In simple terms and as shown in this chart, when the market is balanced or in consolidation, at some point an impulse is being created by buyers or sellers.

The point from which the impulse starts, is called “origin point” and becomes my key reference to consider a potential demand zone.

For the same reason, I consider a potential supply zone from the start of the bearish origin point and thus from where the market was previously balanced.

That's how I find them and that's how I feel comfortable using them for my operations. But let's move to a practical example so you'll be able to understand the concept properly.

This is the daily chart of Bitcoin: I individuated the supply zone from the start of the first bearish origin point at approximately 53K (strong signal given the nasty nature of the red candle). You can see that over time the price has tested that supply zone and lately got rejected from it. On the contrary, I identified the demand zone starting from the bullish origin point at 40/41K, which has been validated by the price testing that zone with a long red wick and in Q1 2022 with the body of the candles.

2 key things to remember:

• I could have included the wicks of the candles in the demand zone and it would have still been valid.
• The more a supply or a demand zone is tested, the weaker it becomes as sell or buy orders get absorbed.

In this example, you can see the price of Bitcoin testing the demand zone multiple times (notice the wicks that grab liquidity absorbing buy orders) also supported by the strong seller's momentum (velocity)).

At some point, those tests have “consumed” the buying pressure, leading the price to melt the demand zone.

Another clear example here : notice how the theory of “absorption” becomes true with the price testing the demand zone multiple times over months and then breaking below it with a strong bearish impulse.

The demand zone has in fact absorbed all the buy orders without being able to produce a strong uptrend.

This notion will help you identify key areas and evaluate your operativity based on the reaction, whether you're a trader or a long-term investor.

The concept of dominance is extremely easy to understand : let’s see a concrete example. This chart shows a clear Bitcoin downtrend, with multiple lower highs and lower lows.

The directional bearish impulse starts from each high (red bubble) flashing more supply than demand and therefore pushing the price down.

At some point, buyers enter the market (green bubble) but cannot overcome the past sellers’ dominance zone (notice the lower highs) becoming a new level in which sellers push the price down again, so transforming into a new sellers dominance zone.

In the following chart however, we can see the price of Bitcoin violating the sellers dominance area, and that is our first sign that the tides are turning and buyers are starting to push to reverse the price.

In fact, with the developments of the price action, buyers have established new dominance levels. This is the concept of dominance utilized in trading and that can help you decide if it is worth selling or buying.

"But mate, how can I have a stronger signal for buying or selling strength?"

With the use of momentum. Momentum in trading is nothing else than the speed with which the price reaches the sellers or buyers dominance:

• The less time it takes, the stronger the momentum for buyers or sellers
• The more time takes, the weaker the momentum for buyers or sellers

In this example, the buyers took 3 days to push the price higher (without violating the sellers dominance), while sellers just took 1 day to violate the buyers dominance.

This was another clear sign that sellers was in momentum and in complete control, helping us to consider staying away from the market or opening a potential short position.

Another example on the buyers side this time. Look at how fast buyers have broke above past sellers dominance areas:

Sellers weren't able to push the price down below the buyers dominance not even in 37 days, a clear sign of their loss of momentum and that buyers are in full control.

Well mate, you don't need a genius to comprehend that you might want to buy low and sell high, right? This might sound trivial, but 90% of people lose money because they do the opposite. Getting down to brass tacks, technically speaking you want to:

• Buy at discount (low) -> below 0.5 Fibonacci
• Sell at premium (high) -> above 0.5 Fibonacci
• Have less interest in buying/selling at an intermediary price (equilibrium) -> 0.5

The more the price goes to the premium area, the more smart money will be inclined to sell. Conversely, the more the price goes down to the discount area, the more smart money will be interested in buying.

This is the Bitcoin weekly chart post bear market bottom : as you can see, the price begun to rise, initiating an impulse that surpasses the previous ones, flashing the start of an uptrend marked by a higher high (HH). Then, after the high of the impulse, a retracement phase took place, but until where specifically?

Using the Fibonacci retracement tool and by the principle of discount areas, we want to buy when the price falls below the equilibrium point (0.5), preferably. Personally, I would wait until the price reaches my area of interest, which corresponds to the yellow box (88.60/75/61.80) ~> you can set up these percentages on the Fibonacci retracement tool.

That's where I'm placing my buy orders in an HTF uptrend. In this case, the price of Bitcoin only wicked below the 0.5 not giving much time for people to take advantage of the discount zone.

Let's now see how this can be useful taking a downtrend example:

In this context, we had our previous BOMS (Break of Market Structure) which led to the bearish impulse. The price has lately jumped back above the equilibrium point entering the premium zone and providing a juicy area where to unload the bags. (88.60/75/61.80)

Even in this case, we don't have a guarantee on the price retracing to premium levels, but in case it does, our mind should be alert.