How to identify Supply & Demand Imbalance created by Extremes (Valleys and Peaks)?
Welcome to Episode 6 of Price Action Trading Series from MarketSecrets.
In this episode we are go to learn about “Supply & Demand Imbalance created by Extremes, which involves Valleys and Peaks“.
There are 2 types of supply and demand imbalances:
- Valleys and Peaks – which is called extremes
- CP (Continuation Pattern)
In this episode, we will be focussing on Extremes.
To watch all the episodes, please use this link: https://www.youtube.com/playlist?list=PLRpfTFEfJ27Y9rFMjQZgXPRjxiA3dPhOP
VALLEYS & PEAKS
Valleys and Peaks are V shape (valleys) and inverted V shape (peaks) formations in the chart, which are normally reactions to previous imbalances. Most of the time a retest of a swing will be in reality a pullback to an imbalance level. They are the building blocks of a trend
Valleys and peaks are composed of these formations:
- Drop-Base-Rally or Drop-Rally
- Rally-Base-Drop or Rally-Drop
IMPORTANT: When you see a valley, a peak or a CP that you identify in a chart you need to understand that the imbalance formation alone only qualifies it as a “potential demand” – nothing more nothing less.
This is very important to understand and should always be kept in mind when you go through your training.
Only when such imbalances are qualified further which you will learn in later episodes, will you be able to define true supply and demand levels. I cannot stress this out more!
Valley:
A valley stands for potential demand, it is composed of the following:
- 1 leg/move down
- A base
- 1 leg/move up
Therefore we can say it as Drop-Base-Rally or Drop-Rally.
Drop-Base-Rally:
Drop-Rally:
Note: The move up (rally away) confirms it as a valley
The basing of an imbalance is created by basing candles, which mostly are so called 50% candles. These candles can be easily identified by using the “basing candle indicator” in AFL. I will explain this in a separate video.
IMPORTANT: The base of a valley/peak does not necessarily need to be 50% candles. In fact, common valleys/peaks are composed of strong bullish/bearish engulfing and piercing patterns.
Most of the time, these patterns don’t have a basing candle, that’s why I mentioned that we have bases in some cases not in all cases.
Peak:
A Peak stands for potential supply, it is composed of the following:
- 1 leg/move up
- A base
- 1 leg/move down
Therefore we can say it as Rally-Base-Drop or Rally-Drop
Rally-Base-Drop
Rally Drop:
Assignment:
Open your chart and mark at least 10 Valley’s each for Drop-base-rally & drop-rally. Likewise mark at least 10 peak’s each for rally-base-drop & rally-drop.
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