Identifying Supply And Demand Zones - All About Forex

Identifying Supply And Demand Zones

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The supply and demand zones provide excellent insight into the structure of any market. If you have an idea of ​​how to trade with support and resistance areas, you may find that the supply and demand areas are very similar.

Identifying Supply And Demand Zones

Identifying Supply And Demand Zones

The bid and ask fields are very similar, if not identical. However, there are some rules that they ignore and IMHO make them shine brighter than support and resistance. In this article, I want to make sure you know why.

Supply And Demand Zones

In the picture above you see the German stock exchange DAX. The red zone is marked as a supply zone. This can also be defined as an active resistance level or where traders are selling large amounts.

On the other hand, the request area is a wide support area, as shown in the image below.

In the table above you can see a number of offers or in other words a very wide range of support. There is also a buyer-focused level. As you can see whenever the price approaches the supply zone it jumps quickly.

Another characteristic of bid and sell zones is rapid price action. As mentioned above, price action is very fast around these levels, so if there are opportunities they are quickly snapped up.

What Are Supply And Demand Zones And How To Trade With Them

A very important element of supply and demand trading is the accompanying use of candlestick charts. Although I have written a very extensive article on candlesticks, I will briefly touch on them here.

The main candlestick patterns used in conjunction with supply and demand levels are pinnable and engulfing patterns. Most traders using bid and ask areas will look for rejection or confirmation of these levels.

It is therefore important to know at least two of these candlestick models. Below is an example of both:

Identifying Supply And Demand Zones

In the example above, there are two candlestick patterns: Pinbar and 2 Bullish Engulfing Pattern. As you can see in the chart above, the price rises quickly after the formation of these candles.

Supply And Demand Zone Trading

As explained earlier, support and resistance levels are very similar zones. The only difference is that the fields cover a larger area. The other difference is the way the supply and demand areas are drawn, but we’ll get to that later.

In practice, support and resistance and supply and demand areas are the same beast.

If it helps, think of the supply and demand areas as major support and resistance areas, respectively, with a high concentration of buyers and sellers.

The good news is that the supply and demand areas can be used with equal success in all time frames. I would still recommend using it for periods longer than 60 minutes. Anything below that is a lot of noise and more false signals.

How To Identify Supply And Demand Zone For Nse:tatamotors By Inteliigentrader — Tradingview India

In my experience, the best time frames to discover areas of supply and demand are 4H and Daily.

The best way to find supply and demand areas is to look at a candlestick chart. Here is the order of things to do to discover the supply and demand areas:

You can see in the image above that all three areas show fast price ranges. These are the types of market moves you should be looking for. Now the question remains: how do we define the supply and demand areas.

Identifying Supply And Demand Zones

The best way to show it is through an illustration. Let me draw it so you can see it better:

Supply And Demand Trading Strategies

As you can see in the image above, the demand and supply areas take a base at the beginning of the move. Being accurate with these levels is very difficult and here it is more of an art than a science.

The good news is that after a while you get used to recognizing these levels and your eye becomes an automatic scanner.

Remember: The most important thing is to make a sharp move in both directions first, then you can decide where it started and roughly define the supply/demand area.

In the image above, there are two potential scenarios. In the first one on the left, we have the price falling (D), forming a base (B) and rising again (U). I will call this setup the DBU setup.

Supply Demand Dashboard For Trading View

In the image at the top right, there is first an uptrend (U). Then the price forms a base (B) followed by a continuation of the uptrend (U). I will call this setup UBU.

In the image at the top left, we have prices rising (U), forming a base (B) and then down (D). I will call this the UBD setup.

In the picture at the top right, we have the price falling (D), forming a base (B) and continuing down (D). This is a DBD configuration.

Identifying Supply And Demand Zones

So the 4 configurations (you don’t need to remember the abbreviations) are DBU, UBU, UBD and DBD. In this way, you can identify the various supply and demand areas.

Supply And Demand Forex

So how do you identify the 4 main types of supply and demand. As mentioned above, you need to follow the three steps to identify the supply and demand areas.

As already mentioned, it is difficult to draw a specific zone; it takes time and practice to be able to recognize these areas. All you need to do is follow the rules and practice enough until you are confident in drawing these levels.

Don’t forget that this is how everyone else using these levels learned it. After a while it will become natural and you will quickly be able to recognize them.

It is important to note here that a bid/offer zone includes candles and often. As you can see in the demand area above, there is a large lower tail embedded in the area.

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The following image is taken from the daily chart of AUDUSD. As you can see, this is a typical UpBaseUp (UBU) model (as defined above).

The following setup is taken from the USDCAD daily chart. There you can see a typical DownBaseDown (DBD) pattern.

Let’s continue with entry rules, stop loss and take profit and then see more examples.

Identifying Supply And Demand Zones

In the image above you can see rules for trading with supply and demand. This is just one way to trade bid and ask pages. Different traders will have different rules, but the thing to remember here is that you should always get more rewards than the risk you have to take.

Fresh Support And Resistance Levels For Thinkorswim

In the example above, the ratio is 1:3. The entry is usually in the middle of the bid or ask zone. The stop is usually 5-10 pips below the demand area, as indicated by the red line. Your target should be at least 2 or 3 times your risk (as the image above indicates).

These are indicative parameters only. Mastering trading will take more time and practice than reading a single article. If you want to learn more about my professional trading strategy and join others who have done it, you can do so HERE.

This example is taken from the USDJPY daily chart. You can see above that we have the UpBaseUp (UBU) model. The demand area is clearly defined by upper and lower limits.

An alternative way to approach these levels is to use a different confirmation tool or a different meeting period.

The Difference Between Supply & Demand And Support & Resistance

You can see two sites offer and request. The order area is where all the big buyers are. The supply zone is where all the big sellers are located.

I could go on and on with more examples, but ultimately it’s up to you to start discovering these areas. You have to practice until you get it. It may take some time, but the supply and demand areas are wonderful tools for the price trader.

Like everything else, supply and demand sites also have their drawbacks. There is no perfect trading strategy or tool. What makes the difference down the road is your attitude towards trading.

Identifying Supply And Demand Zones

Being able to tick these 5 boxes will give you more freedom than you can imagine. As Auberon Herbert says:

Demand & Supply

“You will not make a man wise by taking away his freedom of action. A man can only learn when he is free to act.’

If you want to know more about support and resistance, here is probably the most comprehensive article on the web

Disclaimer: Any advice or information on this website is general advice only – It does not take into account your personal circumstances, please do not trade or invest based on this information alone. By viewing or using information on this website, you agree that it is general educational material and you will not hold any person or entity liable for any loss or damage resulting from its content or general advice.

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