Some will look like ugly heifers, but you should always remember to stay disciplined and stick to your trading system rules. We can see that our criteria are met, as there was a moving average crossover , the Stochastic was showing downward momentum and not yet in oversold territory, and RSI was less than Now we would record our entry price, our stop loss, and exit strategy, and then move the chart forward one candle at a time to see what happens.
Boo yeah baby! As it turns out, the trend was pretty strong and the pair dropped almost pips before another crossover was made! Well, the truth is that it is simple. How big that gap should be depends on the pair and volatility at that time, but in most cases, 15 - 20 pips should give you enough headroom to avoid any spikes while still keeping risk low.
Another big mistruth you'll hear in the supply and demand community is the idea zones have the power to cause reversals more than once like support and resistance levels do. When price hits a zone and reverses, that's it; the zone loses its power. The probability it'll cause another reversal in the future is extremely low. The only exception to this rule is if a zone forms at the top or bottom of a consolidation. However, once the consolidation is over, the zone loses all its power and probably won't cause another reversal.
If you think about why a zone forms, it's obvious why they lose all their power after one touch. So, they bring price back to the point they've already bought or sold to get their remaining positions placed - the supply or demand zone. That way, they can place their positions e.
So with that being the case, why would the banks want price to return a zone a 2nd or 3rd time? If they've already brought price back to get their remaining trades placed, why bring it back again?
Pricing Strategy
It doesn't make any sense! They'd only bring price back the first time if they knew they could get their remaining trades placed, making it pointless for them to bring it back again a 2nd or 3rd time. So this idea that zones can cause multiple reversals like support and resistance levels You might see price return to the odd zone a 2nd time and reverse every now and again, but that's not a normal occurrence.
And it doesn't show zones can cause multiple reversals. All it means is that something random occurred when price was in the zone - like a news release - and that caused it to reverse, not the banks buying or selling.
That said, it was impossible for me to cover everything about supply and demand trading in this one article. These 6 additional articles cover all the bases of supply and demand. This will go over the 5 key rules you need to know when trading supply and demand. Many of the rules or beliefs traders have on how to trade Supply and Demand don't make sense in the real world, as I explained earlier. So, I created this book to clear them up. These 5 rules will improve your trading, by helping you find and trade the best zones.
I've also left a small FAQ containing the most common questions people ask about supply and demand at the bottom While Sam Seiden gets a lot of credit for coming up with Supply and Demand, many of the ideas he promotes about the strategy are flat out wrong and at odds with how the market really works. Like, for example, saying strong zones are those with a sharp move away — ever heard this before? When you fail to incorporate the nearby rises or declines when drawing the zone, you end up missing trades that otherwise would have been successful.
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And over time, if you fail to correct it, this will cause you to miss out on a lot of trades, which will impact your bottom line. To avoid this, make sure you read my post below to draw the zones correctly. Supply and Demand zones come in two flavours, each determined by what price does to create the zone.
These two types of zones look and perform very different to one another due to what causes them to form. On top of two types of zones, they can also form for two different reasons: either the banks placing trades, or taking profits off trades. Each type of zone has its own quirks and characteristics which, if you know, can help you trade them and make fewer mistakes. To learn what these are, check out my profit-taking zones vs trading placing zone post.
In the case of s upply and demand, there are 3 key mistakes traders make over and over again that you MUST avoid to become successful. Can a zone be used more than once, like support and resistance? No, supply and demand zones are a one-time use.
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For all other zones though, only take the trade the first time price returns to a zone. Is supply and demand trading profitable? It is if you learn from the right places.
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Stick with the timeframe you trade off for now. You can use a lower time-frame but I need to explain it more, as there are a few things you need to be aware of. I have again some ideas how to read price. The profit-taking level should be the closest zone on the higher time-frame.
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So if you trade off the 1 hour, you need to take profits once price reaches the next zone on the daily. If you trade off the 1 min or 5 min, take profits once price reaches the 1-hour zone. Wait for signs of a reversal first, and then take profits if you see something developing. Great post, you have taught me how to draw supply and demand zones.
I have more idea now how to draw these zones. Hi great article! I just found about this website and it is really helpful. Do you have any tips about profit-taking strategies you use? Do you take some profit at the first trouble area or do you just wait for it to hit the target? I have been having an issue where I tend exit the trade pretty early so I usually only earn around 2Rs per trade. I feel like you never know if the price is gonna reverse at the first trouble area.
Did you ever has this issue when you were learning? I blog frequently and I really thank you for your content. The article has truly peaked my interest. Hello, Can you please explain more about the curve? I trade the daily time frame and using H1 for confirmation when the price reaches the daily zone.
It kind of narrows your view of the market and what zones are important, I think.
6 Secret Tips For Supply And Demand Trading
As for daily zones, you can drop down to a lower timeframe if you want, it depends on your preferences really. Please what is your take on this? Thank you. Yes, you can trade them at anytime, Steve. Hi Liam thank you for the quality lesson above. Cheers, Liam. Here's a quick look at what we'll cover: W hat is supp ly and demand trading and how does it work? Finding, and drawing suppl y an d demand zones correctly.
The two wa ys you can trade the zones. Table of Contents. This law states: When the supply of a product is high and the demand is low, prices must fall to incite buyer's interest; when the demand for a product is high and supply is low, prices must rise to represent the scarcity of that product. Sound familiar? So, for example Does that make sense?
When we see price rising, demand outstrips supply. When we see price falling, supply outweighs demand. Now, here's where it gets interesting: In Forex, the banks can never place their full position all at once.