 What's up guys, this is Alex from Xtrades and today we're going to be going over a crash course on supply and demand zones. So I've actually made a video on these prior probably about two years ago, I had a little bit less sophisticated equipment, I have a better microphone now, I have better editing software and overall I feel like I just have a better speaking voice and speaking ability than I did two years ago. So I figured I'd remake this, make it more educational, also kind of go more into depth on these and also kind of just make it a cool little quick crash course that's easy and not too difficult. So today we're going to be going over supply and demand zones, we're going to go over how to draw, identify and trade them. And you can see in this opening example here, supply and demand zones are actually created from base candles and you can see I have these highlighted here, your base candle is where it's circled right here. So this is your base candle for supply where the zone originated, then you have a base candle right here for demand where the zone originated as well. And you can see price reacting very cleanly to them, you got a bounce, you got a bounce and a rejection and a rejection. So this is kind of like your buy zone and your sell zone as highlighted in this example. So this is actually a real time chart of spies, maybe like a day old, and now actually spies back within the supply zone. So this is just like one day old, but either way still shows a good example of what supply and demand zones are and these are still pretty valid now as we're speaking. So for our first example, we're going over a rally based rally zone and it's exactly how it sounds. So the sequence opens up with the rally, it creates a base slash consolidation area and then it makes a higher high and a breakout. So supply and demand zones are actually formed from base candles like I was just showing you, unlike support and resistance which are drawn directly off regular wick highs and lows. So you can see that this base candle makes up a whole zone and we're not just marking the low of the candle like you would with a regular support resistance. With regular support resistance, you're usually like adding like a just regular line at a wick high and a regular line at a wick low and you're not focusing on base candles as much and you're rather just focusing on crazy inflection points where price has reversed. So the sequence opens up with a rally creates the base slash consolidation area and then rallies to the upside making higher highs. So it's actually pretty much like a higher low, higher high kind of sequence and your base candle is always your zone origin and you draw these after the sequence is finished. So after you get your big bullish candle right here, putting in a higher high, then you come in and draw the zone and your zone is the opening price to wick low from the base slash higher low of the sequence. So you see this is your base candle. We have it marked at the opening price down to wick low and some people they do just mark the whole base candle from wick high to low. I personally focus on the open to the wick low. I feel like the opening of the candle had such a large imbalance and just a great volume from market on open orders from institutions in Wall Street that the open is just a good area to focus on. It's a good area to mark and I feel like it just gives the best reactions in terms of price reacting and rallying off the zone. And you can see on spy here, you got to enter here. We actually traded off this before. So I actually set sent out an alert on this trade specifically and then I actually came back down again and bounced off that again. And this is pretty much spy in real time right now. Well today as we speak, it's actually back within resistance and supply. But either way, really nice run off demand here. So rather than like trading the breakout, right, you're not trading right when it gets over your base candle, you're waiting for it to come back for a first test. And then you're entering. So you're not entering over here right after the sequence gets made. You're not entering after a higher high. You're waiting for price to rally. Let it do its thing. You wait for it to return and then you enter and you can see just by waiting had just as good of a reaction here as it did right here. And arguably this actually went up faster than if you were to enter right here and wait for this little kind of chop up area slash melt up. So this is just a straight bounce and this was also just a straight bounce and arguably it's because we tapped this, this rally based rally area. So when it comes to supply and demand zones, usually they're better when they're fresh and untouched. So you can see this is actually, let's say that this hasn't happened yet. This is the first test of the demand zone. And initially it gives you the best first reaction. It just, it's a straight rally, crazy buying balance to the upside. And the second you can see it kind of, it bounced just as good almost, but it didn't get up as high until it found a consolidation. So the first reaction is usually the best in my experience, but it can have multiple tests. You just don't want to hang it around down here for too long. You want to see those quick reactions. You want to see nice wick reactions like this. You want to see a nice wick reaction like that, or just overall, just a nice buy in balance following through after it tests the zone. So that's for rally based rally. This is just the first sequence. There's actually four different kinds. So we're going to go over the other three right now. And for our next one, we're going into a drop based rally demand zone, also known as DBR. So DBR is a reversal slash counter trend zone. And you can kind of see that down here pretty much opens up with strong selling. It creates the base and then rallies to the upside as seen in this bullet point right here. And then similar to an RBR demand zones, DBRs are actually made up of bearish base candles as well. So if you saw the base candle that we marked in the last example for rally based rally, you saw that it was a bearish red base candle. Likewise for this, this is also a bearish red base candle that we're marking for our demand zone. And just like the other ones, you go from the opening price to the wake low. And also drawing your zone comes after the rally is strong and prices showed a cleared reversal. So that would be pretty much after it puts in this like nice bullish candle or high or high above this little structure or above your base candle structure. That's your confirmed rally for the sequence. So you got a drop, heavy selling, you got a base consolidation and then rally follow through to the upside. And that means your sequence is finished and you can see after it finishes really nice run to the upside, but you're not trading this. You're waiting for it to return. And you can see once it returned down here, a great entry, really nice rally to the upside. And this, just like the last example, the first test is always the best. So this is your first test. Great reaction. And you don't see any other tests on this zone. So this only needed one test to go higher. And that kind of just ties into my theory of fresh and untouched zones being the best. So you want to enter on that first test rather than, you know, entering on the, you know, third, fourth, fifth, after it's been hanging around down here for too long, you want to see a nice quick reaction off the zone, you want to see price taking off pretty quick, relatively quick, if you want to get paid good. And then just like rally based rally demand, your zone is equal to the opening price to week low. So that's the opening price down to week low. And the reason why I marked the open is because volume is so significant at the open. There's usually a strong imbalance around the open for any daily candle or any trading session. The volume is the highest at the open. And I really feel like that plays into why the opening price of the zone is the most important. And likewise, I mean, you could go for the whole candle. Like you see, I'm marking right here. You can mark the high if you want. I personally don't do it. I see the best reactions when you go from open to week low of your base candle. And that's just my experience. And like I said earlier, not trading a sequence once it happens instantly, you're waiting for price to return for a first test. And then you enter. And next, we're going to be going into supply. And our first one is called a drop based drop zone. So this is literally the opposite of rally based rally demand. Your sequence opens up with strong selling, which is the drop. It creates a base. Your consolidation or kind of like a bounce area lower high and then follows through with strong flush to the downside and a lower low. And you can see once it broke this structure that puts in a lower low that most of supply zones will actually be made up a bullish base candle. So literally the opposite of demand where we're marking bearish base candles, we're actually marking bullish base candles of the base and similar to demand where we're focusing on the higher low and bounce area that led to a rally. Instead, we're focusing on the lower high and bounce area that led to strong selling. So this is your lower high area or bounce area that led to strong selling and you draw your zone after the sequence is finished, just like all the others and confirms that they lower low with the closed candles. This is a closed candle that's your lower low. You can see it had nice follow through, but then once it comes back up for the first test, look at this downside. It's just ridiculous. And this is actually a pretty recent supply zone on spy. So I just want to make sure I'm using recent examples of the spy. I don't know this exact date, but this is still within like a pretty close price of where we're trading now. So I wanted you to see that this is still valid. This is still a good strategy and it's really good for the higher time frames, especially if you're swing trading. You need to focus on the one day chart. If you're day trading, I mean, this even makes a good zone to day trade off as well. If you're like scalping or getting those quick entries and exits, but for supply and demand, mostly I use these for swing trading just because they work so well and you really find the best areas to either go short or go long. And also it gives you a good area to take profit once it gets up to supply and it gives you a good area to take profit on puts once it gets back down to demand. And then instead of the opening price to wick low, like you would mark and demand, you're actually marking the opening price to wick high. So you do the open up to the wick high and you can see that's how it's marked right here. And you're going to do that with your other supply zone as well, which we'll go into next. And just like the others, you're waiting for price to return, so you're not entering after it puts in this low, you're not entering down here, you're waiting for it to get up, test the zone, and then you can enter if you get the right confirmation, the right rejection candle, the right reaction. In this instance, you have a nice strong upper shadow wick. You have a nice reversal candle signalling that it could go lower as well as these two buy emails candles that were likely to fill back up to the downside anyways. So you want us to look for something like that, and that's going to give you an optimal entry. And next we're going to be going into rally-based drop. So this is actually opposite of the drop-based rally demand. They both share a common theme, which is they are both countertrend and also like reversal supply and demand. So the sequence is actually created by rallying to the upside, it creates the base, and then it drops to the downside with strong selling. And you can see that's exactly how it is here. Drawing your zone comes after the selling is strong and price is showing a clear reversal. So after you got the rally-based drop, I would say after this little candle, candle number three, after your base candle, that's confirming strong selling. You can see once price came back up, rejected pretty hard a couple of times, and then even now to this day, this supply still stayed pretty valid. It rejected here, also rejected here pretty strongly. And just like the last example, your zone equals opening price to WIC high. So you got opening price right here up to WIC high, and that's focusing on that opening candle. So something happened in this candle to lead to this selling balance. And that's kind of what you're focusing on, and it stays relevant. And maybe even new liquidity gets opened up here, more liquidity right here, and it just results in more selling to the downside and more of a sell-in balance. That's probably why price just re-reacts to it, even though it's already had the test one and test two here. Test three and four still stays valid right here. So it doesn't always have to be the first test being the best, but it's just a rule of thumb that I kind of keep. I like to look for those first test ones because they do work really well. But this kind of does show that you don't have to only trade off the first or second test because test three and test four right here work pretty well. And then price provides an entry after it returns to the zone. So you're not entering after it reverses up here. You're waiting for it. You're letting it do its thing. You maybe could have traded off it right here, but you're waiting for it to get all the way back to it. You can go short. You can take profit on your calls, do whatever you need to do. That's what the zone is there for. It's there for you to be able to make an educated decision on where price is gonna go next. If it gets up to supply, we're gonna assume that it's probably gonna go back down short-term at least. So for supply and demand zones, key points to remember here. Zones are always better, fresh and untouched. Just like I was showing you, except for the last example, the last example, I mean, it was like the third and fourth test and it was still working pretty good, but the best tests and the fastest tests are usually from the first one. You'll have price reacting the fastest to those. If price breaks all the way through, the zone is most likely void. So if it closed under over a supply and demand zone with a closing candle, closing prices over it, it's likely probably not working as good anymore and it might go void. You could use it as a future reference point for support or resistance, but I usually just go ahead and remove them. For demand zones, your zone is the opening price to wick low for your base candle. Supply zone is opening price to wick high for your base candle. Always wait for price to return for trade entries. That's important one to remember. You're not trading right after the sequence is made, you're waiting for price to return afterward. So you let the sequence play out, then you let price return, then you enter. This one's important also, look for strong reactions when price taps the zones. Example, you wanna see strong wicks showing buy or sell pressure. So if you're trying to see a nice reaction of demand, you're gonna look for nice lower bottom wick shadows pushing up to the upside and likewise for supply, you'll be looking for upper shadow wicks or reversal candle showing strong selling pressure. Now for stop losses, this one's also important. You wanna keep it slightly above wick low for demand zones. So you wanna keep it slightly under the zone because if it breaks under, it's likely gonna go void. Stop loss for supply can be slightly above wick high. So you wanna keep it just a little bit above there because if it closes over with a one day candle, it's likely gonna go void. So that's all I got for you guys today. I hope you guys enjoyed. Make sure you like, comment, and subscribe to our Xtrade's YouTube channel. I'll probably start making a little bit more educational videos if I can. I do make a weekly watch list video every week and I get kinda tired of doing those and I wanted to make something new for the users and I just love teaching and I just really wanted to reiterate supply and demand zones because I made a video on this two years ago. I just feel like it wasn't as quality. I have a better microphone now, better speaking abilities and just overall I have more of a will to teach. So hope you guys enjoyed. I love you guys. Make sure you like, comment, and subscribe to our Xtrade's YouTube channel and I'm out.