Full transcript
0:00When you’re trading supply and demand zones, I bet you use classic candlestick charts.
0:05But here’s an idea: what if you used Heiken Ashi candles?
0:10Would it improve your results?
0:11100% yes.
0:13Today I’m showing you my unique way to trade supply and demand areas, without noise, using
0:21The only reason why price moves in any market is because of an imbalance in supply and demand.
0:26The greater the imbalance, the greater the move.
0:29A strong uptrend can only exist if buyers outnumber sellers.
0:33During a trend, price moves up until enough sellers enter the market to absorb the buy
0:39orders.
0:40The origin of strong bullish trends is called an accumulation or a demand zone.
0:46Bearish trends are created when sellers outnumber buy orders.
0:49Then, price falls until a new balance is created and buyers become interested again.
0:55The origin of a bearish trend wave is called a distribution or a supply zone.
1:00A Demand Zone is a price area below the current price action where there is strong buying
1:06interest.
1:07Looking at this chart, we can see that there was a lot of buying interest at this demand
1:12zone.
1:13For this reason, when the price reaches the level, you will notice a sharp price reaction
1:18from the Demand Zone.
1:20The Supply Zone is the exact opposite of the Demand Zone.
1:23A Supply area is located above the price action and it typically contains a relatively big
1:28volume of sell orders.
1:30When the price action reaches this level, the price reverses to the downside.
1:35Now, let’s introduce Heiken Ashi into equation.
1:38Heikin Ashi has proven to be one of the best strategies to use to gain a deeper view of
1:43the market, because with these tools it’s easier to read candlestick charts and analyze
1:48market trends.
1:50Traders use the Heikin Ashi to get information such as when to stay in a trend trade or if
1:55it’s time to get out because the trend has reversed.
1:58I don’t want to insist too much on this topic, as I have several videos on this channel
2:03explaining how these candlesticks work.
2:05Just remember that Heikin Ashi filter noise and help you to see trend better.
2:12So why trading supply and demand areas using Heiken Ashi?
2:15As you know, the candles on traditional candlestick chart usually change from green to red, making
2:21it difficult for some traders to read them properly.
2:23However, the candles on a Heikin Ashi chart display more consecutive colored candles,
2:29making it easy for traders to identify past price movements, current trends and of course,
2:35supply and demand zones.
2:36With Heikin Ashi, trends usually stay green in an uptrend and red in a downtrend.
2:41For me personally, is much easier to find supply and demand areas using these candles.
2:48This isn’t the case with the traditional candlestick charts where colors are different
2:52even if the price is moving strongly in one direction.
2:55How do you mark a supply and demand zone using Heiken Ashi?
3:01The idea is to find the place on the chart where demand overcame supply (for long trades)
3:06or where supply overcame demand (for short trades).
3:09STEP 1: Identify current market price STEP 2: Look left on the chart
3:16STEP 3: Look for big green or big red Heiken ashi candles
3:20STEP 4: Find the origin of the big candles STEP 5: Mark the zone around this ‘origin’
3:29Since the Heiken Ashi candles start from the middle of the previous candle, I had to come
3:33up with a slightly different way to mark these areas, compared to classic candles.
3:39For a supply zone, I search the last BULLISH Heiken Ashi candle before the drop.
3:44Once you’ve done this, you need to drag a rectangle up to the most recent high before
3:50the drop.
4:01For a demand zone, I look for the most recent BEARISH candle before the up move and drag
4:17a rectangle down to the most recent low before the up move.
4:43Supply and demand levels can be: • Fresh: It means price has not pulled back
4:48yet, it’s an untested level • Non-fresh: Price has pulled back to it
4:54at least once • Used up: Price has pulled back to level
4:58several times, and these are not good for trading full swings, maybe some scalping trades
5:05Plotting these areas should be done with a logical and organized approach.
5:09Often, supply and demand traders tend to pollute charts with tens of levels, where the whole
5:14meaning of anticipating the rejections loses the value.
5:18So try to keep your charts clean.
5:21When it comes to efficient plotting of supply and demand zones on the Heiken Ashi chart,
5:26here are main variables that you should follow, which will increase your efficiency a lot:
5:31-focus on the freshest supply and demand zones -focus on the strongest zones, those where
5:36price left the zone in a quick, strong move -focus on nearest zones, so do not plot 50
5:42levels on charts, have only the nearest ones in sight to keep the chart clean
5:47-focus as much as possible on dense zones where the price was consolidating for a while
5:52before forming zone
5:55The fresh zone always has priority over the old historical supply or demand zone because
6:00the statistical chance for order flow to be still participating in the fresh zone is higher
6:06than in the old historical zone.
6:08As the time passes, the traders will slowly liquidate positions over time, that is the
6:13fact.
6:14Thus the fresher the zone, the more focus the trader should put on it.
6:18Personally, I only draw 3 to a maximum of 5 zones on chart at most, on different time
6:24frames, no more than that.
6:27Now let me show you how you find the best supply and demand Heiken Ashi zone to trade.
6:32I look for several clues:
6:331.
6:34STRENGTH OF SUPPLY AND DEMAND ZONE First, you determine the STRENGTH OF THE MOVE.
6:37How did price leave the level?
6:39The stronger the price moves away from a zone, the more out-of-balance supply and demand
6:44are at that zone.
6:46It means a heavy order is placed by smart money.
6:49Here’s an example showing different types of zones.
6:53The first one is the strongest, with large bearish candles forming after the price left
6:58the area.
6:59The second one is a strong zone, with big Heiken Ashi candles with no upper wicks and
7:04a few candles having wicks.
7:07And the third one is a weak zone, price moving down in an unconvincing manner.
7:13This is very powerful, so please remember this part.
7:322.
7:48TIME AT SUPPLY AND DEMAND LEVEL
7:51How much time did the price spend at the zone?
7:54The less time price spends at a zone, the more out-of-balance supply and demand are
7:58at that price level.
8:00This means Smart money are aggressively entering.
8:03The first example is the strongest zone, with one bearish candle rejecting the area.
8:10The second one is a strong zone, with several Heiken Ashi inside the zone.
8:15And the third one is a weak zone, with many candles and a lot of time spent around this
8:20area.
8:363.
8:52THE MOVE AWAY FROM THE SUPPLY AND DEMAND LEVEL Here you analyze how far did the price move
8:58away from the zone before returning back around the area?
9:02The longer the distance the price moves away from a zone before returning to that zone,
9:07the greater the reward to risk and probability.
9:11When price goes from selling off to a strong bullish trend for example, there had to be
9:15a significant amount of buy interest entering the market, absorbing sell orders AND then
9:21driving price higher.
9:23Always look for extremely strong turning points; these are the high probability price levels.
9:444.
10:00FRESHNESS OF BASE Number one rule in supply and demand trading:
10:05First-time retrace to the base is the strongest to enter.
10:09If you trade of supply areas, always make sure the zone is still “fresh” which means
10:14that after the initial creation of the zone, price has not come back to it yet.
10:19Each time price revisits a supply zone, more and more previously unfilled orders are filled
10:26and the level is weakened continuously.
10:28This is also true for support and resistance trading where levels get weaker with each
10:33following bounce.
11:06The rules of supply and demand trading using Heikin Ashi are simple.
11:10You should buy when the price action approaches a demand level and bounces upwards forming
11:15a green Heiken Ashi candle, ideally with no lower wick.
11:19You expect the price to increase and you want to trade an upcoming price swing.
11:23And you should sell when the price reaches a supply level and bounces downwards, forming
11:28a red Heiken Ashi candle, ideally with no upper shadows.
11:32You would put a stop loss order right below the demand area when you are long in the market.
11:38Conversely, put your stop loss order right above the supply area.
11:42The most common approach is to hold your trades until the price action reaches an opposite
11:47level on the chart.
11:48So, if you are trading long a demand level, you should hold your trade until the price
11:53action reaches the next supply zone on the chart.
11:56Or you could close a part of your position after a Heiken Ashi color change.
12:03How to define a trend using supply and demand and heiken ashi
12:07Since we are primarily working with supply and demand imbalances on Heiken ashi chart,
12:12making a higher high or a lower low does not necessarily mean the existing trend will continue.
12:17Here’s my PRO TIP. 1.
12:20In an UPTREND: demand areas are being respected, supply areas are being taken out.
12:27So a higher high SHOULD remove previous supply to validate the demand zone
12:312.
12:32In a DOWNTREND: supply areas are being respected, demand areas are being taken out.
12:39A lower low SHOULD remove previous demand to validate the supply zone.
13:15This type of analysis will help you a lot in defining the strongest Heiken ashi supply
13:19or demand zones.
13:21• In a downtrend: supply areas are consistently respected and demand areas are taken out
13:26• In an uptrend: supply areas are taken out, while demand areas are respected
13:32AS SIMPLE AS THAT.
13:34And another tip is to look at your D1 or H4 chart and see what is going on with the supply
13:39and demand areas in control and decide which direction to trade.
13:43Once you know what direction you want to go, locate lower timeframe supply or demand areas
13:48with a strong move away, little time at the level and also a fresh level.
13:53Now, it’s important to understand that there can be several periods of accumulation during
13:59an uptrend and several periods of distribution during downtrends.
14:03This means that there are supply and demand reversal patterns and supply and demand continuation
14:08patterns.
14:10The Drop-Base-Rally is a bullish reversal pattern
14:13The Rally-Base-Drop is a bearish reversal pattern
14:17The Rally-Base-Rally is a bullish continuation pattern
14:20The Drop-Base-Drop is a bearish continuation pattern
14:26This is important because understanding which phase the market is in, what is the underlying
14:31trend and how long has it been in place, determines which are the best demand and supply zones
14:36to look for.
14:38In an old trend, you will want to look for reversals.
14:41In a new trend you will want to look for continuations.
14:45You search for Rally-Base-Rally zones during uptrends and for Drop-Base-Drop during downtrends.
15:32And remember that every timeframe has its own trend and multiple trends coexist.
15:38You may be trading in an uptrend on H1, but the D1 is in a downtrend
15:42So, the first thing you need to do is to decide the time frames you will be using for a multiple
15:48timeframe analysis of the trend.
15:50You need at least 2 time frames.
15:53When several timeframes are combined to evaluate a market, you will easily improve the odds
15:57of success for your supply and demand trades, regardless of the other rules applied.
16:02This alone lowers risk as there is a higher probability that price action will eventually
16:07continue on the longer trend.
16:10As always, if you got any value from this and learned something new, drop a like to
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16:19new videos are released.
16:22Until next time.