Transcript for:
Supply and Demand Trading Strategies

if you really want to understand charts and if you really want to know what is happening on your price action charts then supply and demand trading is probably the most important thing that you need to understand as a trader and i've been trading for over 14 years and today i've compiled a very special video everything that i know about supply and demand trading i've covered in this video we're going to take a look at how do you find supply and demand zones or what time frame do you trade them how do you do multi-time frame analysis we go top down how do you time your entries what do you look for on the lower time frames what is a good and a bad supply and demand zone what are some of the most advanced supply demand concepts i've included many trade studies and at the end of this video i've also included a supply and demand q a where i answer the most commonly asked questions about supply demand trading so let's just jump right into the charts and i've prepared a lot of charts i've also included the timestamps in the video description so if you want to jump to a specific section make sure to check the video description and also all the timestamps in there so i've prepared seven tips for finding drawing trading and understanding supply and demand zones on your charts and let's get right into it and i am sticking to forex here for the sake of this video i've been trading forex for 14 years so i really know the ins and outs of the forex market and also supply and demand and that is where we're going to observe it also is very important to understand when we talk about supply demand that forex is the most commonly traded market in the world it has the biggest daily turnover and what this means is that it takes a lot of money to turn a trend around and when you see that the market is going from a downtrend to an uptrend it means that something very significant must have happened here at the turning point of a trend and this is where supply demand traders focus on so tip number one look for trend direction change because there are significant powers at play here and i've circled here this turning point and in the next tip we're gonna zoom in on that and we're gonna try to understand what is actually happening here deeper inside and when a new trend is starting it often follows a very very similar rhythm and this rhythm and this pattern helps us to draw and define our supply and demand areas so when a trend is turning you will have your so called bottom and you will have your so called trend origin so this is here the exact moment where the trend uh completely reversed and very shortly after the bottom you will often see that the market is giving you a first consolidation so when a trend is turning it doesn't just shoot up in one straight line but it often moves higher then it pauses for a moment it makes a consolidation so the market isn't able to break higher right away but it moves back and forth a little bit and then it shows you a strong breakout outside of this consolidation and we want to draw our box around those first consolations because that is where we can later look for buying interest so tip number three we draw our supply or in demand zone in this case from the high of the pattern to the low of the consolidation so we look for where has the trend started where has it turned around then we find the first consolidation and we draw our demand zone around this first consolidation that is tip number three tip number four then we extend our zone into the future and then we wait so we have identified a trend change we have drawn our box here around the supply and demand pattern from the high to the low we extend it into the future and then we wait patiently and in this case it took the market roughly three days to get back to this pattern so we had a very nice uptrend away from here our demand area then the market traded sideways then it came back into the demand zone in this case again and one of the most important mistakes and tips number five is touching it is is that traders what they often do is maybe they can identify supply and demand zones maybe they can wait patiently for the market to get back here to the zone but then what they do is they trade the zone blindly and this is such a big mistake because obviously supply demand is a very important concept but nothing works 100 of the time so we cannot just blindly trade here our supply and demand area we need to wait for price confirmation and we do that by looking for so called price patterns so we want to see that the downtrend that has shaped up here and let us into the demand area is actually showing signs of weakness and also allows us to define it with a pattern around it so here in this case we can't see the market is coming with a lower lows and a lower low and then here we suddenly have a higher low and if you have watched my latest trend mastering video you will see and you will have learned that when the market is going from lower lows and lower highs to higher highs and higher lows this is a very very important piece to the puzzle and that is how new trends often originate so we draw our trend line here connecting the highs we have one two three touch points which is what we need for a valid trend line we can see that the market is not as strongly pushing lower this is the triple tap that i talked about in my price action course video here on youtube then you have the higher lows and now what you want is you want to see a breakout out of this pattern tip number six we go with the trend on the breakout and this is one of the most important concepts in technical analysis that we are going to stack multiple signals on top of each other so we have our supply or demand zone we have a weakening trend leading into the supply and demand area then we have our pattern we have a lower high lower low structure and then we have our breakouts so we have three four five things that are all pointing towards the same trading idea and once we can do that this is how we can build a strong trading system and tip number seven is that especially in the beginning what you want to do is that after the market has come back to your supply or demand zone in this case here at point number one then you're done you maybe have entered on the breakout maybe you're able to get out a profit here when the market moved higher and when the price is coming back to your demands on the next time you want to stay out of it because it becomes more difficult later on to trade such a supply and demand area when the price has already been there before i will show you later in the video when we have a deep understanding of supply and demand how you can still go about this but in the beginning i would really recommend you focus on the first time the market is back here at your demand area and then once it has done it take the supply and demand zone of your charts look for the next supply demand zone maybe on a on another forex pair and then try to trade it there but those are the seven tips to just get started and now we're going to take a look at a few advanced trade studies and more tips so now let's move on to multi-time frame supply and demand trading i've prepared a few very interesting charts as you will see so again we start by looking at a higher time frame this time and we're gonna go top down but on a higher time frame we also want to look for a trend change we want to see a chart where the trend is going from uptrend to downtrend and even more interesting in this case we have a very strong trend change so you can see the market really showed up here and then also had this rejection pinbar and then it really started accelerating down pretty quickly so we want to focus on this part on the lower timeframe and we want to see how does this part look and where can we find a supplier demand zone so now we're on the one hour and now we go all the way to the five minute and as i said in the beginning we want to look for the first consolidation so not at the absolute top of a trend and we want to look for where's the first consolidation below the top and you can see here we have two supply zones pretty close together so after the market had here the pinbar we have our first consolidation here the high to the low the market moved lower a little bit and had another smaller supply zone consolidation here and in this case when we're looking at a downtrend we are talking about supply zones whereas in the previous example we talked about demand areas so we have two zones stacked on top of each other and that is also okay it will happen sometimes depending on the price structure it's very rare that you have three and i would always recommend just stick to the first two that you find and that is usually good enough and now what we are going to do we are waiting under pr until the price gets there and we are still on the five minute so under one hour we only want to look for those major really significant trend changes and then we drop to the lower time frame and we stay on the lower time frame to find supplied areas or demand areas and to get into our trades and we want to get back to the zone which it did here it peers completely through the first zone here and just barely touch the second zone just here with one pip not even really dipped inside of it but just on the edge touched it and now what we are going to do is we are going to again build multiple trading signals on top of each other to find a more robust trading idea so for example we could use here a trend line we connect here the lows one two three four trend lines great that's all we need we have four touch points on a trend line that is very important but we can also add moving averages so in this example i added two moving averages the 50 period and the 100. the 50 period is here the faster moving one in orange or red or whatever color this is and then we have our 100 period moving average in blue and so we have multiple ways how we can nicely describe the trend but they also help us to find traits and get into traits because what we want to do now is we want to wait for the market to break through all of this we want the market to not only trade at the supply area we also want to market to break through the trend line we want to market to trade to break through both time frames and on top of that we also want the market to trade below the last swing point the last support area so now just to recap we have the supply area on the higher time frames that the market has touched point one we have a trend line broken we have two moving averages broken and we have the last swing low broken so we have so many things that are all pointing towards a bearish signal you could also add a divergence here so if you use an rsi you could look for divergences you could add for bollinger band spikes or any other price action confirmation on top of that as well but the key is that we don't only want to rely on one thing at a time we want to have multiple things that are all helping us to understand what is happening and find robust trading situations and you can see this is what happened afterwards and the best traits have multiple layers of context and this is so important for your trading whether you trade supply demand or any other trading strategy you want to have multiple layers of context that help you create a very very robust trading idea so now this is going to be really interesting for many because many traders know about support and resistance but very few know that supply and demand is a leading indicator to support and resistance and very often supply and demand zones create a support and resistance zones that many traders follow on their charts so if you know about supply and demand you will know about those support and resistance areas before the other majority of traders knows about them so let's focus on a new trade study and what we have here is the market was in this case not changing the trend direction but it was already in an uptrend a very weak uptrend which has temporary paused here and then we have this huge breakout and we are here on the new zealand canadian dollar and this is a very heavily traded forex pair and to create something like this here you need to have a huge imbalance between the buyers and the sellers so something very very significant must have happened here and on your charts as i will show you later it really pays off that you always pay attention to those huge candles because they can help you understand something and they can help you find high probability trading situations as i will show you now so we draw our demand zone around the consolidation that existed before the huge candle and then we extended into the future as we did before then we don't do anything until the price is coming back into the zone and again we don't just trade because the market is back here at the zone but we need to zoom in and then we try to come up with a trading plan so here is where the price come back into the zone and you can see again we use a trend line because trend lines really nicely help us trade those supply demand patterns so we have one two three four touch points great and we can also see that pre-breakout before the market broke the trend line we already see a slight change of trend sentiment so whereas here on the left side from the trend line the market made lower lows and lower highs here the market started to make higher lows this is very important because it shows you already that something is changing here in the trend and at the same time we have a support and resistance flip zone so previous support turns into resistance resistance again and what we want to do is we wait for the breakout and then we can time our trades using a retest approach so not everyone likes to trade with a pure breakout other traders prefer retests and in this case you can see we have the breaker the retest and then afterwards the market took off and the origin was again the supply area so very important to understand how you can build multiple layers of context and then once you're in the trade you can either have a hard target where you exit your trades or you can also exit when you see signs of weakness so in this example the market after hitting the supply area breaking out and traded higher very nicely until the market here traded sideways and this is usually a good time to take a trade because when the market is here entering in a range market that's the last thing you want to see probably in a trending trade you want to get out when the market is ranging because your trade idea may not be as valid anymore of course the market could just here pause and then trade higher out of that but the chances are not as high and this is not a high probability trading scenario anymore so take what the market is offering you be happy with your profits and don't gamble away your unrealized profits and now you can see if we extend this zone forward that has been created here here was the first time that we looked at a trading opportunity here on a trendline break you can see that many many times here and here even here here very precisely here twice here once again and then here on a break and re-test the market started paying attention to this zone so it all started here on this origin of this huge outlier candle and then afterwards after the market has respected it the first time here with your supply area then afterwards this became a very very significant not only resistance zone but also support here on the breakout so you can very often see that after you have identified the supply area then it becomes support and resistance in the future so it really pays off to know about supply and demand because then you may be able to be one step ahead of your trading competition if you know how to find those zones a little bit earlier and get the first trading opportunity in here already are you ready for a little bit more of an advanced supply demand strategy now we're gonna take a look at trap zones and how to trade trap zones so again in the beginning we look for everything as before we look for a trend change and then we want to look for the first consolidation and especially interesting our consolidations before huge candle breakouts so here you can see this is was the turning point here we already had a small consolidation but here this is really where you want to get your supply zone in because you can see this here is a huge significant candle and this is probably when you look left this you won't see that often whenever you see such a huge candle breaking out out of the supply zone at a trend change this is really where you need to have your supplies ready for the future so we draw it from the bottom of the consolidation to the height here we extend it forward and then we wait like before the trap comes a little bit later as we will see so this is how we draw the zone from the bottom to the highs we extend it forward all the same and then this is the first time the market is back in the zone so we have a break and re-test pattern again we don't trade short just because the market is at the supply zone again we wait for a pattern to emerge in this case you can see here we have a resistance area which turns into support and on the breakout turns into resistance again and this is where break and retest traders get in on the pin bar when the market is moving away that's where many traders initiate a short if you've watched my latest price action course here on youtube which is completely free the link is in the description below you will have learned about this pattern as well but the trap comes after that so after the market has moved into the supply zone for the first time if you are a little bit more experienced you can leave those zones on for maybe one or two more touch points so let's see what happens afterwards the marker comes back to the zone but it overshot the zone by quite a bit so let's try to move in and zoom in here and let's see what we can actually find here so you can see the market overshot the blue zone by quite a bit as i said and again this is why we never trade supply and demand zones blindly because sometimes the market will overshoot it and if you're already in a short trade when the market gets to the zone and then you see the markets moving significantly against you that is not a good place to be in and then many traders will take a loss and then the market turns around maybe maybe not and then this can become very frustrating however we don't trade those zones blindly but instead what we're doing is we wait for the price to get to the zone then we look for a trend structure we can use as i showed you before we can use a trend line we could use a horizontal pattern like in this case where resistance turns into support it really nicely helps us to define price within a fixed boundary that's very important and then we could trade the breakout so in this example we have a few things going for this trading idea we have the higher supply demand area we have a trap pattern which is very commonly traded as well it's a little bit more advanced because you need to be more patient and we have a very nicely structured pattern here and then we have a huge breakout this significant breakout is also a very important part to or peace to the puzzle because the stronger the breakout usually the more force that is behind this move and the higher the likelihood that it will continue into breakout direction as well so great great context here a lot of layers to this trading idea and it all started with a very nice higher time frame supply zone here with this huge outlier breakout candle so now let's take a look at the supply zone shift strategy it's kind of similar to the trap but there's a little bit of a tryst to it and in this case we have a very interesting example here we are on the us dollar cad which is considered a forex major so changing the direction of a forex major from downtrend to uptrend is not such an easy thing and you need to have a lot of buying power to get the market turning around and something really and special is happening here because the market didn't just turn around but you can see here was the turning point here's our first small consolidation and the way the price exited consolidation is here really what makes this so interesting because what previously took the price dozens and dozens of candles here now the price was able to cover within just one or two candles so a violent huge move and this is definitely a demand zone you need to have on your charts and whenever you see such a huge candle outlier draw your box around it and keep observing it and what happens next so again now we have our first time the market comes back into the zone and this is marked by 0.1 this is the origin of the the demand area and when we draw our head and shoulder around it you can see we can very nicely define it we have a left shoulder the head the right shoulder the right shoulder is a pre-breakout buildup pattern as well so before the market is actually able to break through the level it is already really pounding into the level and it's not able to pull away whereas previously when the market was at this level here you can see the market was able to sell off quite a bit into this demand area however the demand area not even not only stopped it but afterwards the market was never able to come even close to that so the sellers are not as strong the buyers are really defending here and keeping the price high and looking at this breakout candle here it's a huge candle as well so again we have multiple layers we have this amazing outlier breakout candle we have here the market really stopping on a dime at the zone we have here the breakout build up we have a huge breakout engulfing candle so we have multiple things layered on top of each other which really help us understand and find this high probability trade but now we can shift forwards and we can follow it so here was point one the first time the market is back at the zone and let's see what happens afterwards we have two more times when the market is coming back and you can see the next time just like on the trap example the market is overshooting the zone and this is a very very common phenomena on supply demand trading the first time you will often see that the market either doesn't reach the zone at all comes very close to it or just briefly penetrates it but the second and the third time you will often see that the market spends longer and longer at the zones and is also able to penetrate the zones deeper and deeper so you can see here we go all the way through the end of the supply zone and here you can see the market spends a long long time at the zone so let's zoom in on point two first and then on point three and let's try to see what we can find so again important just because the market is hitting a previous supply and demand area it doesn't mean that you should be trading and you should just keep sitting on your hands until you see a pattern and technical analysis and the the key of trading technical analysis successfully is that we are able to find repeatable patterns and repeatable patterns are easy to find once we have our list of context so again i told you many times it's so important to have multiple layers of context and the cool thing about that is that you can put it in a list so you could have your checklist that lists all the different layers of context that you need supply demand area a trend that is slowing down for example here in this case you can see if you put a rsi on it you have this huge divergence you have a trend line or a moving average you have your breakout or your retest or both and you can put it really nicely into a checklist that then helps you take it off one by one by one and once you have done that you have created a trading strategy which has repeatable patterns and then you can keep making it you can keep trading it over and over and over and over again and this is really where you then find your bread and butter trades put your rules into a checklist and then refine it over time but in this case you can see the second time the market is back here at this supply or demand zone you have very very nice pattern you have a breakout and a retest and the market really took off the second time or the third time actually the market came back here we have a very similar picture we have a very nice pattern here you have here a triple tab you have a divergence here you have a trend line here at the highest you break out of it you move away you pull back and then you really start off and start a new uptrend so again very very repeatable patterns pretty much all of the things that i've shown you are following very very similar rules here so you can really nicely put this into a checklist format and the most important thing is that we really understand nothing works 100 of the time yes i'm showing you great studies here great supply and demand trade studies but even the best zone will fail and even if you find the best traits with all of the great layers of context everything that you can ask for in a trade is there it doesn't mean that it has to work and nothing works 100 of the time you will never find a trading system with 100 win rate and that is exactly why first of all we always must wait for a trade with contacts because this can already help us to reduce the chances of having a losing trade and increase obviously then on the other hand the chance of finding a winning trade and we need to be okay with cutting losses we need to understand that we need to get out of a loss if it doesn't work out if the price keeps going against us we get out of our loss and we move on and we wait for the next time very very important a new tip radiating supply and demand forces that sounds way more mystical than it actually is so let's dive into the charts and let's find out what i mean by that and again we are looking for a trend change this time we are on the year us dollar the most actively traded forex pair we are on the one hour chart and when the forex euro us dollar pair changes from a downtrend to an uptrend that is something hugely significant and especially if we can find a demand zone by the way not always when the market goes from downtrend to uptend are you actually able to find a supply and demand zones sometimes there won't be a consolidation sometimes it will look very messy but in this case you can see here's the first consolidation on after the turnaround and you can see we have a strong breakout afterwards we draw our zone from the high to the low and then we wait and see what happens afterwards but you can see here that the market didn't fully penetrate the demand area and it came very close but it actually didn't touch it so let's try to zoom in and see what is happening here and we can see that it came very close maybe one two three pips here shy of the zone and keep in mind this is the eur us dollar and when we zoomed out this was a huge move here away so this was a very significant breakout and the euro us dollar is the most traded major so there's a lot and a lot of trading volume so it does take a huge force to get the market here moving higher in such a fashion and even turn around from a downtrend to an uptrend so this supply and demand zone is very very strong and is very common to imagine that there are radiating forces around the supply and demand zone it is not as easy often to pinpoint the exact price level on your charts but it is more important that you're ready to react to whatever happens and even though the market may not fully reach the zone it is still a valid and tradable zone and what i do in my trading is that i place my price alert on trading view a little bit ahead of the supply and demand zone because this happens quite frequently as we will see in a bit as well and you don't want to miss those trading opportunities especially with such a great demand zone here on the euro us dollar one hour time frame you want to be ready when the market gets close to it because you will then be able to trade it and you are not going to miss such a trading opportunity supply and demand pattern trading strategy let's find out what i mean by that and a few very interesting charts waiting for you again same old play we are looking for a trend change this time us dollar swiss franc two-hour chart and the two-hour chart is not the highest time frame but if you can see that the market is going from downtrend to uptrend that is definitely something very significant especially if such a long downtrend is coming to an end in this case you can see we are looking here at a trend that has lasted from april to may to june mid-june so two and a half months and you can see how did the trade change with a huge breakout so we have our first consolidation here and how did the trend the price exit here this trend here to the downside and started the uptrend with a huge huge breakout and you can see within just a few candles the market recovered what previously took the price weeks and weeks to make on the way down so definitely a demand zone we must have on our charts we extend it forward and we can also use for example the bollinger band with indicator so you can see bbw bollinger band width you type it in on trading view you can see it and if you have problems spotting those candle outliers this will help you and not always not often will you find those but the bollinger band with indicator can help you to spot those huge outliers just as a little tip on the side but we draw our supply and demand area in this case and then we extend it forward and we just wait and see what happens afterwards and you can see the market came back to it but didn't fully reach it and this is very often occurring when you have such a huge and a strong zone because as i said in the previous example there's a radiating force around your supply and demand zones very often especially when we look at the higher zones especially when you have such a huge move when you see the market really vertically turn taking off and really going higher for dozens and dozens of pits pips within a few minutes this is often where you have very very strong and significant forces here at play and when we go and zoom in a little bit you can again very nicely see even though the market here didn't fully reach the demand area once the market came close to the zone the previous very strong downtrend here slowly faded and you can see the market stopped making lower lows here and already previously really slowed down here we have a double bottom here we have a very very nice resistance area connecting the previous highs and then on the breakout we see another strong breakout so you can see this is such an important concept you're able to define the huge outlays on the higher time frame you draw your box around it you wait for the market to get back to the zone or at least get very close to it and then you try to zoom in and time your breakouts your pullback traits using the different concepts so now let's do something special and i've prepared a supply demand trading q a where i've answered the most commonly asked questions that i get about supply and demand trading but before we get into the questions i've prepared a huge special and the link to that is in the video description below and i have compiled four trading courses for the price of one so i have my main price action course and i've included three bonus courses free of charge on top of that so first of all you get the supply and demand secrets course there i've recorded 23 videos which go much much deeper even much deeper than what we are doing right now in this video i have included a lot of advanced trade studies i've included many different trading strategies using supply and demand i've included dozens of trade studies with entries exits how do you get into trades how you get out of them and a lot more i've also included a multi-time frame trading course on how to find a trend following strategy and also if you're new to forex i've included a forex starter course as well and the link to that is in the video description below so let's get into the q a and the first can you recap supply and demand zone rules and i certainly can so again we want to look at as supply and demand zones at a trend origin we want to look for when is the downtrend going into an uptrend or uptrend going into a downtrend and the best zones have a huge candle outlier at the origin so we want to look at point three at a supply and demand box around a pre-breakout consolidation so when the trend is starting into a new direction we want to look for where's the first consolidation and you want to make sure that the breakout out of the consolidation is very very strong and then point four we wait for the price to come back to our supply and demand zone five we never ever trade a supply and demand zone blindly six we wait for the price tag structure in context which means that we are building a multi-layered trading approach we're going to use different trading tools trend lines moving averages we can use an rsi divergence breakouts we can use support resistance levels and many many other things that i've shown you to build a multi-layered trading approach and point number seven second and third touches have a lower probability so in the beginning focus on the first then once you're comfortable with it get into the second one and then once you are done with that and even want to get more training opportunities wait for the third touch point as well next question which time frame is the best and i keep saying it there's no really the best time frame but what really matters more in that context is that you find a time frame that is right for you which means for me for example i do like to trade a little bit over higher time frames i like the four hour one hour combination but there are traders using supply and demand strategies also going down all the way as i've shown you in this video until the five minute time frame and this really depends on the trader personality supply and demand will work on any time frame you can use it on any time frame but it really comes down to the trader are you suited for the time frame i personally am not as good on the lower time frames as i'm on the higher time vamps and there are traders who are much better on the lower time frames but not as good on the higher so there's not really one size fit all here and you really have to try it out for you and find the right combination but the good thing is supply and demand works on all the time frames pending all market orders what do you do how do you get into the trades and i personally only use market orders so what this means is that i wait for the price to get back to the supply and demand area i look for the structures i wait for the breakout and once the breakout succeeds and breaks out and fully closes outside of the breakout level that i've previously defined then this is where i get in i don't use predetermined pending orders to get into the trade when the market is just trying to break out because especially as a breakout trader you're often going to run into fake outs or if you're using pending orders so as a breakout trader i found it even more important that you use market orders instead of pending orders is supply and demand the same as support and resistance and the answer is definitely no it can be very similar but as i've shown you and i think it's become very clear now that supply and demand is something very different supply demand is usually preceding support and resistance so what you will often see is that you have a strong demand area you trade a second or the first second touch point and then later on it becomes a support and resistance area but as you've probably seen in the video support resistance and supply demand are very very different things does it only work for forex i can't really talk about that because i am only trading forex i have no experience trading stocks and i've been trading forex for 14 years i can say it does work in forex and i would recommend using it in forex but if you want to trade it on stocks or any other market try it out on a demo account just go through the charts see if you can spot supply and demand and then see what the market does which is the best moving average in this video i've shown you the 50 and the 100 period in my trading personally i only use the 50 period moving average i find that it carries the most amount of weight across all the time frames so whether i'm trading the 15 minute the one hour the four hour or even the daily chart or even the weekly the 50 period moving average is often respected across all the different time frames of course nothing works 100 and sometimes the market will not pay attention to the moving average but by and large on average the 50 period moving average is a very well respected moving average why does it work it doesn't matter there could be many reasons why something works why do trend lines work why do moving averages work why does support resistance work i have found that in my training and when i teach traders it's very important that we get away from the why question and we just focus on the how how can we profit from that because you will get lost in the why and why doesn't actually matter why something works doesn't matter it matters how it works and we need to find out the how as traders how can we find better trades how we can build robust trading strategies how do we get into trades how do we protect our stop loss how do we protect our capital how do we size our positions correctly how do we get better over time how questions matter why it doesn't matter as much and that's it that's the end of this supply and demand specially on youtube i hope you did enjoy it if you've watched it until the end chances are that you did i hope if you did leave a comment leave a thumbs up and i will be back next tuesday with another special video here on the tradesight youtube channel