Trading Supply And Demand Levels – Do you want to profit in bull and bear markets – without indicators, fundamentals or complex analysis? Here’s how to get your copy (risk-free)
Supply and demand zones are really great insights into the structure of any market. If you are familiar with trading support and resistance zones, you will find that demand and supply zones are very similar.
- 1. Trading Supply And Demand Levels
- 2. Supply And Demand: Why Markets Tick
- 3. Supply And Demand Trading Strategies
- 4. Supply And Demand Levels And Price Action Trading
Trading Supply And Demand Levels
The demand and supply zones are very similar, if not identical. Although there are certain rules that set them aside that IMHO shine brighter than support and resistance. I’m sure this article will tell you exactly why.
Supply And Demand Zones
The picture above shows the German DAX stock exchange. Red areas are marked as supply areas. This can also be defined as an active resistance level or a level where traders are selling heavily.
On the other hand, the demand zone is a broad support area as shown in the chart below.
In the chart above you can see a supply zone, in other words a very wide support level. It is also the level of customer concentration. As you can see, every time the price approaches the supply zone, it quickly recovers.
Another characteristic of supply and demand zones is that prices move quickly. As noted above, prices move very quickly around these levels, so they will be quickly absorbed if given the opportunity.
Supply And Demand Forex Trading Guide With Free Pdf
A very important element of supply and demand trading is using candlestick charts along with it. While I have written a very extensive article on candlesticks, I will cover them briefly here.
The two most important candlestick patterns used in relation to supply and demand levels are the needle bar and the sink pattern. Most traders using supply and demand zones will look for rejection or confirmation of these levels.
Therefore, you should be able to identify at least these two candlestick patterns. Below are examples of them:
In the above example there are two candlestick patterns – Pinbar and 2 bullish engulfing patterns. As you can see in the chart above, after these candlesticks formed, the price quickly moved higher.
Ctrader Supply And Demand Zones Indicator
As mentioned earlier, support and resistance levels are very similar to zones. The only difference is that regions contain larger regions. Another difference is the drawing of supply and demand zones, but we will get to that later.
In practice, the area of support and resistance and supply and demand is a homologous beast.
If it helps, you can even think of supply and demand zones as large support and resistance areas with lots of buyers and sellers.
The good news is that supply and demand zones can be used equally successfully in all time frames. I still recommend using it for time frames longer than 60 minutes. Anything below that contains a lot of noise and more spurious signals.
Supply And Demand Trading
In my experience, the best time frames for spotting supply and demand zones are 4-hour and daily.
The best way to find supply and demand areas is to look at candlestick charts. Here is the order in which the supply and demand zones are explored:
As you can see in the image above, these three areas show areas where prices are moving quickly. These are exactly the types of market moves you should be looking for. The question remains – how do we define supply and demand zones.
The best way to show it is through illustrations. Let me draw them so you can better imagine:
Supply And Demand: Why Markets Tick
As you can see in the image above, the demand and supply areas surround the base at the beginning of the move. Determining these levels is difficult and is more of an art than a science.
The good news is that after a while you get used to detecting the levels and your eyes become an automatic scanner.
Remember: the most important thing is that you first move sharply in any direction, then you can determine where you started and roughly determine the supply/demand areas.
In the picture above, two possible situations are possible. In the first one on the left, we let the price fall (D), then the bottom one (B), and then we let it rise again (U). I call this setting the DBU setting.
Supply And Demand Trading: The Definitive Guide (pdf)
The upper right graph first shows an uptrend (U). Then our exchange rate forms a low point (B), after which an upward trend continues (U). I call this setup UBU.
In the upper left graph, the exchange rate rises (U), then lowers (B), then falls (D). This is what I call the UBD setting.
In the upper right graph, we see that the exchange rate fell (D), then bottomed (B), and then fell further (D). This is the DBD setting.
So the 4 settings (no need to remember the abbreviations) are DBU, UBU, UBD and DBD. This way you can identify different areas of demand and supply.
Law Of Supply And Demand In Economics: How It Works
So how do you identify these 4 main supply and demand patterns. As mentioned above, you need to follow three steps to identify areas of demand and supply.
As mentioned, it’s difficult to draw precise areas – it takes time and practice to spot them. All you have to do is follow the rules and practice enough until you feel confident drawing these levels.
Don’t forget that others who have successfully used these levels have learned this way. After a while it will become second nature and you will be able to spot them very quickly.
It is important to note that supply/demand zones can often include the tails of candles. As you can see from the demand area above, this area has a large lower tail.
Supply And Demand Trading Strategies
The following image is of the AUDUSD daily chart. As you can see, this is a typical UpBaseUp (UBU) pattern (defined above).
The following setup is taken from the USDCAD daily chart. This shows a typical DownBaseDown (DBD) pattern.
Let’s move on to entry rules, stop loss and take profit, and then look at some examples.
In the image above you can see the supply and demand trading rules. It’s just a way to trade supply and demand zones. Different traders have different rules, but it is important to note here that you should always aim for a higher return than the risk you take.
Trading Currency Futures Using Sam Seiden Supply & Demand Levels
In the example above, the ratio is 1:3. The entrance is usually in the middle of the supply and demand zone. The stop loss is usually 5-10 pips below the demand zone as indicated by the red line. The target should be at least 2-3 times greater than the risk (according to the table above).
These are for informational purposes only. To become proficient in trading, you need to spend more time and practice than reading an article. If you want to learn more about my professional trading strategies and join others, you can do so here.
This example is taken from the USDJPY daily chart. You can see we have a sample of UpBaseUp (UBU) above. Demand zones are clearly defined by upper and lower limits.
Another way to approach these levels is to use a different tool for confirmation or a different time frame for confluence.
Supply And Demand Levels And Price Action Trading
You can see two areas of supply and demand. The demand zone is where all the big buyers are. The supply zone is where all the big sellers are.
I could go on and on with more examples, but at the end of the day it’s up to you to start exploring these areas. You have to practice until you get used to it. It may take some time, but supply and demand zones are a great tool for bargain traders.
Like everything else, the supply and demand zone has its downsides. There is no perfect trading strategy or tool. What makes the difference along the way is the attitude towards trading.
If you can tick these 5 boxes, it gives you more freedom than you might imagine. As Auberon Herbert says:
The Difference Between Supply & Demand And Support & Resistance
“Depriving a man of the freedom to act does not make him wiser. A man learns only when he is allowed to act.”
If you want to learn more about support and resistance, this 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 solely on this information. By viewing or using the information on this site, you agree that it is for general instructional purposes only and that no person or entity shall be liable for any loss or damage arising from the content or general advice.
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