to the base is the strongest to enter
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When does supply and demand break?
Supply and Demand levels eventually break after a zone is tested multiple
times or during a strong move. due to either an overwhelming number of
orders in the opposite direction breaking the level or the remaining orders
being triggered and gradually removed.
Price action:
A strong move to the zone may break the zone.
Low volume test will confirm the zone.
If the price stays near or at these zones and doesn’t fall much, then
there is a high probability that they will break the zone.
HOW TO ENTER DEMAND AND SUPPLY WITH PRICE ACTION:
Any reversal price action signal on trading time frame (TTF)
Entry in the direction of the dominant trend
Suppose context downtrend, price rally to supply zone on TTF,
then any bearish reversal PA signal for an entry short
Also, notice the volume on these reversals. Wait for the price to
come to this level. A test with low volume is a good sign, and
these are very likely trades.
Find the SD zone on HTF (HIGHER TIME FRAME).
Trading tips
The supply and demand zone for day trading is the previous day’s high and
low. Take a look at the price action in that area to see if these zones are being
accepted or rejected.
As an illustration.
Locate the supply and demand zone on a longer time frame. On an hourly
time frame, we locate the zone.
The big picture shows
1. which side we want to be on, whether the trend is up or down
2. Where are the overall levels of support and demand?
When the price approaches the demand zone.
We want to see a sign of strength in the price action in order to confirm the
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zone’s 1. Momentum loss (DECREASING CANDLE RANGE AND BODY
2. Lower wick
3. MIX OF BOTH RED AND GREEN CANDLE
Entry on the trading time frame
ENTRY SIGNAL CANDLE
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Candlesticks at Supply and Demand
PIN BAR
ENGULFING
OUTSIDE CANDLE
Odds Enhancers example
Trade with the trend
If INDEX AND SECTOR SHOWS POSITIVE THEN GO LONG
FROM DEMAND ZONE
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Section 5
HOW TO TRADE ORDERBLOCK
Identifying your higher time frame bias is the first step in trading order block.
Regardless of whether you want to trade intraday or swing, you need to know
which way the market is moving for the pair you’re focusing on. Particularly
you need to recognize order block from week by week down to the hourly
and work off there. However, as you get more experience, you might
discover that you can trade intraday by using lower time frames with a shortterm directional bias and finding entries on even lower time frames. In either
case, the idea is the same.
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The three things we look at before entering are:
1. examine the overall structure of the market (bearish or bullish,
higher highs and lower lows or lower highs and lower lows),
bearish or Bullish.
2. According to higher timeframe trends, look for supply and demand
zones. For instance, if the higher timeframe trend is a down trend,
look for supply zones; if you’re in a bullish market, look for
demand zones.
3. Look at the lower timeframe and look for confirmations in the
lower timeframe (this could be a reaction to the four-hour order
block or an order block forming on a lower timeframe within the
higher time POI).
DRAWING AN ORDER BLOCK OR AREA OF SUPPLY AND
DEMAND, WE USE THE LAST OPPOSING CANDLE BEFORE THE
BIG MOVE AWAY FROM A SWING HIGH OR SWING LOW.
Example 1
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Example 2
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Advanced example
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You’ll get the same results either way, but it all depends on your tolerance for
risk and how well-versed you are in trading. You can trade how you want to,
and you don’t have to follow everyone else. You need to know what makes
you happy and what makes you feel at ease.
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Important note for determining the best order block
Before making an OB, make certain that the price break structure
is in place.
The price is always drawn to such areas because liquidity always
lies at equal highs and lows.
As you can see from the diagram above, retail traders saw a possibility for
shortening. As a result, institutional banks pushed the price higher to get
liquidity from everyone who was selling at a resistance area.
Here’s what happened when we scaled down on a shorter time frame than we
had before the break.
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Always confirm whether your order block is located at a lower or higher
price. The primary goal is to sell higher and buy lower 4. Order blocks
resting above or below the liquidity zone are more likely to hold, making
them favorable trading locations.
SETUP 1
SH+ BOS+ RTO
SHS+BOS+RTO
WYCKOFF SCHEMATICS (ADVANCED)
KEYWORDS
SH – STOP HUNT/MANIPULATION
BOS – BREAK OF STRUCTURE
RTO – RETURN OF ORIGIN/ RETURN TO ORDER BLOCK
SHS – SHIFT IN MARKET STRUCTURE
SH+BOS+RTO SETUP
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Notice from the SH+BOS+RTO example, price returned to RTO but the RTO
STOPPED HAUNTED MANIPULATED some EQL Equal lows and made a
BOS that area forms a potential OB and we can look for the same setup
around that area.
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Another thing to observe is the imbalances price made after an SH this will
give a more valid reason for price to RTO in order to fill in the balances
This can be seen at any time, but to get the most out of the SH+BOS+RTO
SETUP, keep in mind the HTF bias.
SHS+BOS+RTO SETUP
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ACCUMULATION SCHEMATICS
DISTRIBUTION SCHEMATICS
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If you look closely into the schematics, you will notice that we have a
SH+BOS+RTO
SETUP
We typically do not trade Wyckoff because it assists us in determining
whether the market is distributing or accumulating. The two setups that we
previously studied are the ones that we always look for when we are looking
for potential setups.
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Looking closely at the schematics we have an SH+BOS+RTO SETUP
BACK TESTING ALL OF WHAT IS TEACHED HERE IS VERY
IMPORTANT, AND WHEN IT COMES TO RISK MANAGEMENT, YOU
WILL NEED TO CALCULATE YOUR POSITION, SIZING BEFORE
TAKING A TRADE BECAUSE THE STOP LOSS VARSIES ON EACH
AND EVERY SETUP.
DISCOUNTED PRICE
Utilizing the FIBONACCI to assist in identifying ORDERBLOCKS, we will
examine DISCOUNTED PRICE and PREMIUM PRICE in this section. The
50% level will most likely hold when searching for significant levels or areas
of interest using the Fibonacci.
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In the diagram above, we can see that there are two order blocks and some
imbalances, indicating that banks and market makers were involved in this
significant upside move. Choosing which order block will hold is now
necessary.
If we look at the diagram above, we can see that if we use the Fibonacci tool
from the most recent swing low to swing high, both AOI (areas of interest)
are below the 50% level. This indicates that the price will be discounted; in
order to enter the market, we will need to observe how the price reacts when
it reaches these levels.
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Take a look at the movements of candles reveals that the price is currently
staying within that range. We are now able to enter.
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Before investing money in this, don’t forget to test again and again. It has a
typical win rate of 78%, which should definitely result in a profit over time.
Before planning your setups, always picture that retail minds are considering
a setup. AREA’S OF LIQUIDITY ARE ALWAYS ATTRACTED TO
PRICE.
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Section 6
MARKET STRUCTURE With Respect To Volume Spread Analysis
Volume Spread Analysis in Trading Let us comprehend the formation of
bullish trends in relation to volume spread analysis.
Price goes through four phases: The bearish trend changes into the bullish
trend. Phase A is stopping the previous bearish trend; Phase B is building the
cause (accumulation); and Phase C is testing for confirmation (testing supply
after accumulation). D bullish trend out of range.
We will come to this market structure later just understand the overall
concept
How to analyze volume activity on the chart
By using volume spread analysis (VSA), and volume price action (VPA)
which we talked about in the previous book.
Let’s understand how to differentiate the different types of volumes.
Average volume.
Below average volume.
High volume.
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Ultra-high volume.
We have four types of volume. Let’s look at the chart to understand
Volume always moves in cycles.
Rule -: Mountain Peaks can be visually compared to determine the structure
of volume peaks. The key is having a clear understanding of the peak’s
structure. The following are characteristics of volume peak:
Rising Volume- Peak (Highest Point)- Falling Volume
Average and Above Average Volume: The highest volume in the current
session is Above Average Volume, which is higher than the average volume
but lower than the previous peak Volume. The volume that coincides with the
Moving Average 20 of the volume indicator.
High volume and Ultra-high: Is called the Average Volume. High volume is
the same as the volume of the previous pick. The session’s highest volume
setting is Ultra-High Volume. It surpasses the prior peak volume.
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Bearish and Bullish Volumes
Bearish volume is highlighted in red, indicating activity that is bearish.
Bullish Volume is set apart in green and it shows bullish action. If demand
volume is greater than supply volume then overall bullish volume
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Volume spread analysis (VSA) in trading
In volume spread analysis involves a few facts that are necessary for chart
analysis. These are the facts:
Price movement
Volume (the level of trading)
The relationships between price movement and volume (harmony or
divergence) The amount of time it takes for each movement to take effect.
Components of volume spread analysis.
The Volume (activity)
The Spread (the price bar’s range)
The Close (the current bar’s closing price)
Spread: The spread is the difference between the price’s opening and
closing. For more examples, see the diagram below.
Volume: The activity of the frequency of price changes during a given time
period is called volume.
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Close: The location of the balance point at the end of the period is indicated
by the close price.
Upside move with respect to volume
The smart money has no interest in the upside – Low volume.
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Smart money is selling into the public buying – Higher volume.
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SIGN OF STRENGTH BASED ON VOLUME SPREAD ANALYSIS
Re call the market structure that we have discussed above
What does the sign of strength mean here. The downtrend’s stopping action.
Phase A. Stopping the previous bearish trend, which is a sign of strength.
Remember the volume interpretation once more.
Smart money has no interest in the upside – Low volume.
• Higher volume is being sold by the smart money into the public buying.
The classic fallacy of “Smart Money
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Now we have found two important rules for volume spread analysis
Rule Number 1: Weakness shows up on an up candle. When it arrives,
supply appears on an upward candle.
Rule 2: Strength Shows Up on a Down Candle. When it comes, demand is
like a down candle.
The end of the downtrend is suggested by some volume spread analysis.
These are:
Selling climax
The end of the declining market
Stopping volume
We will now discuss these three points.
What exactly is a selling climax?
This state indicates that a particular downtrend is coming to an end. This
panic selling by retailers (or the general public) results in an extreme
widening of the price spread and an increase in volume. This action may take
place over the course of one day or over a number of days, and it is matched
by buying (demand) of the following items:
Experienced smart money
Big interests
The classic signs of a selling climax are:
There must be a reversal of the trend. (after a significant extended down
move on the time frame of interest )
The trend will accelerate to the downside with wide spreads down closing in
the middle or high.
Frequently occurs one more than one bar
Must be tested before entry
Volume expands dramatically
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A selling climax is generally followed by a secondary reaction why?
After selling climax there are two possible outcomes:
Either professional money is BUYING into the SELLING (see the end of a
DOWN market).
To the left and, there is a trading range OR technical support level. trend
continuation)
First, let’s determine whether there will be a trend continuation
following the selling climax.
If buying during the Selling Climax was primarily done to temporarily
support prices and check a panic or alleviate a panicky situation, this support
stock will continue following a technical bounce from support. If there is
sufficient price supply to propel prices past the peak-day lows and initiate a
new decline, also known as a resumption of liquidation.
Trend reversal after selling the climax
Following a technical rally, if prices test the climax low with decreasing
volume and hold around or above the climax lows, then we have support and
the liquidation process is over. If the “test” is successful, we can expect
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higher prices, particularly if the test is on low volume and narrow spread
down bar into the same area where you first saw the very high volume. This
tells us that there is neither selling pressure nor supply—that is, there are no
additional sellers. As shown on the right side of the image, this is an obvious
conclusion that the market is going to rally. This is a strong signal to buy.
Time to Buy in the Market: AFTER THE TEST
Look for the selling climax
Wait for the successful test (lower volume and narrower
spread)OF the selling climax Day low
Any reversal candlestick pattern (such as an engulfing, outside bar,
or pin bar)
Buy above that candle
STOP LOSS below the low
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Stopping volume
What is stopping volume?
It is the volume of smart money entering the market that must overcome
supply
In order to stop a down move. At this point, the selling pressure has become
so great that even the smart money entering the market does not have enough
muscle to stop the market from falling further in one session. Similar to our
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tanker, it takes two or three sessions for the brakes to kick in.
Characteristics of stopping volume
After a prolonged down move, the volume significantly expands. Bar close to
mid or high and body narrow (lower shadow) Frequently occurs on more than
one bar. If the volume had represented SELLING, how could the spread be
narrow if the first bar close was low? The second bar close could be middle
or high
Two possible outcomes after seeing stopping volume
A narrow spread DOWN-day with very high volume has only two possible
outcomes.
Either professional capital is buying into the selling (see the end of a down
market) or it is selling.
The professional money is prepared to absorb the buying from traders in the
support region because there is a trading range to the left.
Trend reversal following the observation of the stopping volume
We can expect higher prices if the “test” is successful, particularly if it is
conducted with low volume and a narrow spread down bar into the same
region where you initially observed very high volume. This is a strong signal
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to buy.
How should you trade when you see stopping volume?
Time to Buy Market After Test If the day ends at its lowest point, you must
now wait to see what happens the following day.
If the next day is level or up, then there must have been buying the day
before.
On LOW VOLUME narrower spread, wait for the market to return to the area
of stopping volume. The time to buy the market is when we begin to trend
upward. any candlestick pattern that reverses (like an engulfing, outside bar,
or pin bar). This demonstrates that neither sellers nor supply exists. Buy
above that candle; STOP LOSS below the low.
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