I recommend first checking this index of related posts, before giving this one a read.
Introduction to my journey learning technical analysis so far.
Thoughts about risk management and calculating position sizes based on our risk tolerance.
Thoughts about risk to reward ratio (R:R) and sharing my Journal template.
This post is only a brief overview and as I mentioned in the introduction linked above if you are serious about studying and learning, I recommend checking all the content of the different mentors and teachers from whom I have learned. I mentioned them all in the intro post.
Price moves in a fractal way, this means that patterns and events that happen on a higher time frame, usually repeat on the lower timeframes. With the term "timeframes", I mean the length of time covered by each candlestick. Commonly used timeframes are 1 day, 4 hours, 1 hour, among others but you have many more options in tradingview.
The information from indicators is based on the information of each candlestick, and one common way to refine entries based on indicators is to wait for the signal you are expecting from the indicator to appear on a higher timeframe, and then wait for the same signal to appear on a lower timeframe and enter when this lower timeframe signal appears.
With "signal" I mean everything from EMAs crossovers, to oscillators crosses, etc. This same fractal nature applies to pure price action concepts, which consists of the interpretation of price movements without using any indicator whatsoever.
The most popular price action concept is support-resistance and trendlines. I will provide an example of them using 2 different timeframes.
Below, there is a simple example from the 1D timeframe of a down trendline, and there is also an example of a support being broken and becoming a resistance.
The example below is very similar but on a different asset and timeframe. In this case, the 1h timeframe.
These were some of the concepts I learned when I was starting this journey, but later on, I began to learn about supply and demand zones. They are similar but at the same time, very different than support and resistance.
I don't use anything related to trendlines nowadays because the way to draw them is so subjective, that I concluded it makes little to no sense to apply this concept on the charts. Plus, once the logic behind supply and demand zones is studied, as well as the concepts of mitigation and continuation, the reasons for the trendlines can be understood from a different and more precise perspective in my opinion.
Regarding support and resistance, these can also exist based on timeframes. What I mean by this is that sometimes, the high/low of the previous week can act as resistance/support. Or of the previous month, year, etc. This indicator is cool because it allows you to have a lot of automatic high/low/mid levels based on timeframes. https://www.tradingview.com/script/PV6TowBV-Key-Levels-SpacemanBTC-IDWM/ However, don't overwhelm yourself using too many indicators and filling your screen with excessive information from indicators. It is counterproductive in my experience.
In order to properly understand the concept of supply and demand, it is necessary to identify trending markets and breaks in market structure.
Breaks in market structure are when key pivots are broken. Example below:
Those highs can be considered key pivots and part of the market structure, when they were broken with an impulsive move up, we have a bullish market structure break (MSB) and therefore, we also have a demand zone.
The demand zone is the downwards move on price preceding an impulsive move up that causes a MSB. Sometimes it can be the last single down candle or other times you can use several consecutive down candles.
I also learned from mentfx a concept he calls Mentfxblocks, or how I like to call them, impulse blocks. This concept takes into account the entire down move before a bullish market structure break. Or in bearish cases, it would take into account the entire up move before a bearish market structure break. According to his teachings, when a Mentfxblock is created, price usually returns back to its 50% level, which can be easily found using the Fibonacci tool in tradingview.
In the image below, I provide an example of both concepts. In the first MSB, I drew a Mentfxblock or impulse block. If you watch carefully, you will notice there is a yellow line with a 0.5 level on the right side. That's the impulse block.
The diagonal line on the left side of the pic, is the up move before the bearish MSB, and the 0.5 level is exactly in the middle of that move.
In the second MSB, I drew a demand zone, which in this case was only the last down candle before the MSB.
In both cases, price revisits the area and continues to trend. By the way, in the first MSB, a demand zone could also be drawn but I decided not to do it in order to not make the picture too confusing.
The bearish example of an impulse block would be the following one. That big green candle inside the impulse block can also serve as a supply zone. I used the red color for this drawing because I like to use different colors for different timeframes.
An example of a supply zone is the following one
The fractal nature of price I briefly mentioned above also applies to supply, demand, and impulse blocks. It applies to every concept basically. Therefore, you could have a 1h demand zone, inside a 1D demand zone. Similar to the Inception movie or to Russian dolls.
After studying these concepts, I decided to put much more focus into them and not on support, resistance, trendlines, and indicators, although I do use some indicators and I might mention them in the future. In the coming posts, I plan to share my own analysis of different assets using these concepts, as well as share some entries from time to time.
Thanks for reading!