Supply and demand forex trading in a nutshell blog
What we perceive as the personality of a currency pair is just manipulation of that pair. Some instruments have lower liquidity some Forex cross pairs and exotics , zones are overshot and then they work great. A hunter has all sort of traps to capture its prey, so do the big institutions. We are trying to combat professional hunters, as retailers we are their prey.
Price is fractal. Fractal meaning that there are structures within structures, the same patterns repeat over and over on all timeframes when we drill down a candle on any timeframe. Multiple timeframe analysis is needed to make a high probability decision. This is why using combinations like Weekly, Daily and 15 minutes charts make no sense, the scale factor is broken.
The best combinations for trading multiple timeframe analysis are those that use a common multiplier, in our case four to five. Any multiplier or scale can be used but we need to keep it consistent over the timeframes we select for our sequence.
The discovery of fractal geometry has made it possible to mathematically explore the kinds of rough irregularities that exist in nature. Structures within structures. You can use Forex Tester 2 software for your tests version 3 was recently released. You can aslo import historical data for any instrument, Stocks, Indexes, Commodities, etc. Traders feel the urge to trade without the confidence of months of testing the rules they are going to use to risk their capital, resulting in blown up accounts!
Wonder why most traders fail to become consistent and profitable? Most do not want to put the amount of work needed to become a professional trader. You have to do your homework; nobody can do it for you except yourself. Take your time and test the rules laid out in this eBook. If you are not willing to spend some months testing these rules, then you should not be thinking of becoming a trader. If you ever went to the University, did you stop studying and making exercises after reading the first book?
You will see no progress and believe that the rules do not work, thus ignoring this strategy and looking for another one that makes more sense to you. This could probably happen, but it will happen to you on any strategy. You have to believe in the logic of the rules and the nature of the markets, because supply and demand governs the markets and our world, we like it or not. Your thoughts are physical, but you need to work very hard to make them become real.
Most of us want to have a life other than being in front of a computer screen all day long, H4 and D1 levels help me to achieve that purpose, it helps me to be patient and walk away from my computer. These indicators are included in a free package you should have downloaded together with this PDF book. Follow the instructions and install them on your Metatrader 4 platform. My initial steps learning supply and demand were based on my finds on free Internet resources, a few forums and public videos published by Sam Seiden and other supply and demands sources on Internet.
Anybody who puts a lot of hard work can possibly create their own set of rules and strategy, not just me. Without it, I would not have been able to accomplish this. Supply and demand is the law that governs the markets, I just created my own version as the result of years of testing a series of rules.
I did not invent those terms, they are just commonly used by many educators and supply and demand traders all over the world. Remember this very important thing: the more indicators you use on your charts; the more rules you will have to add to your trading plan. Adding an indicator means you will have to add rules when to use it and when not to use it, how it will help you make a decision, when it will filter out a bad or a good trade, etc.
If you add too many indicators, you will be flooded with variables and decisions to be taken, resulting in over-analysis and trading paralysis. Not only that but a lot discipline and a rock solid understanding that if you do not treat this as a business you have a zero chance of long term success.
I believe the statistics say that 95 percent or more of new traders fail even when the owner knows what they are doing. Do you really think trading Forex or Stocks is going to be an exception and work for you after 3 months of practice or less? Your traiding will change forever.
No matter how bad it is or how bad it gets, I am going to make it! This is what we should be saying to ourselves day after day when we are sitting in from of our trading stations. Some of you right now, you want to go to the next level You want to become a trader and not an abstract painter like Picasso. I love crabs! Those crab patterns are created by price action and supply and demand, but most traders are more interested in the patterns rather than in what causes those patterns in the first place.
Daily demand, daily uptrend. Long triggered. No indicators. Just imbalances. Clean charts. Waiting for new demand to be created to go long. It happened already. Daily demand has already palyed out. Rally-Base-Rally Drop-Base-Drop The first thing you want to do is to become an expert locating these kind of levels on any price chart, be it on a H4, a D1 or a H1 timeframe. This flow chart was created by our friend Robin, a www. He has created a few more flow charts that are available at the community: how to draw trendlines, the core strategy flow chart, the sequence, etc.
How far back in time do I need to go in order to find supply and demand levels? As far as you need to, days, weeks, months and even years! A zone or imbalance is validated under these 2 specific circumstances: 1. Imbalance took out an opposing zone 2. Trendline breaks created supply and demand imbalances. When do we consider a zone to no longer be valid? When is it considered to be broken and needs to be removed from our charts? You may be trading in an uptrend on H1, but the D1 is in a downtrend, and the weekly in an uptrend.
Then choose the entry timeframe where you will be drawing your entry supply and demand levels; after that, define the timeframe to assess how high or how low you are in the Range, it will tell you if you are too high to buy or too low to sell, so you will be more or less aggressive in picking up levels or your TPs exits. If you are too high in the Range, you should be thinking of exiting your longs and looking for supply zones to lean on for your shorts if the odds are with you and the trend is as well.
Use the screenshot on the right as a guidance to mechanically know how high or low you are in the Range. What is a top down analysis? Most technical traders in the forex and futures markets, whether they are novices or seasoned pros, have come across the concept of multiple timeframe analysis in their educations.
However, multiple timeframe analysis is often the first level of analysis to be forgotten when a trader pursues an edge over the market. Multiple timeframe analysis involves monitoring the same currency pair across different timeframes. While there is no real limit as to how many timeframes can be monitored, or which ones to choose, there are general guidelines that a trader should follow.
Using three different timeframes gives a broader view of any market. Using fewer than this can result in a considerable loss of data, while using more typically provides redundant analysis and indecision. When choosing the three timeframes, a simple method can be to follow the rule of four.
From there, a shorter term time frame should be chosen and it should be at least one-fourth the intermediate timeframe for example, a H1 timeframe for the short-term time frame and H4 timeframe for the medium or intermediate time frame. Through the same calculation, the long-term timeframe should be at least four times greater than the intermediate one, so keeping with the previous example, the Daily chart would be the third timeframe.
It is imperative to select the correct timeframes when choosing the three periods. Clearly, a long-term trader who holds positions for months will find little use for M15 chart, H1 and H4 combination. At the same time, an intraday trader who holds positions for hours and rarely longer than a day would find little advantage in daily, weekly and monthly combinations. This is not to say that the long-term trader would not benefit from keeping an eye on the H4 chart or the short-term trader from keeping a daily chart in the selection.
Putting it all together When all three timeframes are combined to evaluate a currency pair, you will easily improve the odds of success for your trades, regardless of the other rules applied. Performing the top down analysis helps you trading with the larger trend, what we call the bigger picture.
This alone lowers risk as there is a higher probability that price action will eventually continue on the longer trend. The confidence level in a trade should be measured by how the timeframes line up in this top down analysis. For example, if the larger trend is to the upside but the medium- and short-term trends are heading lower, shorting the market is not a good idea, you should be cautious with your profit targets and stops if you decide to take a trade.
Alternatively, you may decide to wait until a higher timeframe demand area has been reached before you decide to join the longer term uptrend. Another clear benefit from incorporating multiple time frames into analysing your trades is the ability to identify supply and demand areas as well as strong entry and exit levels. We can use a 2 timeframes or 3 timeframes combination for our entries.
I will personally use a 2 timeframes combination, because it is more stress free and it allows for more free time, which prevents me from watching the charts like a zombie. Monthly in an uptrend. Weekly in an uptrend. Price retraded to Daily and Weekly demand.
Weekly supply in control. Daily supply triggered, new H4 supply zones to short at. Short triggered. Each timeframe can have a different trend. Let me define my idea of a trend. Does it make sense to you? Use it then. Since we are primarily working with supply and demand imbalances, making a higher high or a lower low does not necessarily mean we continue on the existing trend.
Bullish and bearish consolidation: consolidation happens in an uptrend or a downtrend when the trendline is broken or one opposing zone is taken out. We want to trade at those areas where the institutions left a trace, where smart money is lurking to add a new position. Remember, buy low in and sell high. What defines a downtrend or an uptrend? Just look at your D1 or your Weekly chart and see what is going on with the supply and demand areas in control and decide which direction to trade.
The greater the imbalance, the greater the move. A strong move in price away from a level indicates that not all orders were filled. For example, at the origin of a demand level, there are not enough sell orders to fulfil the total amount of buy orders. This is why price moves away in such a strong fashion. Institutions and professionals buy to the novices, then there are no more sell orders so price must rise again. The opposite holds true for supply levels. In both cases, the novice traders provide the liquidity the institutions need to get their orders out in the market.
The best opportunities are where we can buy at the cheapest price possible and sell and the most expensive price possible. This is the same in any market. Supply and demand levels on a price chart show all these levels, you just have to learn how to draw them. Certain levels are more likely to hold than others, you need to have a rules based mechanical methodology as well as making a top down multiple timeframe analysis before you choose the levels you want to trade.
Confluences like Dollar index and HTF imbalances. How do you think such an index can affect forex? A lot! Know where you are in the Daily and higher timeframes, never go against them 5. Has it been tested more than once? Fresh levels are best for trending markets, the fresher the level the higher the probabilities 6. The less time prices spends at a level, the better. This indicates a greater supply and demand imbalance. The variables above are some of the main factors there are more that should be taken into account when deciding which levels to trade.
I personally use these variables to fine tune the level picking process. If the zone is fresh and good, price will likely drop quite fast and no kind of confirmation will work. If the zone has been touched once or more times, then it will probably not bounce that fast or even break that area.
That territory is where sellers will probably fill their orders again. So, supply is control when price is high in the SD range. What is a supply or demand in control? If a supply zone has been hit 10 times and the distal line furthest away price from current price of that zone has not yet been broken, that zone is still valid, that zone is still the supply in control.
The market will show you when that zone has been broken, you are not the market, nobody is the market. A zone can resist 1, 2, 3, or 10 pullbacks. Trade with the trend for higher probability. The trend is not a straight line, SD levels will work in both directions at any given timeframe, with the trend and counter trend, but the higher odds is to go with the trend until it ends.
But where will it end? You will miss many trades for sure, but you will filter out many losses as well. Price retraced to its proximal line and reacting. Demand is in control as soon as price hits its proximal line. No shorts allowed. Supply at 1 gains control as price retests the proximal line. Remember, for higher odds we want to buy low in the range and sell high in the range. Going lower than that will be placing more odds against you, you can use H4 or H1 for scalping, but I will never do that.
But each trader will decide, but whatever you decide, forward test it hundreds of trades. So these are the steps you need to take: 1. Decide which kind of trader you are: are you a scalper, intraswing, intraday, or swing or position trader? Once you know what kind of trader you are not that easy because your mind will want to trade on all timeframes, you will see SD levels on all charts, with the trend and counter-trend, you will chase trades , decide which is the timeframe for your range.
Use the WK chart as the range for your swing trading. D1 can also be used. Opposite for higher timeframe demand. There are rules for the range. The rectangle reader indicator will help you assess how how or low you are in the range if you leave only those imbalances that are part of the range. This way of trading has two major benefits: 1. Instead, some traders do it for fun, a hobby, or a competitive game. So consider these factors as well. If this is the case for you, then you need to know it before you start trading.
Maybe it gives an advantage over other participants in the forex market. Get Familiar with Trading Jargon and Analysis Methods Before you make your first trade in the forex market, you first must understand the trading jargon and the different analysis methods. If needed, take a quick trading course to learn how the forex or the stock market works, read articles, books, financial sites, etc. Additionally, you better explore the two methods to analyze financial assets — technical analysis and fundamental analysis.
Then, find the best way for you to analyze the markets and read forex charts. Additionally, you can learn how to read popular chart patterns and use them to find trading opportunities. Once again, you have to try before you know it… go ahead and try. No one is born a great Trader, one gets great by learning 3. Develop a Trading Strategy There are no two traders that are precisely the same.
Therefore, you must find your own trading strategy and trading style. And this is a result of trial and error. For that matter, you need to use a trading plan at the beginning of your journey to find the right strategy that matches your personality. Set a Risk Reward Ratio Trading risk management is a predefined strategy to minimize losses and maximize profits.
There are lots of tools and risk management rules a trader can use to protect themselves from losses and effectively manage their trading account. In other words, it is a method to define your trade risk, that is how much risk you are willing in a trader, or in a day the method is particularly for day trading.
The energy behind supply and demand zones is well documented.
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| Supply and demand forex trading in a nutshell blog | And at point B, until price retested the base of course, it was fresh and untouched. The same number of shoppers consume oranges as they normally do — demand has returned to normal. The proximal line is near current price at the bottom of the basing bodies excluding the tails. Price created a nice drop-base-drop with large ERC type of candles. Waiting for new demand to be created to go long. There are traders out there that love trading the news, you can earn a lot of money but you can also lose a lot. For supply zone: price rallied up, paused for a little time and dropped with big candles. |
FOREX GOILER INDICATOR MANUAL
Demand is found at consolidation before the huge move up. Supply is found at consolidation before the huge move down. How supply and demand zones are created As I just mentioned, the demand is consolidation before the market rallied, and supply is consolidation before the market dropped. But right now, I think it is important to understand the key fundamentals of why these levels exist. I will do my best to explain these logically as possible without using manipulation, smart money, market makers, etc.
These are often used to dramatize these concepts to make you believe that you are joining some elite club and know more than the guy sitting next to you. Those who really move the markets Banks, funds, etc. Because of these two issues, they need to execute their positions in areas with enough liquidity resting orders to meet counter-party for their trades. When price moves away from the supply or demand zone, large players cannot unload their whole positions at once.
This is why they have to stack their orders in those liquidity areas. Young Tilopa explained this concept of order-stacking in a Youtube video. But the stacked orders are not the only reason why these zones work. This is the same chart as one posted above, but with a little bit more information. At the bottom of the chart, we have a delta for each bar. Delta is the difference between finalized executions on the bid and offer. In other words, it shows the difference in Market orders that were executed.
For example, if you have 50 deltas on the bid and the 20 deltas on offer, the final delta will be I have touched on Delta more in my Footprint Charts article. If you want to learn how to utilize Delta with a real trading strategy, check out my Trading Blueprint.
Once we zoom in on the delta, we can see that the big down candle had a negative 7. This means that before the sharp sell-off, there was an over 1. Once price revisits the supply zones, those buyers start to exit their long positions at break-even or slight loss.
This will eventually add more pressure to the downside as they will turn their longs into shorts. Yet another example right here on Bitcoin. Before the move up, we had over 20m negative delta. These shorts will be getting out and turning their shorts to longs once the price revisits the demand zone. Adding the stacked buy orders already waiting at the zone, this will result in the upside movement. To sum things up, there are two reasons why supply and demand zones work.
Stacked orders Underwater traders exiting at the break-even Does this work out all the time? Not really. Matter the fact. I would say supply and demand zones traded solely with candlestick chart as many people do and teach is a very mediocre strategy at its best. In other words, by buying every demand zone and selling every supply zone, you will end up with poor trading results. If you are watching orderflow in your trading, I highly recommend watching delta for different candles.
If you are trading only price action, some other rules can be implemented. Before we move any further, I want to point out a good video by Bitdealer , which I have seen a few months back. An hour and a half long presentation explain a lot of similar things you will learn in this article, so if you are interested in supply and demand trading, make sure to give it a watch.
Trading Support and Resistance vs Supply and Demand There is a lot of price action concepts that traders use when they want to find tradeable levels. Support and Resistance with Supply and Demand are the most popular. So why is trading Supply and Demand can be chosen over Support and Resistance? Because it is less subjective. When you are trading support and resistance, are you using candlestick bodies, wicks, or something in between?
Because supply and demand zones are much more rule-based and less subjective, you will less likely get it wrong. As you can notice on this chart, we have three levels that could be considered a resistance area. Which one is the best? The highest high on A? The middle line on B? Or the lowest point on C? This subjectivity with support and resistance trading will lead to a lot of panic and failed trades.
Supply area above the level. The market eventually probed all these levels into the supply zone. As you can see in the chart above, there is an apparent resistance to the left. This is a heatmap chart that displays resting orders.
Where are these orders resting? Above key resistance and below key support. It is simply because there is enough liquidity to fill these prices, not only from traders wanting to get short but also those that are already short and will be stopping out of their positions if the price goes there.
If you are a support and resistance trader and you are trading those levels from the same side, i. There is nothing false about them, and the market is just reaching to grab enough resting orders liquidity to fuel the move. First things first you want to look at the chart and find out the areas where the market rapidly moves either up or down. As you can see, the price went up in this case, and this is why we are looking for a Demand Zone.
In this case, the market went down; this is why we are looking for Supply Zone. Once we define the fast move, we are looking to the left to define base. The base is basically the zone where the market traded sideways before the sharp move.
The base is important because large players accumulated their orders and created an imbalance between supply and demand. In the picture above, we can see a Demand Zone. You want to see a large green candle leaving this consolidation, after that you mark out last down move before the rally. The picture above shows Supply Zone. You want to see a large red candle leaving this consolidation, after that you mark out last up move before the drop.
Those supply and demand zones are only valid if the move was significant enough to break the market structure. How to mark out Supply and Demand Zones Once supply and demand zones are defined, we want to mark them out. You can use a simple drawing line or famous rectangle tool to mark the clusters before the impulse move. Demand Zone: Mark out the down move, including wicks, before breakout with a horizontal box. Demand zones are marked out below price. Supply Zone: Mark out the up move including wicks, before the breakdown with a horizontal box.
Supply zones are marked out above price. You want to cover the whole area, including bottom and upper wicks, not only bodies. Here is the example of the demand zone from previous pictures. You can see we marked out the top and bottom of the last down candle before the impulse as our Demand zone.
The same goes for a supply zone. We marked out last up the candle, including wicks as our supply zone. Every touch of Supply or Demand zone consumes orders. That gives less and less probability of reaction once the price revisits for the second, third, or fourth time. This is a common mistake amongst traders who trade support and resistance as they think the more touches of the level mean the bigger strength of the level. The opposite is true, and once all orders have been consumed from the zone, the price will breakthrough.
Trading a second or third touch is also possible, but it should be view as a whole different trade when you are only entering once the liquidity above the previous test is consumed. To recap what we know so far. On the left, there is a cluster where supply overcomes demand and price had a strong breakdown. The supply zone is marked as last up a candle before the breakdown from bottom to top. After that, the market traded a First time back to the level because that gives us the highest probability trade.
There is also a demand zone at the bottom. As you can notice the biggest rally was offered after the first time back. All though it took a while for the market to rally, it is mostly because the market opened after the weekend.
You can also see that other tests also provided trading opportunities, but bounces were not that strong. That is simply because fewer orders were resting at the level. An alternative way to see Supply and Demand Zones Another way to look at Supply and Demand Zones is looking for three price movements at once while identifying the zone.
We have two possible scenarios. This is mostly up to your personal preference. Supply and demand in Forex is also characterized by large clumps of orders, often from banks or institutions found within the interbank market. A Real World Example of Supply and Demand in Forex Supply and demand zones are often formed by large clusters of orders that are all executed at once, causing price to move sharply away. This is a clear real world example of a demand zone.
Demand far outweighed supply at this price point and when the limited sell orders ran out, price could only go higher. But before you develop a trading strategy, lets go over how to determine Forex supply and demand zones and draw them on your charts. Forex Supply Zones Forex supply zones are areas where banks and institutions are placing a large number of sell positions at a particular price zone.
When price approaches or returns to this supply zone, these orders are just waiting to be filled and send price back lower again. You can see on this chart that there are numerous examples of price returning to a supply zone, before selling again. All of these areas could have been shorted as part of a Forex supply and demand trading strategy.
Forex Demand Zones On the other side of the market, we have Forex demand zones. These are areas where banks and institutions are placing their clusters of buy orders at a particular price zone on the chart. If price moves higher and leaves a chunk of these buy orders unfilled, then they too are likely to just be left untouched, waiting for price to eventually return and trade through them once more.
When this happens, the huge demand overload is likely to push price higher again. Zones that once again where returned to, were often areas where buyers were once again found and price was ripping higher as a result. These are areas on the other side of the market that could have been longed if you were a supply and demand Forex trader.
How do you Trade Supply and Demand in Forex? As you can see on the charts found within the section above, you can immediately see how a retest of nearly all supply and demand zones saw another rejection. With this in mind, the best Forex supply and demand strategy focuses on trading reversals when price returns to retest zones for a second time.
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COLLEGE INVESTING OPTIONS
But right now, I think it is important to understand the key fundamentals of why these levels exist. I will do my best to explain these logically as possible without using manipulation, smart money, market makers, etc. These are often used to dramatize these concepts to make you believe that you are joining some elite club and know more than the guy sitting next to you.
Those who really move the markets Banks, funds, etc. Because of these two issues, they need to execute their positions in areas with enough liquidity resting orders to meet counter-party for their trades. When price moves away from the supply or demand zone, large players cannot unload their whole positions at once.
This is why they have to stack their orders in those liquidity areas. Young Tilopa explained this concept of order-stacking in a Youtube video. But the stacked orders are not the only reason why these zones work. This is the same chart as one posted above, but with a little bit more information. At the bottom of the chart, we have a delta for each bar. Delta is the difference between finalized executions on the bid and offer. In other words, it shows the difference in Market orders that were executed.
For example, if you have 50 deltas on the bid and the 20 deltas on offer, the final delta will be I have touched on Delta more in my Footprint Charts article. If you want to learn how to utilize Delta with a real trading strategy, check out my Trading Blueprint. Once we zoom in on the delta, we can see that the big down candle had a negative 7. This means that before the sharp sell-off, there was an over 1. Once price revisits the supply zones, those buyers start to exit their long positions at break-even or slight loss.
This will eventually add more pressure to the downside as they will turn their longs into shorts. Yet another example right here on Bitcoin. Before the move up, we had over 20m negative delta. These shorts will be getting out and turning their shorts to longs once the price revisits the demand zone. Adding the stacked buy orders already waiting at the zone, this will result in the upside movement.
To sum things up, there are two reasons why supply and demand zones work. Stacked orders Underwater traders exiting at the break-even Does this work out all the time? Not really. Matter the fact. I would say supply and demand zones traded solely with candlestick chart as many people do and teach is a very mediocre strategy at its best. In other words, by buying every demand zone and selling every supply zone, you will end up with poor trading results. If you are watching orderflow in your trading, I highly recommend watching delta for different candles.
If you are trading only price action, some other rules can be implemented. Before we move any further, I want to point out a good video by Bitdealer , which I have seen a few months back. An hour and a half long presentation explain a lot of similar things you will learn in this article, so if you are interested in supply and demand trading, make sure to give it a watch.
Trading Support and Resistance vs Supply and Demand There is a lot of price action concepts that traders use when they want to find tradeable levels. Support and Resistance with Supply and Demand are the most popular. So why is trading Supply and Demand can be chosen over Support and Resistance? Because it is less subjective. When you are trading support and resistance, are you using candlestick bodies, wicks, or something in between?
Because supply and demand zones are much more rule-based and less subjective, you will less likely get it wrong. As you can notice on this chart, we have three levels that could be considered a resistance area. Which one is the best?
The highest high on A? The middle line on B? Or the lowest point on C? This subjectivity with support and resistance trading will lead to a lot of panic and failed trades. Supply area above the level. The market eventually probed all these levels into the supply zone.
As you can see in the chart above, there is an apparent resistance to the left. This is a heatmap chart that displays resting orders. Where are these orders resting? Above key resistance and below key support. It is simply because there is enough liquidity to fill these prices, not only from traders wanting to get short but also those that are already short and will be stopping out of their positions if the price goes there. If you are a support and resistance trader and you are trading those levels from the same side, i.
There is nothing false about them, and the market is just reaching to grab enough resting orders liquidity to fuel the move. First things first you want to look at the chart and find out the areas where the market rapidly moves either up or down. As you can see, the price went up in this case, and this is why we are looking for a Demand Zone.
In this case, the market went down; this is why we are looking for Supply Zone. Once we define the fast move, we are looking to the left to define base. The base is basically the zone where the market traded sideways before the sharp move. The base is important because large players accumulated their orders and created an imbalance between supply and demand.
In the picture above, we can see a Demand Zone. You want to see a large green candle leaving this consolidation, after that you mark out last down move before the rally. The picture above shows Supply Zone. You want to see a large red candle leaving this consolidation, after that you mark out last up move before the drop. Those supply and demand zones are only valid if the move was significant enough to break the market structure.
How to mark out Supply and Demand Zones Once supply and demand zones are defined, we want to mark them out. You can use a simple drawing line or famous rectangle tool to mark the clusters before the impulse move. Demand Zone: Mark out the down move, including wicks, before breakout with a horizontal box. Demand zones are marked out below price.
Supply Zone: Mark out the up move including wicks, before the breakdown with a horizontal box. Supply zones are marked out above price. You want to cover the whole area, including bottom and upper wicks, not only bodies. Here is the example of the demand zone from previous pictures. You can see we marked out the top and bottom of the last down candle before the impulse as our Demand zone.
The same goes for a supply zone. We marked out last up the candle, including wicks as our supply zone. Every touch of Supply or Demand zone consumes orders. That gives less and less probability of reaction once the price revisits for the second, third, or fourth time. This is a common mistake amongst traders who trade support and resistance as they think the more touches of the level mean the bigger strength of the level. The opposite is true, and once all orders have been consumed from the zone, the price will breakthrough.
Trading a second or third touch is also possible, but it should be view as a whole different trade when you are only entering once the liquidity above the previous test is consumed. To recap what we know so far. On the left, there is a cluster where supply overcomes demand and price had a strong breakdown. The supply zone is marked as last up a candle before the breakdown from bottom to top. After that, the market traded a First time back to the level because that gives us the highest probability trade.
There is also a demand zone at the bottom. As you can notice the biggest rally was offered after the first time back. All though it took a while for the market to rally, it is mostly because the market opened after the weekend. You can also see that other tests also provided trading opportunities, but bounces were not that strong.
That is simply because fewer orders were resting at the level. An alternative way to see Supply and Demand Zones Another way to look at Supply and Demand Zones is looking for three price movements at once while identifying the zone. We have two possible scenarios. This is mostly up to your personal preference. Of course, when you place a limit order at the level, there is a higher chance that the market will trade straight through it.
On the other hand, using a limit order often offers a higher risk to reward ratio as you get a more favourable entry. A great example of this can be seen in the chart above, where price action entry gives us only 2,5 Risk to reward ratio compared to limit order entry, which offered 6 Risk to reward ratio. In the other case, if the supply of an item is low and the demand is strong, scarcity arises, driving up the price.
Supply and demand in the Forex market directly impact the price of a currency. The participants in the Forex market determine the supply and demand for a currency pair. A wide range of players are involved in the financial markets, including but not limited to investors, traders, banks, financial institutions, and governments. Participants in the Forex market constantly alter the supply and demand of currency pairs, resulting in a fluctuation in the market price.
Related Article: What is Inflation? Supply and demand in the Forex market The demand zone is the price range of a currency that traders tend to buy. This indicates that there are many buyers available in the demand zone due to the large number of buying orders at that level. Supply zones are the price ranges where traders typically sell their assets. Anywhere above the current prices, there is the greatest potential for sales. As a result of the price reaching this area, many orders will be executed, and the price will fall.
To better grasp, the idea of supply and demand zones, refer to the chart below. How to find supply and demand areas on the Forex chart To begin, zoom out your forex chart to get a more holistic view of the chart. Then look for price action turning points where prices have changed considerably. A supply level is typically defined as a turning point where the price goes rapidly away from the level downwards.
On the other hand, a demand level is a turning point where the price rises fast, away from the level upwards. Simply look for V-shape or upside-down V-shape patterns on the charts to find a turning point. Can you spot them on the above image?
Alternatively, you may be able to use one of the supply and demand trading indicators which are usually available on your trading platform.
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