Monday, 18 January 2010

4. Identifying Demand and Supply Levels

Top Down Analysis - this is the industry term for what I do, work from the higher time frames downward placing demand and supply levels as I go. By the time I have finished my key TF of 1 hour it should all make sense.

I'm sure you are already actually very proficient at placing your levels but you want to be able to do it better and identify the levels that really matter. Well the main problem is that demand and supply is everywhere and it is easy to cover your charts with lines, unfortunately most of this is just noise that hides what is really going on. Starting with the highest time frames first helps cut down on this noise and allows us to know which TF the level comes from - critical when you are trying to judge an entry or work out how long the reversal might take to complete.

It is often said, the higher the time frame the more significant the level, but also the higher the time frame the wider the influence that level can have. It is possible to get into a trade right at a 1 hour level, but how often does price reverse 15-20 pips away from a daily level? Everything is scaled up, a swing trader using a daily chart aims for hundreds of pips per trade, has a much larger stop than us intraday traders and would think nothing of entering 15-20 pips away from a price level because he/she doesn't want to miss the bus. To reflect this I now use lines of different thickness for each time frame instead of colour coding them to remind me that higher TF levels are more ambiguous.

Here is a short video showing a simplified version of what I typically do to set up my charts for a trading session.

The embedded video has been a problem so if it doesn't work


  1. This comment has been removed by the author.

  2. Hi RedCabbage!
    Thank you for the very useful information in your video. You are a very easy to understand. I like how you clearly indentify the levels from different TFs! Thanks for your time putting this video together. Would like to see more from you!

  3. Just found your blog from twitter. Like your posts. Btw, neither the embedded video nor the link are might want to have a look.