The Guide to Supply and Demand Forex Trading

As you will see later, a chart may print a strong downtrend on the daily chart, a rally on the 60 minute chart, and sideways congestion on the 5-minute chart, all at the same time. While this cycle process may seem chaotic, it actually reflects the dissipation of the supply and demand polarity. Let’s now put numbers to the simple supply and demand I keep mentioning. Price will remain stable, meaning supply and demand will appear to be in equilibrium until the 200th seller sells.

Indicators like RSI and MACD are extremely helpful when identifying supply and demand zones. They can provide you with insights on a possible continuation or a reversal. If the price moves in the supply zone and the RSI oscillator trade360 is not in the overbought zone, then there is a high chance of further rise of the asset. On the contrary, high numbers on the RSI chart in tandem with price reaching the supply area signal a possible reversal.

What is supply and demand in forex trading?

Supply refers to the amount of an asset that is available while demand is the quantity of an asset that people are willing to buy.

When price came back to test it, it went up again as more unfilled orders get filled. They tend to be weak zones to trade because most of the time price tests these structures and breaks the solutions team through them. A Demand zone is a price area below the current price where there is strong buying interest. On the chart below, we can see a lot of buying interest in the demand zone.

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Witnessing multiple instances of this at the same price level increases the probability that it is an area of value and therefore, a supply or demand zone. Stop-loss and take-profit levels are also easily identifiable. The most common approach is to hold your trades until the price action reaches the opposite level on the chart. The price will continue to drop until all the oranges have found buyers. That would be the balance point — the point at which there are enough buyers for the supply of oranges in the market.

supply and demand zones forex

Always place your profit target ahead of a zone so that you don’t risk giving back all your profits when the open interest in that zone is filled. For stops, you want to set your order outside the zones to avoid premature stop runs and squeezes. When price goes from selling off to a strong bullish trend, there had to be a significant amount of buy interest entering the market, absorbing all sell orders AND then driving price higher – and vice versa.

Scroll all the way to the right on your chart, and check what the price is right now. For the last 8 years, we have been providing a wide range of trading-related blog articles, trading guides, podcast episodes and tons of trading videos on Tradeciety. needs to review the security of your connection before proceeding. CFDs are complex instruments and are not suitable for everyone as they can rapidly trigger losses that exceed your deposits.

What happens at support and resistance levels?

It will draw real-time zones that show you where the price is likely to test in the future. Identify an area where the price action has created a swing level with a sharp price move. By now, you should now have a good understanding of how to draw Supply and Demand zones correctly. In this FTSE 100 hourly chart below, the Supply Zone has been drawn incorrectly and extends much too far to the left, past the original base of the zone. The Solana Cryptocurrency chart below shows a good Supply Zone base. The market makes a fast, impulsive move out of the first base.

Sometimes, you might think that the retracement means you actually were wrong — that price isn’t reversing, and merely is going to continue in its previous direction. What those distinctions are though depends on whom you ask — individual traders may define these concepts in slightly different ways. Justin Bennett is an internationally recognized Forex trader with 10+ years of experience.

How do you analyze supply and demand?

Demand and supply analysis is the study of how buyers and sellers interact to determine transaction prices and quantities. As we will see, prices simul- taneously reflect both the value to the buyer of the next (or marginal) unit and the cost to the seller of that unit.

The only exception is if it is making an all time new high or low. So if you want to find support look for resistance and if you want to find resistance look for support. The second important thing is that the basis of the supply and demand zones is the price action. Because price repeats the above four price patterns after irregular time intervals on the candlestick chart, this is a price action strategy. It is not originated from mathematical formulas but from natural patterns. Notice as the price increases from the demand zone, that it eventually reaches the nearest supply zone above.

Professional and Novice Gaps

Thank you so much for clearing the misconceptions of Supply and Demand trading. The reason for this is due to the other type of trading banks participate in, long-term position trading. Whoever brought when the market was down here has a lot of money at their disposal. What this essentially means is pending orders add liquidity to the market, because they are the orders in which market orders will be matched with. Liquidity is the ability to buy or sell something without causing a large price change. In case we couldn’t get through, we will try again at the same time the next day.

What is smart money in forex?

Smart money is capital placed in the market by institutional investors, market mavens, central banks, funds, and other financial professionals. Smart money also refers to the force that influences and moves financial markets, often led by the actions of central banks.

Traders can in fact find locations where there are unfilled orders. Problem is and always will be traders cant determine market depth. But ForexMentorOnline storesponsible does help us to understand it somewhat better. The core principle as stated sounded good, the notion of “unfilled” orders has merit.

These areas tend to be where the market consolidates for a short period then continues upwards or downwards. These are important to watch and take notice of because this is usually where everyone’s stop losses gather. But you’ve always struggled to find a way to use them in your own trading strategies. For years I have been asking S/D gurus how pending orders can move price….

This area subsequently forms a solid demand zone on the chart. The two small blue arrows on the chart show the creation of the first two tops in the supply zone. This daily chart of the USD/JPY above shows a trade example with a supply zone. On the way up we see increasing tops and increasing bottoms, which confirms that the GBP/USD is in a strong bullish trend. The red bearish channel on the chart shows decreasing tops and decreasing bottoms. This is a strong indication that the bullish trend is most likely finished and that a bearish trend might ensue.

According to what StockCharts reports, there are official Price Action Candlestick Patterns. What I mean is that everybody can describe a price behavior in the way he likes. The images in this paragraph are a gentle courtesy of StockCharts. When explaining any new term, I always like to start with a simple definition. This definition is so simple in fact that one word can be used to describe each term.

Note, that we’ve kept it real here, by including zones that both worked and failed. Once we have identified a fast impulse move, it becomes a lot easier to find the base of the zone. In summary, it’s always the Impulse that defines the zone, and defining the base has secondary importance. The performance quoted maybe before charges, which will reduce illustrated performance.

There are two types of candle zones to look for on the chart, either one will proceed a big price move. A descending channel is drawn by connecting the lower highs and lower lows of a security’s price with parallel trendlines to show a downward trend. Symmetry, on the other hand, contributes with its consistency of behavior to the buildup of order flow around the key area, making the zone stronger. In addition to being the best mobile trading platform I’ve ever used for cryptos, Bybit is giving away $30 in BTC when you complete all 3 steps at the link below. It is important to refer to the Demand levels as an area and not as a single line on the chart. Find the approximate amount of currency units to buy or sell so you can control your maximum risk per position.

Thus the fresher the zone, the more focus the trader should put on it. For this reason, personally, I only draw 1 to a maximum of 3 zones on chart maximum, no more than that. The freshest and the strongest zones get priority, and those are to keep the focus on, once price retests them. A level of support or resistance is a level at which a critical mass of traders coincide in their aim to buy or sell a certain currency. These levels are identified by the way traders react to them and because they show a tendency to reoccur.

Supply and Demand Trading Strategies

This is because the previous sell orders in the market were still available in the supply zone. By understanding supply and demand we can literally see what the professionals are doing. The best thing about supply and demand trading is that you don’t even need trading indicators to find them.

Indeed, a lot of traders simply think of them as synonymous with support and resistance zones or pivot areas. No Joshua, what this person means is the opposite, if he sees a zone formed in 5 min chart, he would wait 2 hours max, if he sees a zone in mins, he would wait max 8 hours for price to return. Every trader have their own strategy, I personally won’t keep time, but I completely agree with the fact that a recent zone works better. I would wait even a day for a 5 minute zone but I look at the way price left the zone and the way it is returning.

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