Replies to post #122621 on Simple's Green Room

[pennies2007]

Actually Qui, I'm learning to ignore the TDI more and more. I'm finding that price action can easily move hard away from a true zone regardless of whether the TDI says it will or not. Things like divergence that we look for at tops or bottoms aren't always evident when price moves away hard.

That being said, I'll likely never abandon the TDI. I still use it to try to help confirm what I'm seeing with the zones. But reliance on any indicator is actually something we're trying to move away from as a whole so we can concentrate on pure price action.

[pennies2007]

Setting True Zone Tops and Bottoms

Ok Qui, here's the first example I promised you for setting zones properly. SG can definitely give more input on this than I can though.

The first thing you have to understand is that the zone isn't necessarily an area drawn between absolute peaks and valleys during a consolidation area. As he said, there's a big difference between a simple support and resistance area and a true supply and demand area.

To keep it simple, when I refer to CZ areas (consolidation zone areas), I mean true supply and demand areas.

Here's NU as the first example. Notice I have my zone drawn in at the top end not at the candle peaks but AT THE POINT THAT IS MOST COMMONLY HIT BY THE CANDLES. That top line is encompassed by a combination of candle body tops and wicks. So you can't always go by where the wick ends. Look for the most common area. I prefer at least 3 to go by. In this case, I had 3 followed by the last one which hit within a pip or so...so I counted it as a fourth hit.

With that top in place, our attention must now turn to the bottom so we have a complete zone. There's no way to know ahead of time exactly where the bottom will be for our zone when price is still inside. So we wait. Price finally moved away from the last low and then came back up to test it. Notice the test at the bottom produced 3 distinct peaks all at the same level, which just happened to match up exactly with the lowest candle price from the previous low. That gives me a 4 point match. So that's where I draw my bottom parallel trend line.

All that's left now is to draw a rectangle between my top line and my bottom line and Voila!...you now have a true CZ.

[pennies2007]

True Zone Tops and Bottoms...Example #2

Still on NU here. This zone was a bit trickier to set. Once again, I'm not necessarily interesting in absolute tops and bottoms. I want to know where the MAXIMUM number of hits reside, whether at the candle body or the candle peaks.

At the top, I have 4 shown. That one spike above the rest is to be ignored.

At the bottom, notice there is one instance where price moved well below the zone I have drawn in. Again, that should be ignored. That's not where the true zone bottom is.

At the low end, I have 4 distinct points where I can draw one trendline and have all 4 points intersect. That's my TRUE zone bottom.

Now just draw in the rectangle between the 2 points and you have another true CZ. Notice today that price came back up and stopped dead on within 1 pip of the zone bottom. That confirms that we have it drawn properly and that it is a true Supply zone.