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How to score a supply and demand imbalance (Validation of Level (6.…
How to score a supply and demand imbalance
A higher timeframe that is not yet validated negates lower TFs contained within
If a Monthly zone that has not
consolidated away
, created a
2:1 imbalance
, slow 50% candle base,
weak departure
or has a bad
structure at the base
, will negate all set and forget levels contained within it, confirmation would be needed
A Higher TF normally wins over a Lower TF, if the bigger does not provide a well scored level, the Lower TF will inherit that score
Validation of Level
5. Follow the big picture´s trend
Make your top down analysis and take levels that go with the highest time frame's trend
4. Time spent at the base, quality of the base
No more than 6 candles
at the base
A
wicky base
will negate a level and force confirmation
Single Doji Candles are lower odds
A Weekly zone can look great on the WK chart, but it can have more than 6 D1 candles. If your entry TF is the D1, you need to wait for confirmation
6. Arrival at the Level
Strong Arrival into a level with ERC candles is best
it means there is a lot of emotion and granularity on the way to the opposing zone
Basing on the way to a level is not a good sign
, it means it's a non-emotional movement and it removes profit margin
1. Strength of Departure
How did price leave the zone?
Were they ERC or Basing Candles
8. What has a level accomplished?
If the level breaks an important HTF zone, it will score higher than one that didn't accomplish it
A lower TF level that breaks a HTF level will score higher than a similar level that didn't accomplish it
9. Consolidation away with one OHCL candle to validate imbalance
We need at least 1 full OHCL candle consolidating away from the imbalance
If this does not happen, the level has got no imbalance. Having the candle returning to the origin of the imbalance equals to NO imbalance at all
7. Location and momentum levels, nested within HTF zones
Momentum levels (trend)
Location levels (nested) - counter-trend
Location + momentum levels
3. Freshness of a level, number of retests
Is the level fresh and/or original?
Has it been tested more than once?
We just need fresh levels in a trending market.
Only fresh levels are valid
, else confirmation is needed
2. Profit Margin
Is there enough room to the opposing zone, same TF or a HTF zone?
A 3:1 profit margin is needed for higher odds, we want no obstacles nearby taking away our profit margin
10. Minimum Risk/Reward
We need a 2:1 R:R imbalance at the origin to validate a level
We need a 3 RR + 1 Profit margin cushion for a 3 R/R Take Profit
Types of supply and demand zones
Type of SD imbalances: Extremes (valleys and peaks) versus Continuation Patterns (CP)