What is Supply and Demand?

Supply and Demand is one of the most crucial lessons to learn. They can be useful in any
Market, any Instrument. They can be found on almost any timeframe, being used by most
professional traders, retail and institutional alike.

They are Zones of which price will respect and often reverse. Where you’ll see a more simple
form in the way of Support and Resistance, which highlight a specific price, Supply & Demand
highlight a block in which orders can be found that move the price in a certain direction.
Being able to identify these Zones quickly and easily, enables traders to pick and place
orders, whether they be short or long.

Also allowing them to identify where price will go AFTER those orders take place, to a great
degree of success if used and placed correctly. Having this information also enables traders
to identify where Stop losses should be placed, calculating risk to reward ratios.

From a Single Strategy, We Can Identify:

• Where a trade should be placed
• Where the Stop loss should be placed
• Where the market will go after these orders are turned into open positions

An example of how well both S&D have been respected.

Finding Supply

Supply is a price range, where we predict a large volume of sellers, to push the price down from
a specific point. It’s usually found at clusters of consolidation, identified by single or multiple
candles that are responsible for moving the market out (down) of a certain range.

A Supply Zone, should be considered as an advanced form of Resistance, where we are able to
identify where the price will run up to and eventually reverse. A big part of Supply is, that it’s an
easy way for us to inadvertently identify previous and current market structure.

A lot of traders sometimes forget that identifying current structure will determine the overall trend of a market.

Specifically, Supply will tell us if price has made a Higher High, or not. Technically speaking, if
price has made a Higher High, we are bullish within that cycle, if it does not, then we are the
opposite.

With all this information that Supply has told us, we can use this to open positions in the
event of potential reversals, allowing us to identify where our Stop loss should be,
revealing the risk to reward for that potential trade.

Finding Demand Zone

On the flip side, Demand is a means of predicting where there is a large volume of buyers. Where price will return too, and reverse, going up (or long) from a specific Zone. Like Supply, Demand is identified by clusters of consolidation that has happened previously (or left) of the current price. This could be on any timeframe, on any traded instrument.

Typically, we identify Demand from a single or multiple candle structures, seeing where the price was, or started from, before a large move to the upside.

Demand, will also tell us, whether the current price has created new market structure. Just like Supply allows us to identify Higher Highs, Demand will determine if price has made Lower Lows, either continuing down if it has, or reversing if it has not.

Ye’ Old Laws of Supply and Demand

Supply

• Look for consolidation Zones that is ABOVE current price
• Look for Candles that occur before a large move DOWN
• Supply is used to open short positions or pick reversals, so make sure the Zone isn’t too large
• If using the entire candle creates an acceptable size zone, then you can use the entire candle
• If using the entire candle makes the Zone too large, then you can cut it down to using
  the top of the candle to the bottom of the body
• Also look right for a potential retest to confirm that Zone exists, this can also help with sizing the Zone

Demand

• Look for Zones of consolidation BELOW current price
• Look for candles that occur before a large move UP
• Demand is used to open LONG positions, or buy an instrument
• Sizing of this zone is extremely important because it is the more widely used, and sizing
  Will denote your Stop Loss percentage amount
• Like Supply, you can use the entire candle to identify the Zone. If this makes the Zone
  too large, then you can cut it down to just the top of the body as long as it starts from
  the bottom of the wick.
• Again, look for retests of this newly drawn Zone, to the right, to validate this Zone.

Broken Zones

When a Supply or Demand Zone is compromised (Price has broken through), this is
significant due to it being a sign of continuation. When price moves through a Supply,
making a High High, price continuing in this direction is likely. The same goes for
Demand.