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How To Trade Like Banks | “Wyckoff Market Structure” Supply And Demand Trading Strategies - YouTube
Channel: The Secret Mindset
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If you want to increase your chances to succeed
at trading, you must align yourself with big
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players in the market.
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And how you do that?
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Using supply and demand.
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Supply zones are found when the market makes
a large move down from either a single candle
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or small consolidation structure, also known
as a base.
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Demand zones are found when the market makes
a large move up, again, from a single candle
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or a base.
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Drawing the supply and demand zones is simple.
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For a supply zone, you want to mark the area
from the OPEN of the LAST bullish candle before
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the drop which created the supply zone, up
to the most recent high before the drop.
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For a demand zone, you mark the area from
the OPEN of the LAST bearish candle before
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the drop which created the demand zone, down
to the most recent low before the up move.
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If you want to know more about how to find
and draw supply and demand zones make sure
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you watch this video first.
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Now, there are 4 types of supply and demand,
defined by how the price approaches the supply
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and demand zone and how it leaves the zone
again.
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I’ve grouped them into continuation structures
and reversal structures.
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Continuation price structures include Drop-base-Drop
and Rally-base-Rally patterns.
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Reversal price structures are Drop-base-Rally
and Rally-base-Drop patterns.
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So let’s analyze each of those structures,
one by one.
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Rally – Base – Rally
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The rally-base-rally is a type of demand zone
which forms during an up-move, being a continuation
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pattern.
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The market structure is very simple.
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In this example, you can see we first have
a rally, then a consolidation (or the base)
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and finally another rally, which creates the
demand zone.
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A rally-base-rally will always form a demand
zone; it can never create a supply zone.
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Drop – Base – Drop
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The drop-base-drop is the exact opposite of
a rally-base-rally, with the only similarity
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being they both form during trending movements.
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A drop-base-drop will always form a supply
zone, a zone which if the market returns to,
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should push the price back in the direction
of the movement that created the zone.
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In this example a drop lower created the supply
zone so if the market will return to this
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zone it should push the market lower.
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Now the big question: what creates drop – base
– drop/rally – base – rally structures?
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Both zones form in the market because of bank
traders taking profits off existing trading
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positions.
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In this example, during the first rally we
had bank traders placing long trades.
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When the bank traders are in profitable trades,
they’ll want to secure some of their profits.
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When they decide to do this, they consume
all of the buy orders coming into the market
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from retail traders who are have begun entering
long trades due to size of the rally.
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This consumption of buy orders means the market
makes a small move lower, and creates the
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base of the potential demand zone.
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The move lower causes a large number of retail
traders who went long on the rally higher
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to close their trades at a loss which puts
a lot of sell orders into the market.
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In addition to this, there will be a small
number of retail traders thinking the move
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down is a trend reversal, meaning they’ll
place sell trades with the expectation that
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the market is going to move lower.
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With these two sets of retail traders putting
sell order in the market, the banks now begin
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buying again knowing they’ll make the market
move higher, and in the process cause anybody
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who sold the move to close their trades at
a loss, which ends up being the bank traders
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profit.
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For the drop-base-drop structure, the exact
same process takes place only the other way
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around.
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The banks take profits from sell positions,
which stops the market from falling, then
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as the market begins to retrace against the
trend, the retail traders who sold late into
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the down-move close their trades at a loss,
and reversal traders begin placing buy trades
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because they think the trend is changing.
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Both of these traders are putting buy orders
into the market, the banks start selling again
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at the supply zone, and all the traders who
placed buy trades are now losing money.
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Drop – Base – Rally
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The drop -base-rally is a structure which
always forms a demand zone in the market.
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These zones differ from the first 2 price
structures, mainly because of their location
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in the market.
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If rally-base-rally and drop-base-drop zones
only form during trending movements, drop-base-rally
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zones will only be found when the market changes
from moving down to moving up.
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So, it’s a reversal pattern.
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Rally – Base – Drop
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On the opposite side of the scale we have
rally-base-drop zones.
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These zones form when the market reverses
from moving higher to moving lower, and when
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their construction is complete, a supply zone
will have formed in the market which should
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cause the market to fall.
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Again, a reversal structure.
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What Creates Rally – Base – Drop/Drop
– Base – Rally structure?
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The drop-base-rally and rally-base-drop zones
are created by bank traders either placing
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trades to make the market reverse or by taking
profits off existing trading positions.
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Very important: The rally-base-drop/ drop-base-rally
zones which form when bank traders taking
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profits have a lower probability of resulting
in successful trades than zones that are created
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because of bank traders placing trades, wanting
the market to reverse.
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To understand why, we must analyze and try
to find the intentions of the bank traders
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when they are placing trades.
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If a bank is placing trades in order to make
other traders lose money, the area at which
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they have placed their trades is important,
as they have an interest in keeping the market
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price from breaking the area.
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In supply and demand trading this means when
a rally-base-drop or drop-base-rally zone
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is created by bank traders placing trades,
wanting a reverse the market, the banks must
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keep the market from moving past the point
where they have entered their positions, in
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order to protect the trades they have placed.
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In this example, we can see a drop-base-rally
zone after the market has been falling.
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When the banks enter into their long trades,
they consume all the sell orders coming into
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the market and the price begins to rise, breaking
the swing high found at the top of the last
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move lower.
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Soon after the break of the high we see a
large drop taking place, this drop causes
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a lot of retail traders to start shorting,
thinking the move higher was simply just a
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pullback to the downtrend.
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When the market comes into contact with the
demand zone which was created by the first
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phase of buying, the banks buy again.
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If the banks didn’t buy and the market fell
below the demand zone, then they would be
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put at a loss on their positions and would
have to liquidate their buy trades.
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Of course it’s highly unlikely for this
to happen because the banks always make sure
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to plan their trades in advance.
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The main problem with drop-base-rally/rally
-base-drop zones is determining if the zone
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has been created by banks placing trades to
make people lose money or by taking profits
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off their own positions.
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To find out whether the zone you’re looking
at has been created due to profit taking or
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from bank traders placing trades, this requires
you to be able to understand the mechanics
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of where the supply or demand zone has formed
in relation to the current trend on the time-frame
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you’re observing.
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The first piece of market structure in a rally-base-drop
is a rally.
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The analysis of the rally is what will give
us clues in figuring out for the reason why
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the zone has been created.
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The size of the candlesticks which form the
rally/drop along with understanding where
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the wicks are on the candles, can give us
the majority of the information needed to
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find out why the zone has been created.
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Check out the rally which took place at the
end of this down-move.
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This move up most likely occurred due to professional
traders placing buy traders, the way I can
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determine this is by looking at the previous
moves up in the downtrend.
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It’s all about previous price action.
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None of the previous up-moves, against the
trend, moved up in a strong manner.
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The bullish candles were either small or had
wicks present on the top of the candle which
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shows us someone was selling even though market
was moving higher, each one of these up-moves
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were created by bank traders taking profits
off sell positions.
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Now if we look at the final up-move we can
see the rally was much greater in size than
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the previous up-moves.
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These candles were far greater in size than
the bull candles from the previous upswings.
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Remember this: the banks will only cause a
reversal when there are enough retail traders
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for them to make a lot of money off.
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The appearance of a supply or demand zone
when the market has only been moving in the
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same direction for a short length of time,
means there won’t be many retail traders
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entering trades.
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Therefore, the banks will not be able to make
a lot of money if they cause the market to
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reverse, because only a small amount of traders
will be liquidating their losing positions.
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Here’s another drop-base-rally zone.
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There are two clues which made this structure
an important area on the chart.
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The first was the rally out of the zone, the
candles which made up the rally were large
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bullish candles which pushed the market a
large distance against the previous down-move.
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These bull candles contained very little selling
meaning its unlikely the banks where placing
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sell trades as the market rallied higher.
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The second clue was the fact the rally managed
to break the most recent swing high.
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If you plan to trade rally-base-drop/drop-base-rally
zones the best piece of advice I can give
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you is make sure the zone your trading breaks
a recent swing high for drop-base-rally zones
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or a recent swing low for rally-base-drop
zones.
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If the rally in a drop-base-rally breaks an
old swing high there is a much higher chance
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the zone will result in you having a successful
trade than if no swing high was broken.
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The same is true for rally-base-drop zones.
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If the drop pushes the market below a recently
formed swing low there is a high probability
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of the zone working out profitably.
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Now you know what to look for when drawing
your supply and demand zones.
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In future videos, I plan to show you how to
spot the best supply and demand areas, the
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high probability ones, and I will reveal how
to trade the bounce or the retest of these
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areas.
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As always, if you learned something new and
found value, leave us a like to show your
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support, subscribe to our channel and hit
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new videos.
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Until next time.
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