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Supply and Demand Trading: The De nitive Guide

[2019]

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Over past years we could nd many concepts of supply and demand trading on the internet.

Some stuck
Have any to thecore
question? basics. Some thought that it would be smart to rebrand those concepts
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them in forms of magic rectangles in the charts.

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In this article, I will show you everything I was able to learn in past years about supply and demand in
trading.

The reason, why I love this strategy so much is that you can apply it into every market you desire to trade.
So you can trade Forex, Crypto, Stocks or basically any market you want.

In this article, you are going to learn everything about supply and demand trading.

So what is this Supply and Demand?

Like I already mentioned in my previous article about forex basics.

Supply and Demand trading is used in the whole economy and it is way more than just watching some cool
boxes on your chart.

I am not going to go deep into explanation of how world works and how is everything determined by worlds
supply and demand.

I know that you are probably not here because of this and I really don’t want to bore with a lot of stuff.

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If you want to learn a little bit more about the economic model of supply and demand, you can head to this
Wikipedia article, where you can nd more background about supply and demand in economics.
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If you are around for some time now, you should know what happened to Bitcoin in 2017. Price
skyrocketed into $20 000 per one BTC.
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Why this happened?

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 BTC peak on Bit nex at $19 891 per coin

Of course, we can speculate here and come up with many theories why Bitcoin was able to reach this
astronomic price, but the easiest explanation is here that there was just too big of a demand for it.

Price was driven by mainstream media, people were taking loans and demand to own cryptocurrency was
extreme.

I dont want to bring all cryptocurreny speculators here, but I hope you get the idea here.

And we have a same rule in forex as well.

If many banks and companies want to change their base currency for the yen – the value of yen will
increase and the exchange rate will change against other currencies.

In this particular case we can say, there is a high demand for yen.
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How to use Supply
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So now you should have some basic understanding of what supply and demand is.

Now you have to realize that what you see on your chartNOW
ACCESS is not some sort of art.

If you are using any complicated patterns, good for you, but at the end of the day. Anything that is
happening
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All of us retail traders cant see behind the curtain to take a look how big players trade.
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So we must be able to spot levels in the charts where those big transactions are made.

Supply is the amount of currency that someone wants to sell at a certain price. It is just a stack of orders
at a certain level what has to be consumed in order to price move higher. If that supply of orders cannot be
purchased by other traders, the price will start to fall down.

But if there are more traders who are willing to buy all the currency offered for sale at those levels, the price
will be pushed as the buyers demand more currency than is available at that level.

Supply and Demand zones are horizontal level on your charts and there are based of Support and Resistance trading.

In the chart above you can see prime example of trading supply and demand.

If you don’t know how to spot those levels don’t worry, I will show you later on.

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Take a look at a blue demand on the chart, price tested this level twice and in both times we were able to
nd a nice long opportunity there.
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This is because there was a lot of orders sitting at the level.

You can also see how on the second test we had deeper swing into the level which is also one of the
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important pillars of our strategy and you can learn about it in our Free 3-Day Trading Course.

On the third test of the zone, there were just not enough orders to hold and price and we broke a level.
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You can notice how price tested the zone from the opposite side as supply before continuation lower.

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Number of touches
Same as with support and resistance.

Each touch of supply or demand is weaker because there is more and more orders consumed.

First touch – best touch.

Second touches are working as well, but on the third touch you want to stay away because price si more
likely to break.

Just take a look at the chart above.

How to nd Supply and Demand zones

Obviously you should understand right now that supply and demand zones are not created by retail traders.

In forex, I see claims that because it is market with $5.3 Trillion daily volume, it can’t be manipulated.

Do you know who move the market?

Retail traders?

Of course not, markets are moved by big institutions which has to engineer liquidity.

This is one of the concepts we teach in MasterThePrice Academy, so if you are seeking to learn more, click
on the image below.

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How to identify Supply and Demand Zones?
To identify Demand / Supply we look for Down / Up candles that precede a signi cant move in the opposite
direction.

The move has to be signi cant and has to shift the market structure.

In another way, it has to move fast from the level and also have to take previous swing high or swing low.

You have a very clear example on this EURUSD chart.

You can see up candle before a very obvious and signi cant selloff.

This is the place where supply is created and where you want to jump in your short trade.

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There are two clear things on this example.

You can see how we used the demand zone – The down candle which precedes big rally as our entry.

And also, the next supply zone – The up candle which precedes big selloff as our exit.

I hope you got the basics now. If not, you can still take a look at the video down below.

Strength at Origin of a Move

There are two simple things you should watch while trading supply and demand.

First one is how price left the area, second is how came back.

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This should be pretty self-explanatory.

Stronger the price will leave, the higher probability trade we are going to get on retrace.

Taking a look at Bitcoin, you can see how strong origin of the move was.

Price basically collapsed, this created a valid supply zone and you could be able to nd very decent trading
opportunity once we came back into the area.

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On the other hand, take a look at Silver here.

You can see that we had a up candle which led to move lower.

But the move was overall very weak and market didnt have problem to break through it.

Retrace to the level

When price is coming back to the level we identify 2 types of retrace.

V-Shape and Rounded.

V-Shape retrace
When we experience V-shape retrace to the level it means that level is less likely to hold.

You can identify V-shape retrace by very strong rally back to the level, without any signs of stopping out.

Just take a look at the USD/CHF example.

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You can see that even though we had strong selloff from supply, on retrace price just rallied back into the
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level.

This is the sign that level is less likely to hold and you should be careful jumping into the short trade.
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Rounded Retest
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Rounded retest is something we like and really trade.

Same as support and resistance, there should be time and space before returning to the level.

You can see great example of rounded retest on this NZDCAD chart.

This is not complicated stuff, just let the price do its thing.

If you are going to see the level of supply or demand where price is immediately rushing back, it might not
be the best idea to trade it.

Marking out Supply and Demand zones

I have seen lot of discussions about this.

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Lot of people are wondering if they should use whole move, single candle bodies, to include wicks or not.

Well, there is no straightFeel free

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to you preference and risk tolerance.

What I do is that I am using whole move on lower timeframes like 15min or H1 and single body candles on
H4, Daily, Weekly etc.
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For supply, I always use upper wick of the candle.

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For demand, I always use alower wick of the candle.

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Here is example on marking out Demand zone on H4 on USDJPY.

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The different thing is here on 15min TF. You can see how I marked out a whole up move before the selloff.
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Probability Enhancers
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Is there any way to know for 100% if the level will hold ?NOW

No.
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Even though Supply and Demand trading is one of my favorite trading strategies, nothing in trading works
100% of the time.
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There are two things you can watch for.

Wait for candle close

This is pretty conservative approach, there are going to be a lot of cases when price come to the supply or
demand and before the candle close it will already be 20-30 pips away.

Obviously this will result in lower RRR, but It will give you heads up that the might work out.

What you dont want to see is close inside supply and demand zones.

Even that you can argue here that this looks like V-Shape retrace, you can notice how non of those candles
could close inside the demand zone.

This gives us signal that price might be ready for next leg up.
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50% of the level
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Little more agressive approach is marking out 50% of the level.

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You can see here that we had daily close inside the level.

Some might see this as warning sign, but on the next day price pushed higher and had perfect reaction
from 50% of the supply zone.

This is giving us signs of weakness and we can look for short entries on lower timeframes.

Broken Level
What I really like about supply and demand trading is that you can make pro ts even when levels dont work
on the rst time.

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You can see on USDCAD chart how a price was coming back to the demand zone, but failed to hold it.
After that, we had a nice retest and we could found a short opportunity on the test from the opposite side.

Take a look at some more examples in the video

Supply and Demand Trading - Best Trading Strategy

In Conclusion
Supply and demand trading is great strategy. It has been my go to for quite some time and had great
success with it.

This does not mean that it works everytime. Trading is a probability game and most important thing is
always to stick to your risk management.

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Are you using Supply and Demand in your trading? Let us know in comment section below!

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