Supply and Demand by Alfonso Moreno Rules for Position

and Swing Trading

1. Demand or supply levels in control dont need to be original or fresh
2. No pull-back trade without imbalance of 2:1 and consolidation away from the level
If price returns to a just created level right away and doesnt form a complete candle (OHLC) away from
the level we dont expect a pull-back.
In the chart below the long blue candle closes above the level. The next red candle right away closes in
the level again.

By this the level is negated. This applies not only on this weekly time frame, but for all lower time
frames.

3. A valid level needs consolidation above/below the level

If the red candle would drop right away back to the level, it would be no imbalance and would be NO
valid level. If price consolidate away from the level and then drops back to the level, the expected re-
bounce is a set & forget trade.

4. Retest trades with valid levels only

5. Dont trade non-fresh zones

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 Supply and Demand by Alfonso Moreno Rules for Position
and Swing Trading
If an area has already been touched before, it is used up. Formerly unfilled buy/sell orders have been
filled now. Imbalance is gone. Re-bounce of price cannot be expected again.

6. Drill down the level to lower the risk

If the level is not well formed like showing spikes or candles with long wicks:

On M15 we see that the price gapped down which is an indicator for strong supply.

7. No trade against higher timeframe demand or supply areas. Wait for brand new areas on entry
time frame D1 and trade with the W1 and MN trend. Wait for confirmation like broken trend line also.

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 Supply and Demand by Alfonso Moreno Rules for Position
and Swing Trading

8. A new demand or supply zone cannot be traded automatically when price retests this area. With new
DZ for example no buy trade at retest if trend is down at this level.

9. If the SD zone shows candles with long tails, then we dont want to lean on this zone. I.e. we dont
trade that zone. Even it is removing opposing zone.

10. Trading compressed levels

Situation: Uptrend with several demand areas being compressed the way up. They are all reactions to
previous levels. Its likely, that when price drops, all these demand zones get removed. Compressed
means touches or pull-backs to former levels.
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 Supply and Demand by Alfonso Moreno Rules for Position
and Swing Trading

If we see compressed levels, we use the trend line tool to know when the trend is broken.

11. High probability counter trade

Price broke the upward trend line and formed the supply level. Price was over extended. Also it formed
a historical high. After the pull-back from this supply we have a higher probability for shorting / counter
trend. We need to check the curve on a higher time frame. If we are on the monthly chart we can set up
the trade with current knowledge. Drill down to lower timeframe for better entry price.

12. Demand Zone w/o bouncing price

Price returning to DZ prints supply zones and compressed areas. Indication, that price will not bounce.
Due to potential buy orders being filled before touching DZ.

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 Supply and Demand by Alfonso Moreno Rules for Position
and Swing Trading

13. High probability of future removal of supply zones

Downtrend with a lot of supply zones, very compressed and lot of candles. Probability is high, that price
on the way up will absorb these DZs easily as sellers have had enough time to fill their orders. On the
way down there havent been big sellers. Otherwise we would have seen bearish ERC candles.

14. Demand area w/o basing candle

Candle (1) engulfs candle (2).

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 Supply and Demand by Alfonso Moreno Rules for Position
and Swing Trading

15. Characteristic of strong demand level

DZ removes (3) supply levels (yellow circles) and breaks TL (red circle).

16. Trend and counter trend trading with inherited levels

We see an uptrend: two valleys have been formed A TL can be drawn.

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 Supply and Demand by Alfonso Moreno Rules for Position
and Swing Trading
Levels (B, C and D) are not valid on their own. They do not remove either two supplies or make higher
highs. If a level above these makes a HH or removes min. 2 supplies, this new level validates the lower
levels (B, C and D).
If candle (1) would have dropped back to zone (B) right away, this would have negated level (B) and all
inherited levels below (B and D) and all LTF levels based on this one.
Level (B) inherits the levels (C and D) validity and invalidity.

For counter trend purposes: if level (A) would get invalidated, we wouldnt rely for a retest on this (A).
We would have to wait for a retest of a valid level below of the invalidated level.

17. Doji candle as a base

Increase the levels height a bit above the doji open/close-point.

18. Dont lean on used up, compressed areas

Area (1) is kind of later flip level which price violated at (2). Price created several compressed demand
levels in field (A) after a strong drop. All demands then were used up by following candles with long

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 Supply and Demand by Alfonso Moreno Rules for Position
and Swing Trading
wicks. We cannot lean on those demands as we need imbalance. If there would have been clearly
more buyers we would have seen price rising sharply. So we cannot buy here.
At (3) in the area of former level (1) a supply gets formed.
Area (A) is balance. As there is no resistance anymore, we can expect price to bounce down from (3).

19. When to trade a used up area: Scenario 1

MN chart: Price has retouched monthly demand area three times (1, 2 and 3). The
level is not fresh. No set & forget trade allowed.

If price forms a brand new H4 / H1 level at (4) within the grey demand level after
absorbing a previous supply (in the former down move), then moves up, we can
buy trade the pull back.

20. When to trade a used up area: Scenario 2

When price drops to the original (blue) level of demand (yellow ellipse) then one can buy (set & forget).

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 Supply and Demand by Alfonso Moreno Rules for Position
and Swing Trading

21. When to trade a used up area: Scenario 3

When price rises and takes out (green) level of supply solidly with momentum. A short shot above the
distal line is not enough.

22. Avoid supply zone with a hammer

Supply zone with a hammer is not a good tradable area. Also the spikes show danger of breaking the
zone at retest. We prefer to see a hammer with a demand zone.

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 Supply and Demand by Alfonso Moreno Rules for Position
and Swing Trading

23. Dont care about very wide zones

If a zone is much wider than the average, it normally gets penetrated fully.

24. Nested areas of demand or supply are high probability trade areas
If you find daily levels nested in weekly and these nested in monthly levels, expect high probability
trades.

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