The essence of market trading
Lesson Twenty-Four
Today's lesson is about how to define the most worthwhile institutional order zones by examining the following conditions:
The strength of price movement away from institutional order zones: The greater the strength of the price movement away from institutional order zones, the more imbalanced supply and demand are, indicating that the side breaking through has gained market dominance, such as long candles, gaps, etc.; The farther the distance of this wave moving away from the institutional order zone after the breakout, the stronger the strength of the side that breaks through.
Breaking previous support and resistance levels: Breaking previous support indicates that the demand at the original support level has been exhausted; breaking previous resistance indicates that the supply at the original resistance has been absorbed by demand;
3. Freshness of the area: After the institutional order area is established, if the price has not been retraced and tested, it indicates that there are still a large number of residual institutional orders in the area. If it has been tested before, the institutional orders inside have been consumed, and its support and resistance role is weakened.
4. Minimum risk-return ratio: This refers to whether the ratio of the amplitude reached by the first wave after the institutional order area is broken through to the institutional area exceeds 2:1.
5. The urgency of the institution: This refers to the time and speed at which the price returns to the institutional order area immediately after leaving it. The faster the return time, the more it indicates the importance of the institutional order area; conversely, it indicates that the institutional order area is not so important, and upon returning to that area, it may no longer serve as support or resistance.
The biggest problem for institutions is having too many chips. For example, when the price leaves the demand zone, it needs to distribute at a high position. If it distributes for a long time at a high position, the chips in the demand zone have already been distributed at a high position, and when the price falls to the demand zone, it no longer serves as support; if the price stays at a high position for a short time, because the institution has many chips, it cannot fully distribute, and there are still some chips not fully distributed. Therefore, when the price returns to the demand zone, the institution will absorb chips again and push the price up.
As shown in Figure 24-1: the 4 consecutive high candles on the 3rd broke through the demand zone, reflecting the strength of institutional control.
The breakthrough on the 3rd confirms the area 1 as a demand zone, and this demand zone has not been tested, thus it is a fresh demand zone.
The 2nd price continuously broke through the previous high resistance level, indicating that the supply above was easily absorbed by demand.
The V-shaped reversal on the 4th tested the demand zone, and the institution did not have time to distribute chips, further indicating that the institution's backtest is that the chips have not been sufficiently absorbed.
High profit-loss ratio on the 5th.
As shown in Figure 24-2, the continuous rise of high and low points through the bands indicates that the market background at that time was an upward trend, and our trading direction is long positions. Do not operate short positions against the trend in an upward trend.
As shown in Figure 24-3, the continuous decline of high and low points through the bands indicates that the market background at that time was a downward trend, and our trading direction is short positions. Do not operate long positions against the trend in a downward trend.
As shown in Figure 24-4, there are two adjacent demand zones. Detailed analysis can be found in the illustration, which should be very clear.
I hope the knowledge points I explained are helpful to you.
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