Supply Demand And Price Action

Bull/Bear Trap When a support level such as a swing low or a trendline is breached, the market often attracts fresh interest from buyers and sellers. The buy low crowd come in looking for value at previously cheap levels, while the breakout following crowd sell the breakout looking for an extension of the decline. If the downside break fails to see follow-through selling, frustrated short sellers cover their positions bidding the market up creating a whipsaw. The market advance is exacerbated by the 'wait and see' crowd who come in after most of the cards have been played.  Some examples of the Bull and Bear Trap :

Whipsaw Engulfing [Bearish Whipsaw Engulfing] 1. Cluster (where supply and demand are balanced) near supply.  2. Cluster resolves north and becomes demand. Many novice breakout traders go long without knowing that they are going right into supply.  3. Cluster is engulfed south by big sellers in supply. Ignored cluster now becomes supply.  4. Need to go short when/if price retraces to cluster. You may find DBD in Sell Zone in lower timeframe to refine your short entry. 

THE FAKEOUT For a better understanding of liquidity please refer to the   Order Flow   and Liquidity Gap   articles. What is a Fakeout? Fakeout is also known as False Breakout, Shakeout, Sellers/Buyers/Bull/Bear Trap, Stop Run, Stop Hunt and Liquidity Spike. It’s a search of liquidity followed by a change in direction. Why does it happen? There are different scenarios and situations of why it happens. However, the main reason behind it is to create liquidity in an illiquid market - by big funds, to test a level’s strength. To elaborate more on that, a short example is required: Let’s say price of a financial instrument is rising to a value of significant history at 100 (resistance level) where the majority of traders will either buy a breakout with stops below 100 or sell on rebound with stops above 100. The price moves higher to 105 triggering on its way seller’s stops and buyer’s orders, but price doesn’t get any higher...

KEY LEVELS & PRICE ACTION What is a price level? A price level on chart could be defined by plotting a horizontal line, but in fact the level is an area or zone and not a specific price value. What is a key level? Key level is a level that has a great history acting as support and resistance, in other words “a level of flip between support and resistance”. Are there any other terms for Key levels? Yes, it’s also known as Pivot Zone, S/R Flip and Swap Zone. Are there different types of key levels? Yes, there is a major key level and a minor key level depending on clarity and efficiency of the level. How do we locate key levels on chart? A picture worth a thousand words, the first type of key levels are the major key levels which you can locate easily from the first glimpse at any chart by defining swing highs and swing lows. The following chart shows daily major key levels for the pair EUR/USD, some prefer to set levels at the nea...