Introduction to Supply and Demand Trading/ Advanced Support& Resistance Masterclass

Table of Contents:

1. Introduction

2. How supply and demand determine the price of

support and resistance

3. Support & Resistance Zones

Support Zone

Resistance Zone

Why are support and resistance zones so

relevant?

4. Types of support and resistance zones

Type 1: Continuation Zones

Type 2: Reversal Zones

5. Trading support & resistance zones with the

Market structure confluence

Example 1: Continuation zones with MS

Example 2: Reversals with MS

6. Conclusion

1. Introduction:

Welcome to the next lesson of trading mentorship.

After reading this tutorial, you will be able to master:

➢ How is price determined using supply and demand in the

market?

➢ How are support and resistance formed in real life, and what is their

importance?

➢ Understand the two types of S/R zones,

demonstrated with drawings and actual market charts.

➢ Implement these basics in real charts and trade setups.

This is the beginning of real trading setups, which can easily be your go-to and only strategy.

I encourage you to take your time to study the document at hand,

And in case of any confusion, remember to post your questions in the comments section.

2. How supply and demand

determines the price of support

and resistance:

The whole market runs like a continuous auction throughout the day,

with buyers and sellers continuously competing with each other to

get the best possible price. Buyers are the bidding cohort that brings

upward pressure on price.

Certain price zones spark buyers’ interest, and that’s where their bids

are placed. Upon reaching that zone, if the price has a bullish reaction,

more market buying takes place. That’s how support is formed.

Sellers, on the other hand, apply downward pressure on price. If more

people are willing to sell an asset rather than buy it, then there is an

abundance of that asset, and that’s how resistance is formed.

The levels where the price might find support or resistance can be

psychological and sometimes even random, but in general these

Zones are formed because large positions are willing to defend these

price levels; a buyer buys to sell at a specific price and vice versa.

For all executed trades, the number of buyers and sellers have to be

the same to form a contract because each contract needs a buyer

and a seller.

What makes the difference is the aggression, which both parties are exhibiting

willing to participate.

In economics, supply and demand levels can be demonstrated on a

graph as curves. Let's start with the demand graph.

Figure 1. Demand graph

In the Figure 1, we see that when the price is at its highest (P2), the

amount of quantity demanded in the market is at its lowest (Q1).

And as the price falls (P1), the amount of demand increases (Q2).

This indicates that the cheaper the price is, the higher the demand is

(buyers).

Figure 2. Supply graph

In Figure 2, when the price is at its lowest (P1), the amount of

quantity that is supplied to the market is at its lowest (Q1), but as the

price rises (P2), the supply increases as well (Q2).

This indicates that the higher the price is, the higher the supply is

(sellers).

But since the market is not only made out of buyers or sellers, we get

what is called the market price when we put both sides of the market

on same graph at the same time (see figure 3).

Figure 3. Equilibrium or market price

The intersection of these curves marks the equilibrium or market

price, at which demand equals supply and represents the process of

price discovery in the marketplace.

3. Support & Resistance Zones:

Support & Resistance zones are the two factors that lead to the price

action we observe in our charts. In this section, we will get to define

these zones and know why they are so relevant in trading.

Support Zone:

A support zone is where the price breaks out of a range to the upside, 

creating a base for the price to return to. Please note that this is the
view of the support zone when looking for these zones on a lower
timeframe.

Figure 4. Support Zone illustration

There's no specific way to draw the zone in practice. I prefer to take the range of extremities. You can take the lowest and highest wicks or the lowest and highest candle closes; try to backtest and find what works best for you. The goal is to identify where the interest lies for people to place orders.

Figure 5. BTC 4H chart support zone

Resistance Zone:

A resistance zone is where the price breaks out of a range to the downside, creating a base for the price to return to.

Figure 6. Resistance zone illustration

Figure 7. BTC 1H chart resistance zone

Why are support and resistance zones

So relevant?

Every time an order of significant size is placed, a huge imbalance occurs in these zones. We will discuss this further when we cover

order flow. These breakouts from the range are the footprint of large players entering or exiting the market because a huge order size is

required to make that happen. Thus, using these levels will give retail traders the advantage of getting into positions with the same

directional bias as large financial institutions.

Another nice benefit to support and resistance zone trading is that it offers the ability to ladder orders inside the zones, which is better than

identifying pinpoint horizontal levels and being front-run. Since price levels are predetermined, traders can set them and wait. This is great for traders who do not want to sit and monitor every single move on the screen.

Types of support and resistance zones

There are two types of zones. These zones are classified based on where they form in the market.

Type 1: Continuation Zones

If the price continues in the same trend direction after forming a short-term range with a small gap between range extremities, then we call it either support continuation or resistance continuation.

Figure 8. Support continuation

illustration

Figure 9. Support continuation (BTC 1H chart)

Support continuation is when the price is in an uptrend before the zone was created, then breaks out of the range and continues to the upside. (see Figure 9)

Figure 10. Resistance continuation illustration

Figure 11. Resistance continuation (1H BTC chart)

Resistance continuation is the exact opposite of support continuation. In figure 11, the price is in a downtrend before the zone was created, breaks out of the range and continues to the downside.

If the market returns to this resistance zone, a move to the downside is expected (not guaranteed).

This would basically look like a support/resistance flip on higher time frames. You need to understand that here, it does not matter what concepts you’re using; trading is a game where your primary job is to identify which price levels or zones would spark enough interest to find buyers or sellers.(Fig. 12, 13)

Figure 12. Zoomed in look

Figure 13. Zoomed-out (higher time frame) view of the same chart

Type 2: Reversal Zones:

If the price changes trend direction after a short-term range, then we call it a reversal zone.

Figure 14. Illustration of bullish reversal zone

Figure 15. Reversal zone on 1h BTC chart

In Figure 15, the price was in a downtrend, and once it hit the highlighted range, the trend direction changed from bearish to bullish. If we get another entry in this zone, we take it. If the price never returns to our reversal zone, we never jump into the trade with market orders. We simply move on to the next trade; patience is vital.

Figure 16. Illustration of bearish reversal zone

Figure 17. Bearish reversal zone on BTC 1H chart

In Figure 17, the price was in an uptrend, and once it hit the highlighted range, the trend direction changed from bullish to bearish. We see the price struggling to break above this area, resulting in a breakout to the downside. This zone forms when an uptrending market moves lower after a short-term range.

 Trading support & resistance zones with the market structure confluence:

We already know that we should be looking for support zones to buy and resistance zones to sell. Charts are full of support and resistance zones, but not all are worth trading. So, how do you determine which ones can provide you with actionable entries? Now that we understand the concepts, it is essential to identify which zones are the best to trade off because one can force hundreds of these zones on the chart across multiple timeframes.

For this matter, I suggest two trading methods in confluence with the market structure. There are other ways to add confluence, but we will use the tools covered in the mentorship so far.

• The first method is where we will be using support and resistance zones, causing a break of structure (BOS).

• And the second method is for more aggressive traders, where we’ll look for areas of support and resistance reversals causing a change of character (CHoCH) in the substructure.

For beginners, it is better to stick with the first method, where you wait for a BOS confirmation before you jump into trades.

Example 1: Continuation zones with MS:

Figure 18. trade setup using MS + continuation zones

Figure 18 is a 4H BTC chart. The first break of structure indicates a trend change to the upside; again we never enter right after a BOS occurs; we wait for a pullback. This time, we draw our support zones based on the last bearish candles before the BOS has occurred, and we see which one of the previous support zones will hold. In the example above, support zones are used in conjunction with

bullish CHoCHs to anticipate the end of a pullback and to indicate which one of the support zones will be holding the price from breaking to the downside.

Our resistance zones are drawn based on every deep swing high the price makes. Every time these zones fail to drive the price lower than the last low, it indicates a zone failure.

Remember to focus on support/resistance zones that lead to the BOS. These areas are highly likely to hold next time the price comes back to them.

Example 2: R eversals with MS:

Figure 19. trade setup using MS + reversal zones

 In Figure 19, and before we get our first sign of reversal, which is a bearish CHoCH, we see the price showing a lot of weakness while attempting to break the last high. After the first bearish BOS, a trend change is now confirmed. Every lower high price makes, is a resistance zone in formation. We draw our zones based on the last buy candle that led to the bearish BOS.

Conclusion:

I hope this tutorial has helped you understand support and resistance concepts on a deeper level. You must understand that all trading concepts require you to identify areas

where buyers and sellers would be interested in.

I recommend that you keep track of every lesson shared throughout this mentorship, since all lessons are related. The whole purpose of these lessons is to add more confluence to your trading system, but remember that if you don’t make an effort to study this material and put in the screen time, no one else will do it for you.

I hope you take this mentorship seriously. if you like and learn something valuable, don't forget to share.