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Journal Deciphering Supply & Demand - ES,CL,GC

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Journal Deciphering Supply & Demand - ES,CL,GC

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  #1 (permalink)
Wiltz, Luxembourg
Posts: 11 since Jun 2019
Thanks: 11 given, 9 received

I mainly do intra day swing trading, here my wins and losses will be posted with explanation for each .

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  #3 (permalink)
Wiltz, Luxembourg
Posts: 11 since Jun 2019
Thanks: 11 given, 9 received

This was a trade from last week . (See attached screenshot below at the end of the post)

Market has been in an up trend channel. Initially I would try to draw demand line (lower line) from bar 13 low to bar 1 low, then 13 to 2; before finally settling for a line through bars 1,2,3 lows as it contains the most touches . A parallel was attached to opposite side of price action .

At bar 4, we notice market isn't able to touch the supply line (upper line) as next 2 bars were both down bars . It means supply is coming up earlier than expected or demand is weakening .

Then at bar 5 , we notice a good spread up bar closing firm just at supply line with a pop in volume - which indicates demand is coming in market . Then on next bar 6, we notice an even wider spread bar with another surge in volume over the previous bar .

However , the bar closes off the high almost at midpoint . If there's pure buying present in this bar, why the bar closed off the high near it's midpoint ? If it was pure buying , bar should've closed near the high just like the previous bar closed near it's high . Sellers were strong enough to make price come down by it's close at around it's midpoint , after buyers had managed to make a much higher high than the previous bar . So we know selling must be present in this bar .

Also, notice where in channel is this supply happening ? We're overbought in our up channel as we're overshooting the supply line with bar 6 . We expect supply to emerge at our supply line in channel, hence the name supply line . Here, supply is coming into market where we exactly expect it to .

Next bar was a down bar with good volume , so we know supply is finding it's way in the market .

Now on next bar 7, we notice a bar with close near high . Where is this bar occurring ? We know there was good demand present at bar 5 with pop in volume closing near it's high . Bar 7 dips down just a bit below high of bar 5 to reverse & close firm . What does this tell us? In an area of previous demand , buyers are once again trying to move the market higher as it should . However , look at the volume of bar 7 - very low & substantially lower than bar 5 volume .

Where did all the buyers go from high volume bar 5 ? Bar 7 also has a narrower spread compared to bar 5, it is a no demand bar . The fact that the bar isn't an up bar rather just a level bar with close more or less in the same area as previous bar - is additional sign of weakness .

Though a somewhat aggressive entry, enter by the close of this no demand bar .

For target , we've lower line of this up channel & horizontal support drawn from bars 8,9,10 swing highs available . I discard bar 8 horizontal support target because it has a finished auction in the form of a micro double top with bar 8 & two bar after it .

Bar 9 is a good target because it has unfinished auction present at this swing high, market usually likes to retest areas of unfinished auction . However , it is too close to swing high 10 - and we don't want to build dams too close to each other in water . Resistance (or support once broken) just acts like dam in path of water flow.

Bar 10 horizontal support is the target I like most . Why? 3 reasons . It's the last swing high in the previous down trend before our up channel began . It acts like the back of down trend that should be broken before an up trend can begin . So, this swing high & a horizontal support drawn from this swing high is significant . Also , it lies at a close vicinity to the demand line ( lower line ) of our up channel which is another potent support & potential target area . So, there's a confluence of support is present around bar 10 horizontal support area - giving it more weight than an usual support .

And finally it has enough distance from our entry point at bar 7 no demand bar close 2964.50 , allowing for a good risk to reward ratio . Our stop will be 1 tick above the down bar before bar 7 & our exit price will be at bar 10 horizontal support 2957.50 , giving us about 7 points of reward with a 2 points risk . That's a R:R of a solid 1:3.5 . So for all these reasons , this is the target level that I liked the most in this case .

(Notice , bar 11 swing high wouldn't be the last swing high in previous down trend because price action between bar 11 swing high to bar 13 swing low is sideways , erratic & too close to each other to make a valid swing high)

Market exactly touched our target level by bar 12 before giving a mini pullback up showing us demand is coming in exactly where we expect it to - at the confluence of bar 10 horizontal support & supply line of our up channel . Exit order was actually filled 5 bars after bar 12, for 7 points or 28 ticks .

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June 24, 2019

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