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Supply And Demand Trading
Alex

LEVEL 10 : SENIOR

REVIEWS 9 | REPLIES 84

#1622

Alex

August 28, 2015 at 3:06 pm

Are you one of those traders that got lured into the Forex game by seeing some sort of advertisement about how some guy got rich overnight trading with a system he developed or bought, with little to no experience about the markets? You probably then went on to Google and searched for more info. All you were seeing is people giving away the ultimate way to achieve these ridiculous amounts of money. You started to study these strategies that everyone is talking about or even worse paid for some type of indicator. You later realized that this promise that they make is far from the truth and you start wondering where all these people went that made all this “money”. Don’t worry you are not alone!

Let’s face it, everyone out there wants to make money and this is why people get lured into stuff that looks like an easy way to make big bucks. The first thing you need to overcome to become a successful trader is not getting attached to the money you are using. You will find it extremely hard to make money when you have the idea that money is the key to your happiness. The other must have for any successful trader out there is discipline.

The goal for me was always to find the one idea that above all is what drives the market. The use of indicators has always left me feeling a little concerned because they are only formed after the fact. Don’t get me wrong, though – some indicators do have its time and place in trading. My worse fear in the beginning was to overcome doubt. So this is where supply and demand trading has found its way into my trading. Slowly but surely I started deleting all my indicators that were on my chart, MACD, Stochastics, Moving averages, you name it… Supply and demand trading was starting to make so much sense to me. I was addicted back then and I am still addicted to this trading style.

What is Supply and Demand?

Supply refers to the quantity of an asset that is available while demand is the amount of an asset that people are willing to buy. As demand decreases and the supply increases for an asset, the value declines. Conversely, as supply of an asset decreases and demand increases, its value will rise. How do traders apply this principle to the currency market? They look for supply and demand imbalances on charts to figure out whether that currency’s value will rise or decline.

How will Supply and Demand help my trading?

We need to look at points on the chart where supply exceeds demand and vice versa where demand exceeds supply. We are looking to buy at points of demand and want to sell levels of supply. Let’s take a look at a real life example of supply and demand: Ok, so say you are looking to sell some kind of product, for instance, an energy drink. Are you going to sell the product when there is little to no demand? No, you will do your market research beforehand to assess if the demand for the energy drink is high enough to make it worth your while. So why would you want to buy a currency when there is no demand or better yet buy into a supply level? This is a recipe for disaster. This is why it is very important to be able to spot these zones on the charts.

How do we spot levels of Supply and Demand?

This will take some practice to be able to see, but it will become quite easy when you get the hang of it. We need to spot the origin of supply and demand. How do we do this? These points are the beginning of substantial up or down moves in the market. Let’s take a look at an example of some substantial moves:

supply-and-demand-moves

Figure 1 – Substantial Moves

So now that we can see where all the major moves happened we need to spot the origin of them and draw a zone.

supply-and-demand-zones

Figure 2 – Supply and Demand Zones

How do we know when a level will hold or break?

You can never be 100% sure that a level will hold or break but you can use odd enhancers to evaluate how strong your level is. These odds enhancers are as follow:

  • Strength of the move – How did price leave the supply and demand level?
  • The big picture – Is the level in line with the overall trend?
  • Number of pullback or retests – Is the level fresh? The more a level gets tested the weaker it becomes.
  • Timeframe of the supply and demand level – Bigger timeframe levels tend to be more important than smaller timeframes.
  • Time spent at a level – The less time price spends at a level, the better. This indicates a greater imbalance of supply and demand.
  • Arrival to the supply or demand zone – Are there any opposing levels created before arriving at your zone? The best will be to look for a smooth approach into your level.
  • News Releases – Are there any news events happening when price approaches your supply and demand zone?

Different kinds of supply and demand zones

We get 4 different types of supply and demand zones, namely:

  1. Drop-Base-Rally(DBR)
  2. Rally-Base-Drop(RBD)
  3. Drop-Base-Drop(DBD)
  4. Rally-Base-Rally(RBR)

supply-and-deman-types

Figure 3 – Types of Supply and Demand Zones

So how do you actually trade these levels?

There are no rules set in stone when trading supply and demand levels. I would however recommend new traders to wait for some type of confirmation when price enters a zone before taking a call or put trade. This can be anything from candlestick patterns to making use of indicators such as Value Charts. When you start getting used to trading with these levels and seeing which levels hold you can move over to trading these zones when price touches them. In the below chart you can see how you could have traded the zone in an aggressive or conservative manner.

supply-and-demand-entries

Figure 4 – Supply and Demand Zones Trades

Putting Supply and Demand trading together:

  • Look for substantial moves
  • Mark off the origin of these zones
  • Use the odd enhancers to evaluate the strength of your zone
  • Take a touch trade or wait for confirmation before entry
  • Enjoy trading and Make money!
Dennis BIG D

LEVEL 7 : QUALIFIED

REVIEWS 38 | REPLIES 23

#1628

dennis

August 28, 2015 at 3:24 pm

Hi Alex 🙂

What can I say other than an excellent informational value added article for the readers! The images added helps those that learn visually better than actually reading the article. Like they say, ä picture speaks a thousand words”. And even if you could not understand a word of English, you would still learn something from this amazing article. Supply & Demand is a big part of price action trading, and thus very important when looking into Support & Resistance as well.

Cheers,
BIG D

Wayne Torres

LEVEL 2 : NOVICE

REVIEWS 6 | REPLIES 6

#1629

Newbie101

August 28, 2015 at 3:27 pm

AWESOOOOOOOME topic Alex! I love your posts man, you always speak the truth and make the point that you want to make.

Supply and Demand trading sure looks like a good method to trade, but is it any good for beginners you would say? Or would you rather recommend something else for a newbie?

Thank you
Newbie101

Alex

LEVEL 10 : SENIOR

REVIEWS 9 | REPLIES 84

#1631

Alex

August 28, 2015 at 3:39 pm

Hey Wayne thanks for the nice comment, really appreciate it man! This is what keeps me going.

Ok, so you want to know if you can start off with trading supply and demand? The answer is a big YES! You should first need to get down the basics of trading like candlestick patterns, spotting a trend and so forth before getting into more complicated stuff. After this, you can move straight into trading with supply and demand trading. It is actually better to have little to no knowledge of trading with indicators before you start because those things just tend to make traders confused most of the time.

Supply and Demand are the basics of how the market moves, so you should definitely be focussing a lot of attention on this.

Wayne Torres

LEVEL 2 : NOVICE

REVIEWS 6 | REPLIES 6

#1632

Newbie101

August 28, 2015 at 3:43 pm

Thank you for getting back to me so quickly. This is good to know because I have all the basics down, I just need a strategy that I can start trading with. How long would you say will it take to learn supply and demand trading and be profitable with it?

Alex

LEVEL 10 : SENIOR

REVIEWS 9 | REPLIES 84

#1634

Alex

August 28, 2015 at 3:49 pm

That is quite a difficult question to answer. It all comes down to how much screen time you have, how many hours you put in to studying the method and how quick you snap it.

So back to your question. It can be anything from say 1 month to the last day that you will ever trade. Trading is a game where you never stop learning. Markets are constantly changing and it is important for us traders to keep up with these changes.

 

Earl Nelson

LEVEL 2 : NOVICE

REVIEWS 8 | REPLIES 6

#1635

kingmoney

August 28, 2015 at 3:59 pm

Hallo there Wayne, I would like to give you a few pointers in your supply and demand journey.

Firstly, the above article is basically all you need to know to become an excellent trader. So read it over a few times and let it sink in.
Secondly, I would recommend you to go back on your charts and draw some of these zones that you think are supply and demand zones. Look how prices reacted to them and why prices did not. Try to figure it out for yourself before asking other people. This way it will make more sense to YOU. That being said if you can’t find any valid reason, post a chart so that we can help you in the right direction.

After you feel comfortable drawing these zones, you should demo trade them for at least a month before moving over to real live trading.

NB! You should first focus on higher timeframe zones before moving over to the smaller timeframes.

Happy learning my friend,
Kingmoney

Earl Nelson

LEVEL 2 : NOVICE

REVIEWS 8 | REPLIES 6

#2173

kingmoney

September 19, 2015 at 11:28 am

I have been trading with supply and demand for a good time now. I have not found anything that comes even close to the accuracy that you get from trading these supply and demand zones. It is literally the bread and butter of the market. Through my experience, I can draw a zone of only 5 pips and when the price gets into that zone it will more often than not, turn around. I should add that it does take a lot of practice, but it sure is worth it in the end.

Traders should stop focusing on all the funny indicators and actually learn about the actual price movements and what causes them. I don’t know why traders don’t just put all their effort into learning supply and demand rather than searching for the magical indicator.

Come on guys, the answer to your success has been staring you right in the face this whole time…

By the way – very good article, Alex! You won’t get any better information than this to get you started.

Regards,
Kingmoney

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