Master Institutional Supply and Demand Trading (ULTIMATE STRATEGY GUIDE)

[0:00]If you can master supply and demand, you will be able to trade with the large institutions, find big risk for trades and bank consistent profits. In this video, I'm going to share some vital points about institutional supply and demand that most people simply don't know. And it's these critical points that have now helped countless of our members get funded and bank their first ever profit splits. This video explains what is supply and demand, how to read institutional order flow, how to mechanically draw the zones, how to find high probability institutional zones, and I'm going to drop some serious sauce for you here. And finally how to enter and exit for maximum profit. But first, to take advantage of the market, you must understand the true reasons as to why price moves. Does the price fall from here to there because there are more sellers than buyers? Nope, this is wrong. Keep watching to find the truth. Now, as history has repeatedly shown, traders are often a very emotionally charged group. When millions of them get together in a highly emotional money game of fear, greed, and uncertainty, their combined behavior takes on a herd mentality. And we can spot this on our price charts and make money from it. How? Well, you've got millions of market participants putting millions of orders through the market for a million different reasons. All of this behavior and participation is what drives the order flow that is put through the market. And that order flow is what prints price action on our charts, and that price action creates patterns. These patterns repeat themselves over and over, time and time again. And that allows us to make high probability forecasts of where price may move in the future. Because when those big institutions enter trades, they cannot hide their order flow, and we can spot their footprints in the market, if you know what to look for. Let me explain. Currency exchange rates move up and down as a result of supply and demand from market speculators. No trades can take place unless both the buyer and the seller agree on a price. So this drives the price of currency pairs, where buyers bring with them demand for the pair, applying that upward pressure on prices, while sellers bring supply, applying downward pressure on prices. The market runs like a continuous auction throughout the day with buyers and sellers competing with each other to get the best possible price. Now, in a perfect and free market, this would be quite a smooth and fair process, but in the financial markets, this is often a heavy manipulated process. Let me explain. Markets work in two-way auctions. Both buy and sell sides of liquid instruments will have blocks of orders on both the bid and the offers. We can see this visualized on the order book. On the left hand side, you can see all of the bids from the buyers, and this shows how much volume is demanded at each price level. And on the right hand side, you can see all of the offers from the sellers, as this is also called the ask price. And this shows how much volume is supplied at each price level. And the more volume that there is at each price level, the more liquid the market is. Think of it like an auction house or eBay, where if you are the buyer, then you are making bids for it, and if you are the seller, it's the price you're offering it or the price you're asking for someone to pay for it. Now, remember, a trade can only take place if both the buyer and the seller agree on a price. So, to execute an order, it must be paired with an opposite order of equal size. For example, to sell 10 lots, there must be a buyer willing to buy them at the ask price and vice versa. This is how the markets move. Now, what most people don't know is that there are two types of orders, where both buyers and sellers can be passive or aggressive. Passive traders use limit orders, and they are waiting for price to hit them. So all of these orders that you see on the bid and the ask, they are limit orders. So if there were only passive orders, then the market wouldn't move because all of those orders are waiting to be hit. So this is where aggressive orders come into play. Aggressive buyers and sellers, they are trading at the current market price, and they are not waiting for the market to come to them. But to do that, they have to cross the spreads to buy at the ask price or cross the spreads to sell at the bid price. Most execution platforms look like this, where you buy on the right hand side, as that is the current ask price, and you must cross that spread to be an aggressive buyer. And if you want to sell, then you must cross the spread to the left to hit the bid. And it's this interplay between passive and aggressive orders is what we call order flow. So, let's take a look at a very oversimplified example of what can happen on the order book in a live market. Imagine this was the order book for Euro dollar, and a large institution wants to buy 10,000 lots at market. So this is an aggressive order. They have to buy 10,000 lots at the best ask price. But as you can see, there are only 103 lots available for sale at that current ask price. So the price will rapidly shoot up as it instantly absorbs all of the supply at each level, until all 10,000 lots have been filled at 1.1539 due to that huge imbalance between supply and demand. And now the market is sitting at what is deemed to be fair value between buyers and sellers. So price has to keep moving up to search for enough liquidity to fill the order. Institutions cannot hide those huge imbalances that they cause in the market. So if you know how to spot their footprints on a chart, then you can trade with their order flow rather than getting smashed against it. So, what does this look like on a candlestick chart? Here you can see price impulsively moving to the upside, as aggressive buyers keep pushing price higher and higher until they find enough supply to fill their demand and price is then rebalanced. Likewise, here you can see aggressive sellers liquidating all of these bids, pushing the price lower and lower until they have consumed enough demand to fill their supply. And this is how markets move. When there is an overwhelming imbalance between supply and demand, price will keep moving to search for new liquidity to rebalance price, and this is happening every single second that the markets are open. Now, obviously, you and me, we're not quite trading at the size big enough yet to move those big liquid markets. So how do we make sure that we are trading on the right side of that institutional order flow? And that's where supply and demand zones come into play. But how do we identify these zones? When price is moving sideways in a range, this is where orders are being accumulated or distributed. As price moves into the bottom half of the range, this is where buyers step in to buy at discount cheap prices, and then as price moves into the top half of the range, sellers step in to short at premium expensive prices. You want to buy low and sell high, right? Pretty simple. Eventually, aggressive buyers will cause an overwhelming imbalance between supply and demand, and this is where price will rapidly break out of the range to the upside to search for more liquidity to absorb the demand. And this is what creates those demand zones. Now, we don't trade the initial breakout, as this is where losing traders fomo into long positions and they buy the high. Instead, we wait for price to return to that zone and then we look for our entry models to get long, as this is where the risk reward will be on our side, and we are buying where the institutions will be. Now, why does price return to the zone and then continue from there? Well, at this level, there is not enough demand to keep pushing price higher, so we wait for price to return to the demand zone where those previous institutional buyers, they will have a vested interest to make sure that price does not trade any lower and they keep their initial long positions in profit. And it's also likely that they did not get filled on all of their original position, so they will want to get long with their remaining orders at these discounted prices. Because remember, they're going to want to buy as cheaply as possible. Now, there are some other theories, but we won't get into those in this video. And the exact opposite happens in the creation of supply zones, where price is in a range, sellers will then cause an overwhelming imbalance between supply and demand, as price will rapidly break out to the downside. But again, we will wait for price to pull back to that supply zone to then look for potential shorting opportunities. And it's a four step process, where we have the range, the initiation, the mitigation and the continuation. And it's that continuation is what we are looking to trade in line with the institutional order flow. This is the cycle and heartbeat of the market, where order flow will continue in one direction until there is an overwhelming imbalance between supply and demand in the opposite direction. Price is constantly seeking liquidity to rebalance price. So here you can see price rapidly initiates out of the range to the downside, creating a supply zone. It's likely this was backed by institutional involvement. Price then pulls back to mitigate the supply zone, where we can look to get short to catch the continuation. You can see the sustained bearish order flow as supply is clearly in control. But markets obviously don't move in one direction forever. Eventually the market moves low enough to discount prices, where demand then comes into the market to overpower supply. Then we see the sustained bullish order flow and institutions will defend the last levels that they entered at to keep their running positions in profit. The highest probability trades will always be in line with all the flow, so just don't bother trying to fight it. So, how do we mechanically draw supply and demand zones in the same way every single time? There are three types of supply and demand zones. The first two are the ones that I recommend you use. These are range and pivot zones. The names are pretty self-explanatory. A range created zone is where price clearly initiates out of a range of candles. You draw the zone from the top to the bottom of the range. A pivot zone is where there is a pivot in price caused by only one or two candles. You can draw this from the single candle that is engulfed, or you can include the second candle too depending on how refined you want to be. For a supply zone, it's usually a bullish candle where the next thrust candle closes below its low. This can be called a buy to sell zone. For demand, it's usually a bearish candle where the next thrust candle closes above its high, and this can be called a sell to buy zone. Now, I'm not personally that strict on the sell to buy or buy to sell method, because sometimes I will draw a demand zone on a bullish candle that's then engulfed by another bullish candle and vice versa. Because I'm just looking for those pivot points in price, you know, where price has sort of paused and has moved sideways and then price clearly initiates out of the range. But for a demand zone, that thrust candle must close above the previous candle's high, and for a supply zone, the thrust candle must close below the previous candle's low for it to be a valid supply zone. And you can see how a range zone can be refined to a pivot zone or even a fractal zone, which is just the wick. However, more refinement does lead to increased accuracy, giving you that smaller stop loss, which in turn gives you that higher risk reward, but it does increase the probability of more missed trades. As price might not tag you into the position once enough orders have been filled. Find a consistent balance that works for you and stick to it, so your edge can play out in the long run. You know, don't be chopping and changing just because you feel like it. I recommend that you start with always looking to take the single candle pivot, as this gives the best balance between risk to reward, and also getting entered into enough positions. Now, remember that the market is made up of all of those orders transacting with each other. We make sense of that complicated order flow with our candlestick charts. If you see a range created zone on one time frame, this will be a pivot zone on a higher time frame. So if you see this range created zone on, let's say, the one hour chart, the zone is made up of four candles. But if you go up to the four-hour chart, what do you think that zone is going to look like? You guessed it, it will be a single candle four-hour pivot zone, because four one-hour candles are going to make up one four-hour candle. So when you truly understand the fractal nature of markets, you don't even need to change time frames to be able to visualize what price action will look like on that other time frame. So that's why a lower time frame range will be a higher time frame pivot zone, and vice versa. Here are three types of fractal supply and demand zones. The first is an inside bar. This is when a candle fails to break the previous candle's high and low and it trades inside of it. Inside bars are a range on a lower time frame. The second type of fractal zone is sell to buy or buy to sell wick zones. For a sell to buy wick zone, when price is bullish and moving to the upside, it looks like there isn't a demand zone because price doesn't form a pullback on that time frame. But those wicks represent a pullback on a lower time frame. As you can see, price moves to the upside, then it pulls back as the next candle starts to form, and then pushes up again. So if you were to look down on the lower time frame, this will be a lower time frame pivot or range created demand. And the exact opposite happens for buy to sell wick zones, which represent lower time frame supply. The third type of fractal zone is where you have a very large wick, and instead of drawing the big pivot zone, you can refine it to just the wick of the candle, as this will be a lower time frame pivot or range zone. Now, as all of those are fractal refinements, they are simply a way of looking at lower time frame zones on your time frame. So I would actually recommend that you kind of ignore those for now, and you just concentrate on the pivot and range zones on that same time frame that you're looking at, because those will contain the most orders, and therefore, should give you those higher probability moves. Now, obviously, not all supply and demand zones are created equal. There are very specific criteria that must be met for it to be an institutional supply and demand zone. There are eight key areas for us to focus on, and the first is whether the zone led to a break of structure. This is the simplest and most effective filter that you can use. It takes a ton of money to break structure on a liquid instrument, and the more significant the structure it breaks, the more significant the zone. Swing structure is stronger than internal, which is stronger than fractal. So zones that cause a break of swing structure, they're going to be the most likely ones to cause the next break of swing structure. Here you can see this demand zone broke the daily swing high, so then when price returns to this zone, there is enough demand within there to break the next swing high. Number two is if it is a flip zone. Now, the key here is that you must see that interaction between supply and demand until one overpowers the other. Here you can see supply was in control, but when price returns to it, supply tries to make a lower low, but it fails to do its job because huge demand steps into the market to overpower it. That pattern then shows us that supply has now flipped to demand, and this is a high probability area for us to get long. But remember, you must see that interaction first for it to be valid. Number three are sweep zones. These are zones where liquidity is swept and taken as they are created. But why is this important? Well, remember, institutions need opposing liquidity for them to trade against so that they can get minimal slippage when they enter and exit the market. So, if they're buying, they need a lot of supply to buy against. There will be a lot of sell orders below this low, and that's generated from people's stop losses, from early buyers, and then breakout traders who were trying to sell that low. But the institutions know this, and they will use that sell side liquidity behind that low in order to get long. So, if you see a sweep zone, this signals it was created with institutional involvement. Number four is inducement, and this is another liquidity concept that can get very technical, but essentially, you just want to see, is there available liquidity in front of the zone? Why? Well, same reason as before. Institutions are going to need that opposing liquidity to enter the market with minimal slippage. Here, you can see there is available liquidity behind this low for institutions to use to buy against. But if there isn't any available liquidity, then very often these zones are traps and they will usually fail. Here, you can see that there is absolutely no available liquidity in the leg, so this is a very obvious trap as institutions will not be selling it. Number five, is the zone stacked with another high time frame zone? The more you can stack zones across time frames, the more orders there should be in that area, increasing the probability of the move. Number six, do you have alignment with the higher time frames? Because the more time frames that you have aligned, the higher probability of that trade. Here, it might look like a high probability sell to follow the bearish trend on the M5, but the M15 is bullish and it's just mitigated the M15 demand at the strong M15 low. So now the M5 is likely to also switch bullish. Understanding multi-time frame analysis will help you to avoid a ton of losses, as time is power and the higher time frame will usually win. Number seven, is the zone well priced? Generally, the highest probable demand zones will be buying in discount prices, which is in the bottom 50% of the range or selling premium prices in the top 50% of the range. This also improves your risk reward. Because we want to buy low and sell high, right? And last but not least, number eight, is the zone unmitigated? It's just a fancy way of saying, is the zone completely fresh or has it already been touched? Because if you see a zone with touches, then it's very likely that a lot of the resting orders within that zone have already been filled. So I try to focus on zones that are completely fresh, as these usually give the strongest move when price mitigates them. Now, combining as many of those confluences together are going to give you the highest probable institutional demand zones to trade from. So, now you know how to identify high probability zones, how do you actually trade from them? Well, there are countless ways, but here are three main methods. The first one is just simply setting a limit order directly on the zone. The second is to wait for a reversal candlestick formation at the zone, but this is best combined with a liquidation too. Or finally, you can use a lower time frame break of structure for more confirmation and increased risk to reward. We will cover entry models in far more depth in a later video, so make sure you subscribe so you don't miss that. But before you're even going to enter a trade, you should know exactly how and where you're going to exit. Now, I could do a whole series on just trade management alone, but in my opinion, if you want to get consistently profitable as soon as possible, my recommendation is to always use the fixed R method. So this is where you always target the same amount, such as 3R, for example. It's a set and forget approach that helps to keep emotions very low, as you're not chopping and changing between arbitrary technical targets. At the end of the day, trading is purely a probabilities game, and the fixed R method just helps to put the numbers in your favor. Now, watch this next video in the series to see a full walk-through of how we trade institutional zones in depth. And if it isn't live just yet, make sure you hit that subscribe button so you don't miss it.