Forex Lecture

The Relationship between supply and demand and Wyckoff Method

Wyckoff theory (also known as the Wyckoff technique or Wyckoff method) is one of the most powerful and influential tools of technical analysis, both historically and today. Wyckoff believed that understanding market movements and their dynamics depends on a precise analysis of supply and demand.

Wyckoff developed his charts to explain how to trade in rising and down markets, or what are known as accumulation and distribution stages. We will now discuss the down market and the accumulation stage.

Wyckoff divided the accumulation stages into five phases, which he named:
Phase A- Phase B- Phase C- Phase D- Phase E

We will not look at all the details of those phases, but will only be concerned with the following points from Wayckoff's accumulation:

1-   PS or Preliminary Support
2-   SC or Selling Climax
3-   AR or Automatic Rally
4-   ST or Secondary Test
5-   First SOS (Sign of Strength)
6-   Second SOS (Sign of Strength)

As for preliminary support, it's the first hurdle a rapidly declining price encounters. It's the area where some adventurous traders show a willingness to buy despite the down market. They price in based on their perception that the price has reached a point where buying is warranted.
The selling climax is where the price reaches saturation, usually accompanied by an increase in volume.
As for the selling climax, it's characterized by a strong buying surge that pulls the price upward forcefully. This marks the beginning of an increase in the number of buying traders and a significant decrease in the number of selling traders.
In the secondary test, the price attempts to return to the downtrend, but quickly rebounds upwards, forming what is known as the first sign of strength (SOS).
Then, the price resumes its downward trend, slightly exceeding the selling climax, before surging upwards. This creates the crucial element for us, known as the Second sign of strength, where the price breaks through the First sign of strength with the body of the candle, not just the wick.

Then we come to the crucial part (the secret), which is the relationship between supply and demand and Wyckoff method:
As we see in Wyckoff's price cycle, after the accumulation stage, demand exceeds supply. However, after the distribution stage, supply exceeds demand.

When a candle or candles of the second sign of strength cross the first sign of strength and break with a full close, we can say that demand has exceeded supply and look for buying opportunities below the breakout point. This will be clearly illustrated by the following examples:

Downward trend examples:

Up trend examples:

How to find and count Elliott Waves Correctly

Introduction:

In the field of trading, all successful traders know very well that you won't become a successful trader until after a few years, during which you master all types of technical analysis, and eventually arrive at the appropriate method. This is only after you have refined your skills through a mixture of profit and loss, sadness and joy, and being exposed to leverage (margin you account) at least once or more. Then you lament your luck, try again, and rise again. Ultimately, you will find your successful trading strategy and method. One of the most important lessons you will learn at this stage is the Elliott Waves lesson; indeed, it is almost the most important lesson of this stage for the trader. In my opinion, Elliott Waves can be described as follows:

Elliott Waves are the secret to profiting from the Forex, stock, and all financial markets.
Elliott Waves are the secret to all price action.
Elliott Waves are the secret to trend recognition.
Elliott Waves are the secret to ICT, SMC, harmonics, supply and demand, and even the Wyckoff Theory and Bill Williams Method.

My method for identifying Elliott Waves:

I use three indicators:

1- Awesome Oscillator (AO) with its default setting.
2- Qualitative Quantitative Estimation (QQE) with its default setting.
3- On Balance Volume with its default setting.

We simply adjust the colors of these indicators to match your chart and its colors, which are more comfortable for your eyes.

First: Identifying the First Wave:

To identify the first impulse wave, five strong evidences are used (as shown numbered 1 to 4 in the following image). We will mention the fifth evidence later:

1- The first impulse wave comes after a correction (A, B, C).
2- Notice the AO indicator moving from a bottom to a top, crossing the middle line.
3- Notice the QQE indicator making a strong impulsive movement from bottom to top, with a single color, green at the bottom and blue at the top. When both colors are completed, the first impulse wave ends.
4- Notice the OBV indicator making three strong impulsive movements from bottom to top, confirming the occurrence of the first wave movement (according to the OBV indicator).

5- The fifth indicator is the price respecting the high and low points of the first wave. This means that if we extend a horizontal line from the highest point of the first wave and another horizontal line at its lowest point, then look back at the chart, we will notice that the price has respected the wave boundaries from both the bottom and the top.

Second: Identifying the Third Wave:

When you're trying to identify the third impulse wave, which is often the longest wave, look at the AO indicator to find that its most highest peak represents the third wave.

Here are several other examples for other pairs:

Example one:

Example two:

I wish you success.

Supply and demand with Price Channel (Donchian Channel) Indicator

Price Channel, Also known as the Donchian Channel Indicator, it is a technical analysis tool used to identify trends, breakouts, and potential reversal points in the market.
It is widely used in forex, stocks, and gold.

Price channel indicator appearance on the chart

How the it Works:

The indicator draws three lines on the chart:

Upper Channel : Highest price over a specified period.

Lower Channel : Lowest price over the same period.

Middle Line : Average of the upper and lower lines.

Price channel Settings:

The default period: 20 candles and we will change it to 22 candles.

Note: Donchian Channel works on all time frames (from minute time frames to daily or weekly or monthly time frames)

How Price Channel work with Supply and demand:

When the price reaches one side of the channel and remains in motion while adjacent to the channel side, you know that the price has formed a supply or demand zone shortly before touching the channel side. Here are some examples:

Example 1

USD/CAD H4 timeframe

Example 2

USD/CHF H1 timeframe

Example 3

GBP/USD M30 timeframe

Commodity Channel Index (CCI) Indicator

What is Commodity Channel Index (CCI) indicator: It is an oscillating indicator of forex trading indicators that gives us the share price that is valid for sell or buy.

Benefit of Commodity Channel Index (CCI): This indicator gives buy and sell signals.

How the CCI indicator work: We calculate the price fluctuation of the pair during a specific period and compare it to the day of the decision.

How to trade forex with CCI indicator: A sell signal when the indicator is above +100 and starts to descend, it is important that it begins to go down. And a buy signal when the indicator is above -100 and begins to rise, it is important that it begins to rise.

(MACD) Moving Average Convergence Divergence

Definition of the MACD indicator:

It is an indicator that depends on calculating moving averages and its results move the movement of the stock.

The benefit of the MACD indicator:

It gives buy and sell signals.

The way the MACD indicator works:

The basic moving average is taken for a certain number of days, preferably 12 days, and the basic moving average for another particular number is subtracted from it, preferably 26 days. .

How to read the indicator:

1 - The signal to buy the intersection of the MACD line of the moving average line to the top, or the intersection of the MACD line of the zero line to the upside.

2 - Sell signal: the intersection of the MACD line of the moving average line downward, or the intersection of the MACD line of the zero line downward.

There are positive and negative trends, which we will review in the other topic.

Relative Strength Index (RSI)

Definition of Relative Strength Index (RSI) indicator: It is an indicator that shows us the areas of overbought and oversold.

Benefit of the Relative Strength Index (RSI): Gives signals to buy or sell.

How RSI work: the average of the rises or declines of the stock in a specific period, preferably 14 days, and compared to the stock index.

How to read the (Relative Strength Index) indicator:

1- Buy signal if the indicator breaks through the 30 line upwards (an oversold area).

2- Sell signal if the indicator breaks the 70 line downwards (overbought area)

Money Flow Index (MFI)

What is Money Flow Index (MFI)?: It is an indicator that measures the amount of money (liquidity) entering or leaving the stock.

Interest: gives signals to buy or sell.

- Manual method: we take the average stock price and multiply it by the trading volume, and compare it to the price of the previous day, preferably for a period of 14 days. Positive days are added up and divided by negative days, and the result is the oscillator of this indicator.

- How to read the indicator: a buy signal when the indicator breaks the value 20 upwards.
Sell signal when the index breaks the value 80 downwards.

Follow up on buying and selling signals resulting from the phenomenon of breakthrough.

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