5-S&D Structure Zones Theory Pt1
Summary
TLDRThe script focuses on the importance of understanding market structure zones in trading. It emphasizes that merely identifying zones and entry models isn't sufficient; traders must grasp the overall narrative of price action. The instructor discusses how to overlay supply and demand onto market structure diagrams to enhance trading decisions. Examples are provided to illustrate the concept of anticipating price movements based on demand zones leading to structure breaks and anticipating pullbacks using significant supply zones.
Takeaways
- π **Importance of Market Structure**: Understanding market structure is crucial as it forms the foundation for analyzing price action.
- π **Live Market Challenges**: Despite theoretical knowledge, traders often struggle with live markets due to lack of practical application and understanding of price narratives.
- π **Overlaying Supply and Demand**: Supply and demand concepts are layered onto market structure to enhance the framework for better decision-making.
- π **Bullish Market Structure**: In a bullish market, demand controls the price, and weak highs are expected to fail, providing entry points for long positions.
- π **Demand Zones Identification**: Identifying demand zones that led to a structural break is key for potential long entry points when prices return to these areas.
- π **Bearish Market Structure**: Conversely, in a bearish market, supply dominates, and weak lows are anticipated to fail, signaling potential short opportunities.
- π **Dynamic Market Interpretation**: The same zones that signal continuation trades in a trend can act as catalysts for pullbacks when the trend reverses.
- π **Mitigation of Zones**: As prices interact with zones, they get mitigated, reducing their effectiveness for future trades, which influences how traders should view these areas.
- π― **Anticipating Pullbacks**: Traders can anticipate potential pullbacks by looking at significant supply or demand zones that might act as catalysts for trend reversals.
- π **Focus on Unmitigated Zones**: For counter-trend trades, it's more effective to focus on unmitigated zones that haven't been tested recently, as they are more likely to cause significant price reactions.
Q & A
What is the main issue traders face when applying market structure in live markets?
-The main issue traders face is not having a solid grasp of the overall narrative of price action. They might understand the entry model and see the price come into the zone, but they struggle with why they're taking lots of losses and getting thrown around in the market.
Why is it important to understand market structure?
-Market structure is the base case, framework, and building block for trading. It forms the foundation of understanding price action, which is crucial for anticipating market movements and making informed trading decisions.
What is meant by 'overall narrative of price action'?
-The 'overall narrative of price action' refers to the comprehensive understanding of how price moves in the market, including trends, patterns, and the interplay between supply and demand.
What is the significance of a demand zone that led to a break of structure?
-A demand zone that led to a break of structure is significant because it indicates a point where buyers were strong enough to push the price higher. When the price comes back into this zone, it presents a potential buying opportunity as it is expected to find support and continue the upward movement.
How do you identify a valid institutional demand zone?
-A valid institutional demand zone is identified by its role in causing a break of structure. It is a zone where significant buying pressure was evident, leading to a price breakout.
What is the expectation when price falls back to demand in a bullish market?
-In a bullish market, when price falls back to demand, the expectation is that any supply in the way will fail, and the weak highs will be broken as the price continues its upward trend.
What is meant by 'mitigations' in the context of supply and demand zones?
-Mitigations refer to the process where a previously significant supply or demand zone has been partially or fully filled with orders, causing the price to move in the direction of the prevailing trend. As orders are filled, the zone's potential impact on future price movements diminishes.
Why is it important to not overcomplicate the analysis with multiple timeframes or structures?
-Overcomplicating the analysis with multiple timeframes or structures can lead to confusion and incorrect trading decisions. Focusing on one type of structure and one timeframe helps in maintaining clarity and making more precise trading decisions.
What is the role of a supply zone in a bearish market?
-In a bearish market, a supply zone acts as a resistance level where sellers are expected to dominate. When price pulls back up to a supply zone, it is anticipated to respect this level, leading to further price decline.
How can supply and demand zones help anticipate a pullback after a break of structure?
-Supply and demand zones can help anticipate a pullback by identifying significant zones on the chart. After a break of structure, traders can look for the nearest significant supply zone to anticipate where the pullback might start.
What is the difference between a supply zone in a bearish trend versus a new bullish trend?
-In a bearish trend, a supply zone is seen as a continuation area where price is expected to continue falling. In a new bullish trend, the same supply zone is viewed as a potential starting point for a pullback, not as a continuation area.
Outlines
π Understanding Market Structure and Zones
The speaker emphasizes the importance of having a deep understanding of market structure before applying supply and demand concepts to trading charts. They discuss how traders often struggle with live markets despite theoretical knowledge. The focus is on the necessity of grasping the overall narrative of price action rather than just identifying zones and entry models. The speaker highlights the significance of market structure as the foundational framework for trading decisions, suggesting that a solid grasp of this concept is essential for success in the market.
π Applying Supply and Demand to Market Structure
This section delves into how to overlay supply and demand onto market structure diagrams. The speaker uses examples to illustrate how to identify potential entry points by looking at previous price legs and identifying demand zones that led to a break in structure. They explain that in a bullish market structure, demand is in control, and weak highs are expected to fail, providing opportunities for long positions. Conversely, in a bearish market structure, supply is dominant, and price pullbacks to supply zones are expected to fail, indicating potential short opportunities. The speaker also discusses the concept of mitigation, where a demand zone that has already triggered a move is less likely to be effective for future trades.
π Identifying Pullback Zones and Anticipating Market Shifts
The speaker discusses how to anticipate and identify pullback zones in the market using supply and demand analysis. They explain that after a break of structure, traders should look for shifts in market character and use supply and demand to predict where the pullback might start. The speaker illustrates this by identifying significant supply zones that can act as catalysts for a pullback. They also touch on the concept of completely unmitigated zones, which are more likely to cause significant price movements. The section concludes with a discussion on how to manage expectations and trade countertrends by focusing on fresh, unmitigated zones rather than those that have already been partially filled.
Mindmap
Keywords
π‘Market Structure
π‘Price Action
π‘Supply and Demand Zones
π‘Entry Model
π‘Swing High/Low
π‘Demand Zone
π‘Supply Zone
π‘Break of Structure
π‘Mitigation
π‘Confluence
π‘Pullback
Highlights
People often struggle with live market trading despite understanding theoretical concepts.
The importance of having a solid grasp of overall price action narrative.
Market structure is the foundation for trading strategies.
Supply and demand analysis is overlaid on market structure for deeper insights.
In a bullish market, demand controls and weak highs are expected to fail.
Identifying demand zones that led to a break of structure for potential long entries.
Expectations for price to continue in the direction of the prevailing trend after a pullback.
In a bearish market, supplies control and weak lows are expected to fail.
Looking for potential supply zones where price may pull back in a bearish trend.
The concept of a demand chain and its significance in market analysis.
Mitigations in the market and how they affect the validity of zones for trading.
The shift in perspective of supply zones from continuation to pullback catalysts.
Using supply and demand to anticipate the start of a pullback in a new trend.
The difference in trading confidence between mitigated and unmitigated zones.
The expectation for price to move to the upside after a break in a bearish market.
Using shifts in market structure to signal a potential trend change.
The role of supply and demand in identifying the start of a countertrend pullback.
Transcripts
All righty so now we're gonna look at structure zones and we go through some
theory before we hop on the charts in the next lesson kind of just wanted to
preface this with in all the time I've been spending mentoring and looking at
other people what I see is people can do the work they can study they can go
through the course you know it all makes sense it all makes logical sense they
get it they go through lessons blah blah blah blah and then they hop into the
live market and basically they'll draw on their zone they understand the entry
model they'll see price come into the zone they'll see the entry model present
itself they'll take the trade and then they wonder why you know they're taking
lots and lots of losses and just getting thrown around and really it comes back
to is that it's not just as simple as identifying let's say a zone that broke
a structure that broke some structure drawing on your zone waiting for price
to hit it come back into it and then just looking for your entry model you
need to really have a solid solid grasp of the overall narrative of price action
okay so I guess what I'm trying to get is there's a reason why we spent so so
so so long just going over market structure and just going over again and
again looking at three types of structure and trying to give you that
really deep understanding of it because market structure is your base case it's
framework it's your building block it's the bottom of your foundation and as
you're gonna see now we're gonna go through very similar diagrams that you
should be familiar with from the market structure module but we're just
overlaying supply and demand onto that you know we're just adding it in to that
framework because what can happen is when you're in live market and I'm you
know just as just as guilty of it as well is you can have your zone drawn on
yes it's a valid zone it broke structure blah blah blah and as price comes into
it you know you just want to trade it but actually you need to take into
consideration everything anyway I don't want to kind of just keep ramming on but
we'll go through it and I kind of just want to make the point of you might be
used to some of these diagrams but I think it's worth going over these
examples again and again again I'm really just trying to embed it deep into
your psychology and your subconscious as much as possible so the basics will be
we'll go pretty quick on this because you should be familiar with this but
essentially basic market structure all right we know price makes higher highs
higher lows higher highs higher lows higher highs higher lows and higher
highs now what we're saying when we're just thinking about market structure we
were saying that this is a weak high why well it hadn't done its job and it
broke any structure okay so when price is coming back we know that we expect
it to fail so without even drawing on supply and demand we know that when
price is bullish like this we know that demand is in control okay so when price
is pulling back set this section we're gonna look back I'm gonna go okay where
did the demand step in so we're looking at this previous leg okay let me let me
reset this when price is putting back like this okay we know market structure
is bullish we want to get long so if we look back in the previous price leg
within the current range we were then okay because we're always just looking
at the range we're within so we know where our swing low is we know where our
swing high is price is currently here so we know it's in swing pullback phase
we know price is bullish and we want to get long okay so where are the areas in
which we can get long well we look in the previous leg within the current
range we are within okay and we identify where in this leg are there
demand zones okay so in this instance I kept it simple and I've just drawn on
one zone I've just drawn on the extreme zone all right obvious place to try and
look for buys is this a valid institutional demand zone yes why well
it led to a break of structure okay so in its most simplest form we're looking
for those demand zones that led to a break of structure when price comes back
into it this is where we live to get long and then we can target what we can
target the weak high and there may be supply here right it might have broken a
fractal piece of structure here or an internal piece of structure but
ultimately we expect that to fail once prices fall back to demand it's
fulfilled its objective it's you know it's performed its swing pullback as we
start moving to the upside with we're gonna start to expect any supplies is in
the way that they're ultimately gonna fail until we break the high once we
break the high right there might be supply to the left that's when we can
potentially expect pricing and pullback okay at that moment so yeah we'll go
again we'll go into more complex examples in a minute but essentially
bullish market structure demand is in control we expect supply to fail expect
those weak highs to fail and for price to continue exact opposite for bearish
market structure supplies in control right price pulls back up to supply it's
respected and demand fails now when we have some more slightly complex examples
let's say when price is up here and price is then starting to pull back and
we want to look for where is that next swing high low going to form in reality
there can be one two three four five depending on how big the range is there
can be multiple multiple supply and demand zones that we have to look at
where price could potentially come and pull back to and we will never know
where exactly price is gonna pull back to we never know we can only identify
the zones look for the confluence that we look for and try and kind of rank
them in order of probability and obviously look for more confirmations
when price gets in there because this is a demand zone here right that led to
that break of structure but as we can see it's already being mitigated okay so
when we're at this moment and we're looking for where are the demand zones
well we have this demand zone here but it's already had its orders filled and
it's already caused its move so what I would do is I would draw it on but I'm
not gonna extend the zone any further left because it's done its job it's
there right so this is what I was talking about a series of mitigations
right it's been tapped into the orders have been filled and we move up so we're
starting to potentially form a demand chain now so this is one potential POI
we can look at it led to a break of structure and it's part of a previous
mitigation and then we could also look at this zone here down at the extreme
okay right at that strong swing low at that moment right price could have pulled
all the way back into down to here before continuing okay and again we then
expect supply to fail and then likewise over here right there could have been a
supply zone here I haven't drawn it on where we could look for shorts but it
may not play out again has a little bit reaction pushes up higher right there
could have been another supply zone here in this case doesn't play out price
pushes through and in this instance it comes all the way up to the extreme
right where that strong high is with the current swing high and then we
eventually go and that's when we start to expect these demand zones to fail
okay cool hopefully that shouldn't be too confusing as of yet if you've kind
of got the the market structure basics nailed down okay so here's another
reasonably basic market structure example with obviously with supply and
demand zones so again just think about one type of structure just think about
swing structure for instance and just think about one time frame okay don't
over complicate it any more than that and let's go through it so bearish
market structure all right we move to the downside we have that swing pullback
and then we eventually leads to a break of structure obviously we have a bit of
a pullback here so now our swing low is here and our swing high is up here okay
so when price is starting to pull back we've got two potential POIs we've got
this POI here this supply zone right because it's at the you know the pivot
of this move that led to the break of structure and then we also have the
extreme as well okay so sort of two main supply levels that we're looking for
price to pull back to again we never know which one it will be there's other
confluences that we can use such as premium discount and liquidity stuff
that you're gonna learn in the future lessons but essentially that's two
levels price ends up pulling back whoops wrong one price ends up putting back
into the zone here right and then again we get another break of structure so
let me get rid of these drawings once we break that level again was between this
swing low and this swing high two potential supply zones we've got this
pivot that led to the break of structure and then we have the extreme as well
price ends up putting back into here and then continuing down so again this
becomes our strong high this becomes our low price comes into that supply zone we
can look for shorts and we can look to target the weak low but at some point
that's gonna fail and the trend is gonna change okay now at this moment when the
trend changes okay I'm looking for longs what do we expect after a break of
structure we expect a pullback on that time frame so where can what can we you
know do to expect when that pullback may be about to start hopefully if you look
at the market structure modules you will look we can look for shifts of
structure so we can look for bearish changes of character right or ideally we
get a bearish eye boss right so that's what we look for as a piece of
confidence for structure but another thing now that we can use is we can use
supply and demand to try and anticipate ahead of time where that pullback is
gonna kick in okay so at this exact moment when we when we break through and
we look left there are no supply zones so what we want to do is we want to look
for where is the nearest and significant supply zone it's gonna be this supply
zone here so what I'm gonna do is I'm gonna draw it across okay now do you see
how I'm gonna make it an empty box just to kind of show you that now this
becomes what we call like don't really have a name for this but we could call
it like a pullback zone because previously I just bring it back when we
were over here okay my price was down here and this was also in high and this
was also in low and we were bearish we were looking to potentially short this
zone and this zone and if price comes into it we're looking for those big
moves right we're looking for the continuation of the trend but now we're
not in a bearish trend anymore now we're in a new bullish trend over here so when
we now look at this zone we don't view it in the same way we don't view it as
price gonna come in and continue down we simply view it as an area in which a
pullback can start from okay now some of you that might seem obvious but you'd be
surprised at how many times you can be in a live market and people can be
treating them in very very different ways and managing their expectations
wrongly okay so we look left to a significant zone and now the supply zone
simply becomes a catalyst to play that pullback okay so likewise then we pull
back and then we're looking for demand zone so we've got one here and you know
there'd be potentially one at the extreme and there's two possible levels
in which that that high low could form okay in this instance it forms here and
we break up the upside again when we break we can start to look for structures
to shift to the downside so we can look for bearish chocks or bearish eye bosses
to give us that first signal a pullback is occurring but we can now also use
supply and demand as soon as price breaks up here we want to look left and
we want to look for where is the nearest significant supply zone now there is one
here but we've already had a mitigation of that zone okay we've already filled
up a lot of the orders because it led to that movement here now when price is at
this moment right there might still be some orders within the zone okay because
obviously only taps the edge so there might still be some orders from within
here and what you might still have market is you might see a little bit of
a pullback but typically not always but typically the zones that are going to
cause that big actual swing pullback to occur are usually the ones that are
completely unmitigated the ones that are completely fresh okay normally so if I
was looking to get play countertrends which is obviously a bit can be a bit
hard and a bit more risky I'm gonna have a lot more confidence doing it not when
price is currently here in this zone because that's already filled up a lot
of the orders it's already absorbed the supply within it's already caused that
move I'm gonna be more concentrating on this zone up here okay so I'll be aware
of it and I'll have it in the back of my mind you know that potentially price
could reverse from within here but it's much more likely to be a completely
unmitigated zone up here okay and then we compare the pullback down into demand
and obviously we know that demand is in control and we expect price to go there
to the upside
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