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Understanding Marking Zones in Trading

Oct 30, 2024

Lecture on Marking Zones in Trading

Introduction

  • Focus on the concept of zones in trading.
  • Importance of marking zones accurately for AOI, 50% level, etc.
  • Understanding how to make zones reliable even if they are not perfect.

Key Concepts

  • Zones: Areas in trading charts that are crucial for making trading decisions.
  • Imbalances and Splits: Other important concepts in trading strategy.
  • 50% Line: A significant level in zones.

Drawing Zones

  • Use a whiteboard for demonstration.

Demand Zones

  1. Creation of Candles: Begins with price balancing and ends with a red candle.

    • Last candle is called a "basing candle" and should end red.
    • Three Parts of a Zone: Top, bottom, and middle (50% level).
    • Only Two Candles Matter: Ignore irrelevant candles.
  2. Types of Demand Formation:

    • Falling down, balancing, then moving up.
    • Coming up, balancing, then moving up again.
  3. Valid and Invalid Zones:

    • Valid: Proper basing size, acceptable wick size.
    • Invalid: Too large basing candle, excessive wick size.
    • Wicks should not exceed 50% of the candle height.

Supply Zones

  • Opposite of Demand Zones.
  • End with a green candle and aggressive move downwards.
  • Wicks on top are irrelevant; bottom wicks matter.
  • Similar concepts of valid and invalid zones as demand zones.

Marking Zones

  • Demand Zones: Open to the lowest point of the wick.
  • Supply Zones: Open to the highest point of the wick.
  • Importance of not marking zones with battles or inconsistent wicks.

Examples and Chart Analysis

  • Use various time frames to identify potential zones (4 Hour, 3 Hour, etc.).
  • Analyze zones for validity: basing, wick size, and aggressive movement.
  • Avoid zones with battles in the candles.

Practical Tips

  • Smaller zones are preferable; avoid large zones due to increased risk.
  • Validate zones through aggressive moves and minimal battles.
  • Use different time frames for better precision.

Summary

  • Understanding what constitutes a valid or invalid zone is crucial.
  • Proper zone marking enhances trading strategy effectiveness.
  • Next topics: 50% levels and parts of zones.

Conclusion

  • Importance of marking correct zones.
  • Re-watch video for clarity if needed.
  • Ensure accurate charting and zone marking in trading practices.