Remember that Econ 101 class back in school?
(The one about supply and demand?)
Yeah, me neither. š“
But here’s the thing…
Supply and demand actually matters A LOT in trading.
By identifying reversals from recent surges of buying (demand) or selling (supply), you can position yourself to capitalize on future reversals from the same price area. This is called supply and demand trading, and I’m here to walk you through exactly how it works and how you can apply it in the markets.
Letās get started…
- Part 1: Supply And Demand Trading Explained
- How To Identify/Draw Supply & Demand Zones with SupdemV2 (Download Below!)
- Zone-In: The Art of Drawing Supply and Demand Zones (Manually!)
- Trading Supply and Demand Zones: (Entry, Stop Loss, Take Profit!)
- 3 Real-World Examples of Supply & Demand Analysis in Action
- Trade Like a Pro: 3 Must-Know Rules for Supply and Demand
- You're Almost Ready to Trade S&D… (But Not Quite Yet!)
Part 1: Supply And Demand Trading Explained
In economics, the law of supply and demand dictates how much people are willing to pay for something.
This law states:
When 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.
Makes sense, right?
Now Forex, along with every other financial market ā stocks, commodities, crypto, ā is driven by the exact same forces of supply and demand.
News events, economic announcements, even just the general mood/sentiment of the marketā¦ all of these factors influence different groups of traders to buy and sell. This constant push and pull creates shifts in the supply and demand balance.
Price goes up? Demand is winning the tug-of-war against supply.
Price goes down? Supply is overpowering demand.
Price moving sideways? Supply and demand are balanced.
The process of supply exceeding demand and vice versa is a āplay-by-playā commentary that happens every day, week, month, quarter, year, etc., across all markets.
You might find yourself asking:
“Why and where do S&D zones form?”
“Who actually create supply/demand zones”.
“Why and where do they decide to buy or sell?”
Answer: Only smart money can influence market prices and create supply and demand zones. 
Price revisits the supply zone (the source of the steep drop), and bam – it reverses again! Selling comes back in, pushing back against bullish demand from the rally.
The smart money (SM) cleverly divide their enourmous positions into more managable portions, executing each trade separately at similar price points – sidesteping the risk of slippage! This process often causes price to return and reverse around recent areas of smart money activity (supply and demand zones), shaping the many trends and consolidations we see.
Key takeaway: Supply and demand zones develop from SM executing trades that go against the current trend. Then, they wait for price to return to the source of their previous buying or selling (the SD zone). Using the opposing orders from traders who tricked into entering, the SM finish filling their massive positions, and price reverses.
This creates the sudden price spikes and declines on our charts.
Pro Tip: Fresh Supply And Demand Zones are King!
Remember, recent zones are always more powerful than older ones. Check out my table near the end for specific timeframes and how long a zone typically remains valid.
Supply And Demand: Understanding The Zones
Let’s go over the two zones now, so you can see how they work.
Demand Zones
Demand Zones represent points where smart money exectued a significant number of buy positions.
Think of these as the support levels of supply and demand trading.
Demand Zones form when smart money place a large number, or size, of buy trades. This creates excess demand, and results in price reversing according to two main factors:
1) Bearish Market Sentiment: The more bearish the market appeared before the demand zone developed, the more buying power needed to reverse the current trend. Substantial demand (smart money buying) has to enter the market to reverse the downtrend from the current sellers.
How else could a sizable downtrend just suddenly reverse and price jump higher?
Who’s buying around the lows and selling to create highs?
Hint: It’s not your neighbor, your coworker, or that random guy you met at the coffee shop.
2) Swing Length, Candle Size: Check for 3 or more large bearish candlesticks showing a significant decline prior to the demand zones formation. The more traders selling (supply), the higher the demand (buying) it takes to reverse price. The most recent sizable downswing should also show a clear directional bias; smart money can only execute buy postions during peak selling.
Use these factors as guidelines for gauging (and ranking!) the strength of potential demand zones.
Supply Zones
On the other side of the fence, supply zones.
Supply zones form when smart money decide to sell (supply) a large amount of currency. Excess selling causes prices to fall, leaving behind a zone of supply for future price reversals.
These are the resistance levels of S&D trading.
See how price moves into the supply zone before quickly reversing? And how a bearish pin bar pattern forms inside – that’s your entry signal!
1) Bullish Market Sentiment: The more bullish price appeared before the supply zone formed, the more selling (supply) was needed to reverse the price direction. Smart money selling had to enter the market to reverse the prior uptrend, which was rapidly gaining strength – four bullish candlesticks showing a +0.8% increase for the day is extreamly rare.
2) Swing Length, Candle Size: Look for multiple (at least 3) bullish candles showing a clear rise. The previous upswing should also show a clear bullish directional bias; smart money can only execute sell trades (supply) at times of peak demand – i.e., when market sentiment appears super bullish with most traders buying!
Use these factors as guidelines for gauging (and ranking!) the strength of potential demand zones.
Although supply and demand zones serve the same purposeāareas where price might reverseāthey can be classified into two types, depending on whether they originate from a trend reversal or trend continuation.
Continuation Zones:
Rally – Base – Rally Demand. (RBR)
Drop – Base – Drop Supply. (DBD) 
USD/JPY 1H Drop-Base-Drop supply zone forms during a brief consolidation phase within a downswing.
Continuation Zones Form when price moves in one direction, Bases, i.e consolidates or pauses, then Continues in the same direction.
Reversal Zones:
Rally – Base – Drop Supply. (RBR)
Drop – Base – Rally Demand. (DBD) 
EUR/USD 1H RBD supply zone develops after a institutional selling reverses the prior uptrend and upswing.
Reversal zones form, when price fully reverses the prior swing direction, Base, either by consolidating or pausing, then Reverses in the opposite direction.
How To Identify/Draw Supply & Demand Zones with SupdemV2 (Download Below!)
You’ve got to nail finding high-probability zones and drawing them like a pro on your charts! It takes weeks or even months of time, practice, and experience, to get this down.
Or, at least, it did…
Check it out… SupdemV2! (SD indicator)
This simple supply and demand indicator for MT4 might be a bit old-school (I’ve had it for almost a decade now!), but it still outperforms most newer SD indicators, and blows many of them out the water for zone accuracy. SupdemV2 is quick to setup, easy to use, and most importantly: Pinpoints laser-accurate SD zones without any human input.
SupdemV2 auto marked these 1-hour supply & demand zones on Usd/Jpy (… from default settings, too!)
Check out a few of SupdemV2’s main settings… adjust these as you wish. (Or just copy mine)
The indicator also comes with Zone Alerts: Recieve a Pop-Up whenever price touches a zone!
Download SupdemV2 below (FREE!) …
Pro Tip: Once you’ve placed Supdem.ex4 file in your “Indicators” folder, you’re good to go! Open the indicator from the menu, keep the default settings as they are, and you should see any recent supply and demand zones appear on your charts.
If you’re not seeing any zones, double-check Supdem.ex4 is inside the MQL4 > Indicators Folder.
Supply and demand zones originate when smart money buy and sell substantial quantities of currency. What does that look like on a price chart?
A sudden, steep rise or decline in price.
Check out the steep rises aboveā¦ what’s their key feature?
All feature multiple large bullish candlesticks.
This happens when a serious imbalance between supply and demand exists ā in this case, demand (buying) consumes supply (selling). It suggests smart money buying may exist from the current swing low upto the price action above (“the base!”).
For supply zones, just look for steep declines.
Steep declines always develop when smart money selling enters the market, overwhelming current demand, and causing prices to plunge!
Same process, just in reverse.
Important Note: Don’t Judge a Zone by Its Slope — Steep rises and falls are a dead giveaway for supply and demand zones, but don’t discount slower, shallower price moves. These can sometimes lead to trades with higher than average risk-to-reward ratios – over 1:5 (R/R) per trade!
To locate Demand Zones, then, look for steep rises…
Pro Tip: Drawing recent demand zones provides a level of structure to the price action, helping you plot where demand may enter the market and initiate another bullish reversal.
To locate Supply Zones, look for steep declines…
Pro Tip: See how the reaction to the supply zones pushes price back into the demand zones seen before?
Funny that, eh?
Zone-In: The Art of Drawing Supply and Demand Zones (Manually!)
Supdem V2 makes identifying high probability supply and demand zones a breeze, but while the indicator certainly makes life easier, some sneaky zones can (and will) still slip through the cracks.
The Solution?
Roll up your sleeves and draw these zones manually.
How to Draw Demand Zones: The Easy Way
To draw a demand zone, find a steep rise where you think a zone has formed.
1) Identify The Base: Look for a strong rally, marked by several large bullish candlesticks.
The area just before that rally took off? That’s your “base.” This segment of price action represents where smart money entering buy positions, creating the demand fueling the upward move. It’s the foundation of your demand zone and the main focus area for capturing bullish reversals.
Supply & Demand zones can develop a single candle or a consolidation structure, as seen in the image above.
2) Find The Base Candle: The candlestick that kicks off the rally is your base candle.
It’s the last little candle before demand took over and sent prices higher. The base candle marks the final opportunity smart money had to execute buy orders, making it the upper boundary (proximal line) of the demand zone.
The base candlestick can be bullish or bearish!
3) Draw The Zone From The Base Candle: The base candle marks where buying pressure finally overwhelmed selling pressure. Mark the upper demand zone edge (proximal line) from the base candle down to the lowest swing low under the base.
4) Drag The Zone Down To The Lowest (Recent) Swing Low: The lowest swing low represents the end of the demand zone (distal line). It’s the inital point where smart money buyers stepped in and consumed current sellers, reversing the prior short term downtrend.
5) Success – Check Your Demand Zone: The area between the base candle and the lowest swing low under the base is your demand zone.
The zone visually represents where significant buying interest (from smart money or other traders) entered the market. Each smaller low within the zone is a potential point where SM demand stepped in, contributing to the demand zone’s formation and eventual rally.
Remember: The demand zone may attract smart money buying interest in the future, making it a key area to watch for potential trade opportunities.
Next Step? Watch for Price Retests: Demand zones become important when price approaches them again; the sooner it returns, the higher the odds of a successful reversal. Use Pin Bars and Engulfing Patterns for a smooth entry into a high R/R long position! Both candlesticks indicate buying pressure exists within the demand zone, further boosting the chance of a reversal.
Pro Tip: Can’t find the right swing low? Just look for the lowest swing low created underneath the base (price action build up before the swift rally. That’s where market sentiment appeared most bearish, and peak sellers existed across all timeframes for smart money to buy against.
How To Draw Supply Zones: Step-By-Step
Drawing supply zones follows the same process as demand zones:
1) Identify The Base: Look for a steep decline consisting of multiple bearish candlesticks. The price action located just above is the supply zone base. Smart money entered sell positions around these candlesticks to start the decline and create the supply zone.
2) Find The Base Candle: The candlestick that starts the decline is the base candle. It’s the last small bullish or bearish candle that formed before price plunged lower.
3) Draw The Zone From The Base Candle: The base candle represents the last possible time smart money entered sell positions to finally overwhelmed demand. Start drawing your supply zone rectangle or line right from this candlestick (you can use either the open or close price).
4) Drag The Zone To The Highest (Recent) Swing High: The swing high marks the upper boundary of your supply zone. It’s the point where smart money overpowered the eager buyers ā remember, market sentiment was super bullish before this swing high formed; who sells when everyone’s buying.
5) Success – Check Your Supply Zone: The area between the swing high and base candle is the supply zone. It shows where massive smart money selling came into the market, and pinpoints where further selling may enter in the near future.
Trading Supply and Demand Zones: (Entry, Stop Loss, Take Profit!)
Today, there stands two primary ways of trading supply and demand:
Price Action entry, and Set and Forget entry.
Each entry strategy has pros and cons, and it’s possible to make consistent money using either. Zone identification skills matter more trading “Set & Forget” than entering using price action (Pin Bars, Engulfing Patterns), but both strategies offer numerous high R/R trading opportunities.
Hit the tabs below to learn more…
Sam Seiden’s famous “Set and Forget” entry is most traders go-to method for trading supply and demand zones.
It’s the simplest, most widely-taught technique.
With set and forget, you trade S&D zones using limit orders.
By placing a limit order at the edge of the zone, when price returns, the order will execute and put you into the trade. The upside – you’ll never miss a reversal, which can happen from time to time with Supply & Demand.
The downside – price may just blast through the zone, causing you to lose money, which can happen often depending on how you idenitfy SD zones (SupdemV2 can really help here!)
Here’s a “Set & Forget” sell trade example using a 1-Hour supply zone on Usd/Jpy:
1) Place a limit order to sell at the lower zone edge (proximal line) nearest the current market price. For price to reverse from this supply zone, it must breach the lower edge, either by a candlestick spiking through the zone or by price moving inside the zone.
With the sell order placed, now position a stop loss at the upper supply zone edge.
Keep in Mind: Always set your stop just beyond the zone’s opposite edgeāleave a tiny 5-10 pip buffer between the edge price and your stop price for added security and cover! š”
Nailed it!
The sell trade took off ā price shot up, spiked the lower edge (activating our limit sell order), then quickly reversed and moved lower.
A great trade, in anyoneās book.
All in all… “Set & Forget” provides a hassle-free entry strategy for supply and demand, but can lead to increased losses depending on your abillity to identify high-probability zones.
My preferred way of trading supply and demand, and the method most price action traders use. Price action offers superior confirmation to set and forget, and has you enter S&D trades using two common candlestick patterns:
1) Pin Bars
2) Engulfing Candles
Look for pin bars or engulfing candles to form inside a zone and then enter using a market order. These price-action candles indicate smart money are still interested in making price reverse away from the zone.
So, the price action gives you more confirmation price will reverse.
Here’s a price action entry example using a 1-Hour supply zone on Eur/Usd:
1) With the price action entry, you must wait for price to enter or touch the edge of the supply or demand zone before entering. Price may spike into the zone and produce a pattern outside the zone area before reversing; usually long legged pin bars, but sometimes with engulfing patterns.
Pin bars with noticeable wicks and large engulfing patterns provide evidence smart money want price to reverse.
For example:
A bearish engulfing pattern forms soon after price enters the zone. This is your signal to enter a sell trade.
2) The engulf confirms smart money activity within the supply zone, which raises the chance of a reversal in the near future. Who’s decided to sell at the top of a major rally from the lows (just below the 1.11000 round number, no less!)
Pro Tip: Pin bars can also provide low risk entry signals, but in my experience, engulfs work better. Make sure any pin bar entries feature a long wick with a small body at one end of the candle (bullish or bearish!). The bigger the wick, the more buying or selling required to push price the other way. 
3) Place your stop loss a above the upper edge of supply zones and lower edge of demand zones. Adding a few pips to the stop-price can also reduce your risk of getting stopped out by stop runs or unexpected price spikes (super annyoying when this happens!!)
Taking profits comes down to personal preference; no matter the technique, as long as it maintains your stop at a resonable distance, it’s 100% compatible with supply and demand trading.
For me, I always monitor for lower highs and higher lows: These clearly define where smart money buying (demand) and selling (supply) entered the market.
1) Lower high during Downtrend (move buy stops down).
2) Higher low during Uptrend (move sell stops up).
The source of the current price swing also marks the last possible point where buying or selling came in from the smart money. So, it makes sense to trail your stops around them to secure profits. Don’t forget: Any clear change in high/low structure suggests smart money hold no further interest in the supply/demand zone. 
3 Real-World Examples of Supply & Demand Analysis in Action
Explore practical applications of Supply & Demand analysis through real-world trade examples. I’ll revisit some past user trades, breaking down the charts, explaining the right/wrong decision-making process, and highlighting the S&D principles for successful outcomes.
So glad to hear from you.
Hope you are doing well.
I understand time can get the best out of us..
But as I went back to read my first question, I think what I was after then was if a pullback happens in the middle of a trend, how do i know if that is banks taking profit to cause it or they are actually adding more positions.
Now that i have learned more I think I got the answer to that question now so donāt worry about that. Your answer to the swing question also would help answer the first question above.
I do have some additional questions now that you got me hooked. I have attached my analysis on USDJPY.
Here are my questions:
1) First, what do you think of my analysis? Any thing where you might suggest it other wise?
2) Iāve been studying consolidations real hard because those are the hardest to figure out where banks might be heading towards. Any additional insights you may have that might give us clues as to the direction?
One pattern I keep seeing up on this 1 hr is the #3 on the USDJPY chart that I showed you.
In S/D terms, that would be the ābaseā candle. But what is weird is that that candle has like a bearish pinbar. In my mind, im thinking, if that is the time where banks would take a BUY position, it should be strong right? If it is like that, would this be a clue they are just taking profit?
3) I have also included EURAUD which has that same weird candle I want to get your thoughts on. Would appreciate on your thoughts on my analysis on this one too. I studied this chart for like hours!!!!
like you say there is a chance we
Thanks, great to hear from you!
My Response:
Good to hear from you again!
Iāve left my responses to the questions you sent in both emails below, hope you enjoy.
Your USD/JPY analysis is fine from what I can see.
If the market starts to move back up above the high made on the 24th, the point youāve marked with yellow circles is where you should watch for a reaction/reversal to take place, as itās the most recent point where the bank traders have a got a large number of their positions placed.
The point where you ask āwho would buy and then take profitsā hasnāt necessarily been created by someone buying.
Itās more likely to have been created by the bank traders taking some profits off the short trades they may or may not have placed at the highs you can see Iāve marked with ticks in the image.
They could be taking profits off as a means to get more sell trades placed. I mean, looking at the market now you can see that more highs (marked with Xās) have formed near to where the high created by the drop through the demand zone formed, so it could be that all of these highs have formed due to the banks getting more sell trades placed to make the market drop through the current low at 110.232.
Like you say, there is a chance we could see a deep pullback take place, but I donāt personally think weāll see one occur, due to the fact the initial move up isnāt very big.
Usually if a deep retracement is going to take place the swing the deep retracement occurs on will push a large distance into the previous swing and will very sharp.
The swing weāve seen isnāt so big and hasnāt pushed the market deep into the prior move down, so I think unlikely a deep pullback is taking place, although a reversal could still occur once the market falls down to the current low.
Your EUR/AUD analysis seems okay, too!
The reason the candle in the middle is not that big is because it may not have been created by the banks placing buy trades.
It could be that the bank traders on a lower timeframe who placed sell trades during the spike which created the swing high, decided to close their trades because they knew more buy positions were going to be placed ā and thus that whatās caused the candle and small move higher to take place.
If you look you can see that a few hours later another move higher develops from around the same point as where the small candle formed.
The candle which initiated this move higher was much much bigger than the small candle, so maybe this was the one that formed due to the bank traders placing their trades.
Iām not 100% sure, but I think the two pin bars you point out may have formed as a result of economic news being released, not because the banks were taking profits off to get buy trades placed.
It just seems strange to me that two relatively large pin bars formed within a couple of hours of each other, especially since they both formed during the morning when high impact EUR news typically tends to be released.Ā
Iām not sure if the banks switch positionsĀ at the point youāve marked.
I mean I donāt know if thatās something they can do or not so I canāt really confirm it either way unfortunately.
Looking at whatās happened since you sent me this email, I think the banks were getting buy trades placed at the lows of the consolidation.
The up-move weāve seen over the past couple of dayās has been really bullish, much more so than the movesĀ seen up to this point, so I think thereās a good chance we could see this move higher continue for the rest of this week going into next week.
Knowing when to take profits is a tough question for me to answer. I always try to hold my trades open for as long as possible, so I donāt really have targets as such.
What I will say, is that itās always a good idea to take some profits off your trade when the market reaches the points where the bank traders got some of their trades placed in the past . I.e consolidations ā reversals and the end of retracements.
The reason why is because when the bank traders get trades placed, they often donāt have enough orders coming into the market to get all of their trades placed at one price, this means that once theyāve got some of their trades placed, theyāllĀ make the market move back to the point where their trades were executed to get the rest placed.
You canāt know for sure if a movement you see in the market is taking place as a result of the bank traders wanting to get more trades placed, so itās best if you take some profits off your trades at the point where they may have got trades placed as a precaution, because if they do decide to get more placed, itāll cause the market to move against your position which means you may come out with a lot less profit than what you had if you had just taken some profits off before the market reached the point where they wouldāve got trades placed. i.e consolidations ā reversals ā andĀ the point where retracements come to an end.
Talk to you soon
PAN.
I see things happening repeatedly but I guess I donāt know why.
View attachments in order of 1. 2. 3. as I go from daily and drill down.
Does any of this make sense to you?
My Response:
I believe Iām starting to grasp your strategy.
However, there are a few elements, such as the inclusion of these channels, that seem to complicate the analysis. Iām struggling to identify their significance in the market context.
In your first image, you mentioned that these channels tend to emerge where significant upward or downward movements have taken place.
Youāve also marked where a swing low has formed.
This retracement point becomes significant because itās where banks first initiated their buy orders, propelling the upward movement from your highlighted demand zone.
The subsequent revisits to this point are essentially the banks filling the rest of their buy orders, leading to an upward market movement.
The supply zone you drew in the first image deserves some scrutiny too.
It doesnāt seem to be the primary trigger for the marketās downward trajectory upon reentry.
This supply zone was initially formed when banks were placing their sell orders in the market. Given the substantial shift in market structure since then, itās unlikely these sell orders were still open when the market revisited the zone.
Hence, the drop upon reentry into the supply zone was not due to additional sell orders from the banks, especially as the market was no longer trending downward.
Other than these points, your analysis appears solid.
Your zone marking is commendable ā an area where many traders stumble.
However, I believe attributing too much importance to the channels might be a misstep. In the third image, you mentioned that if the price breaks the channel and passes straight through, itās likely to revisit.
What youāre witnessing here isnāt a channel revisit, but rather a return to the supply zone established by the drop below the green rectangle youāve marked.
The banks, unable to fill all their sell orders at once, nudged the market back up to the point where their sell orders were initially placed to complete their positions.
The channelās presence seems incidental here.
As for the GBP/USD, I predict a rise from the current demand zone on the daily chart. However, speculating the magnitude or endpoint of this move seems premature at this stage.
I hope my feedback doesnāt come across as overly critical.
My goal is to enhance your trading through sharing my perspective. For now, Iād recommend eliminating the channels from your charts and analysis.
Concentrate on trading zones in isolation and always consider why a particular zone formed.
Cheers,
PAN.
There are few other great articles on your site like combining supply and demand with support and resistance.
I will read them this week.
Thanks a lot for releasing such great articlesā¦ May god bless you with more energy, happiness, better health and wealth for continuing this great service
As usual may I kindly ask your valuable guidance on Nifty for the upcoming weekā¦
Attached is the chart of Nifty.
As you have rightly mentioned the price did break the Minor Demand Zone and now it is moving lower towards the Major Demand Zone.
If you look at the supply zone, there are multiple highs touching the supply zone indicating the banks are placing more sell orders.
My query is:
When the market reaches the bigger demand zone, will all these huge sell orders will be closed by the banks?
And do they go for fresh buying?
Is there any way to know that they have closed all their sell orders and now they are buying at the Major Demand Zone?
If it was touching just one or two times, I would have not got this doubt.
Since there are multiple touches, wondering if this is a change in the trend?
Please correct me if I am wrong?
In the chart, the arrows marked in black are the two short trades I enter based on your teaching. I closed the second trade bit soon because there are multiple pin bars in that zone.
Hope what I have done is correct.
Thanks for this wonderful method.
Also, please.. please donāt get me wrong as I also want to know your suggestion on another instrument called Bank Nifty. Both Nifty and Bank Nifty use to move in the same direction with little variations.
Sometimes Nifty will initiate the movement and Bank Nifty will follow the trend bit lateā¦ Sometimes Bank Nifty will initiate the movement and then Nifty will follow the same.
Attached is the Bank Nifty Daily and Hourly chart.
I have marked my readings on the hourly chart.
Please at your leisure time can you please look at this chart and share your valuable feedback.
Many thanks in advance.
As usual eagerly waiting for your reply.
Regards,
My Response:
Thanks for your kind words!
May god bless you, too!
As far as the pin bar book is concerned, it’s fine to purchase it now if you want, I mean the article will contain some thingsĀ related to the information found in the book, but the book itself isn’t really about the stuff that will be in the article, if that makes sense?
I’ve had a look at the images you sent me and left my response below.Ā
The way the Nifty has fallen since our last email to me suggests that we’ll see the market break back above the highs very soon, maybe not this week, but for sure within the next 2 weeks maybe.
If the banks were getting sell trades placed to make the market reverse, I’d expect the first swing down caused by them getting their trades placed to be really sharp, with little to no retracements taking place during the actual move down.
The drop that we’ve seen take place since the beginning of April contains multiple retracements, which suggests that the banks have caused the move down by taking profits off short trades instead of getting sell trades placed to make the market reverse.
The focus for me would still be on looking for a reversal structure to form when the market is close or inside the major demand zone.
If the market drops again from where it is now and breaks through the lows made on the 18th, I’d start watching for a reversal structure to form. First you want to see aĀ move higher take place, and then you want to see the market drop down to the point where the move higher originated from before moving higher again.
That would be a good sign the bank traders are getting buy trades placed to make the market reverse.
If the first move higher is sharp, like the previous swing higher we saw on the 18th, make sure you mark a demand zone around the source of the move.
If the market drops back into the zone watch for a large bullish engulfing candle to form, as it will be a good sign the bank traders are going to cause another swing higher to form from getting buy trades placed.
I’ve had a look at the images of the Bank Nifty as well, it seems to me like the Nifty and the Bank Nifty have a positive correlation to one another.
The interesting thing for me is that at the end of last week the Bank Nifty started to rise after it had fallen down to the point where two swings higher had originated from earlier in the month.
It could be that these two swings have formed as a result of the bank traders placing buy trades, and that the move down into the them we saw last week, could well because they weren’t able to get them all placed with the sell orders they had available in the market initially.
If this is the case I think we’ll see the market continue to move up tomorrow.
If it closes past Friday’s highs, I think it’ll be a good sign we’ll see the market move back up to the highs of the drop which began last Monday.
Of course if this happens we’ll see the Nifty 50 move up aswell, so it could be that the downswing on there we’ve been watching over the past couple of weeks could come to an end tomorrow.
Looking at it again, this seems especially likely given the the fact a sharp swing higher took place last Thursday.
The sharp swing higher may have been created by the bank traders getting their first batch of long trades placed ready for the reversal to begin.
The move down back to the source of the swing may be them getting their remaining buy trades placed.
There isn’t any way to confirm whether this is true or not at the moment, but I think that even if it is and we see the market move up tomorrow, another retracement or move down will take place shortly after, when the Bank Nifty moves up to the highs of the drop created last Monday, so don’t fret too much about getting a trade placed straight away, as I’m sure there will be a chance to get another entry even if we do see the market reverse tomorrow.
Speak soon,
PAN.
Trade Like a Pro: 3 Must-Know Rules for Supply and Demand
You’ve got the basics of supply and demand down, and you know the two ways to trade zones. You’re practically itching to start putting zone to work, right?
Hold your horses… just a second!
Before you dive in, check out these three key rules…
Here is my problem with the idea of old szones causing reversals.
If the smart money want price to return to a supply or demand zone, they want it to return quickly, relative to the timeframe they are trading… NOT after weeks, months, or even years of waiting!
The SM’s entire reason for entering may change during that time:
For one: the price action will change.
Second: the economic situation will also be different.
Plus: the orders entering the market might not fill their remaining positions.
If a bank bought 50 million EUR/USD, and still had 50 million to buy around a similar price, would they really wait another 3 months for price to return to the same spot!
Of course not, the whole market could have changed by then!
The quicker the smart money execute their remaining positions, the less chance something unpredictable could happen and change their outlook on the market: be it economically, price-action based, or something else (like wars, pandemics, or black swan events).
My Advice: Don’t trade old supply and demand zones; they never outperform recent zones.
Sometimes price appears to reverse from old zones, but it’s not the zone causing the reversal; it’s some other market factor. Psychological levels (prices ending in 00,000) are common culprits, as stacks of buy/sell orders accumulate around these levels.
Follow these guidelines to know when an old supply or demand zoneās usefulness expires:
1) Daily zones = 90 days.
2) Hourly zones = 20 days.
3) Less than H1 = 1 day.
Supply and demand zones are ONE TIME USE:Ā Not two times, or three times, one time ONLY.
Once price hits a zone and reverses, the zone loses power and market validity. The chances of price turning a second time are slim to none. Smart money probably filled any leftover orders during the first visit, so there’s no reason for them to make price return additional times.
Remember: Price reverses from supply and demand zones because smart money can’t place a single massive position into the market. They’ll encounter severe slippage from the lack of opposing buyers or sellers, causing their postions to get exectued at worse and worse prices. This means splitting a large trading position into a smaller, more manageable portions.
It happens all the time in SD trading: price spikes through the edge of a supply or demand zone before it actually reverses. If you’ve placed your stop loss right at the zone edge, the spike will trigger it, kicking you out of the trade while price reverses. 
Just when it looked like price was about to reverse from this 1-Hour supply zone, a sudden spike above upper edge (distal line)
To add further insult, price reversed soon after. You missed out on a great trade AND lost money. Talk about a bad day at the office.
My Advice: Aways leave a small gap as a buffer between your stop loss and the edge of the zone. Calculate gap size relative to your pairs overall volatility and trading time-frame.
Higher Timeframes: 5 – 15 pips (Max)
Lower Timeframes: 15 – 30 pips (Max)
This buffer should give you headroom to avoid any random spikes/stop hunts while still keeping risk low.
You’re Almost Ready to Trade S&D… (But Not Quite Yet!)
You’ve got the basics of supply and demand down, and you know the two ways to trade zones. You’re practically itching to start putting zones to work, right?
Hold your horses… just a second!
There’s way too much to cover about S&D in just one post.
So, I’ve put together a collection of important lessons right here to help explain the finer details of supply and demand.
Oh, and one more thing: Check out my new SD FAQ’s database, featuring detailed emails from supply and demand traders just like you: Take a look, and if you still have questions, feel free to leave me a comment!
3 Key Facts Sam Seiden Gets Wrong About Trading Supply & Demand
Sam Seiden popularized Supply & Demand trading, but some of his ideas clash with market realities. In this post, I’ll break down the 3 biggest issues and why they don’t add up.
Why You Should Avoid RBR/DBD zones over RBD/DBR zones
Supply and Demand zones come in two flavours according to how and why they develop. This article explains the key differences between them, and why the most common type (RBR/DBD zones) struggles to outperform their RBD/DBR counterparts.
Supply/Demand Zone Types: Profit Taking Zones Vs Trade Execution Zones
SD zones can develop from smart money placing trades or taking profits. Knowing the origin of a zone can give you a serious edge in your trading. It helps you understand the underlying market and anticipate how price might react when it revisits that zone.
Don’t Make This Mistake Drawing Supply/Demand Zones!
Drawing supply and demand zones correctly is the most important skill in SD trading, but many traders make a simple mistake that ruins their zones and causes losses. This article explain how to avoid this mistake to draw zones correctly.
Thanks for reading,
PAN
so. for the entry signal
we should go down to lower timeframe to find or just stay the current timeframe we trade at
Hey Marvin,
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’ll try to get a guide about it out in the next few weeks.
Hey Liam,
this is piece of art. I already read your S/D book and all articles from old web, but this is again eye open in another way. I have again some ideas how to read price.
Thanks
Glad you liked it Lucky.
Got some more S + D posts on the way. Keep a lookout for them over the next couple of weeks.
one more question. what about the profit taking lvl, I am little confused with it
thx
Hey Marvin,
The profit-taking level should be the closest zone on the higher time-frame. 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. Don’t take profits right away, though. 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.
Great, glad to hear Sbo!
Let me know if you need anything else.
Thanks for your guidance in S&D. you enlighten me of some points as i am trading this method already. appreciating your efforts.
Thank you very much for making me know s/d zone but how do you identify it
No problem, lucky. Happy to help š
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?
Like!! 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.
Hey Mandala, Liam here.
To be honest, I don’t really use the curve concept in my trading. I understand it is a part of supply and demand theory – the economic concept of S & D, I mean – but for trading, I just don’t think it adds anything valuable. It kind of narrows your view of the market and what zones are important, I think.
Much better to just concentrate on figuring out where the strongest zones are – zones created from the banks placing big trades – and then trade off of that, rather than focus on what the overall curve is, which may cause you to put more importance on zones that aren’t that important if that makes sense?
Liam.
quick question. for test demand zone which candle must be appear red or green candle . what if whole candle touch the demand zone without wick on distal line ,does it consider rejection? if i saw demand zone in Day chart , still i have to go small time frame or not. when should i go small time frame ? your expedite reply would be wonderful. thank you
It can be red or green, Roshan, doesn’t matter which. The candle must touch the edge of the zone to signal a rejection, that’s the most important thing. If it doesn’t touch the edge, it’s not classed a proper rejection, just a normal spike. As for daily zones, you can drop down to a lower timeframe if you want, it depends on your preferences really. I like to drop down to lower risk, but you can stay on your normal timeframe too – it’s up to you, really.
Please what is your take on this?
I trade zones if price returns within:
5 min TF = 2 hours of zone creation
15- 30 min TF = 6-8 hours of zone creation
1 Hour TF = 24 hours of zone creation
Daily TF = 1 month of zone creation
Weekly TF = 1 year of zone creation
Try these instead, Steve:
1 min/5 min/15 min ā 1 day.
30 min/1 hour/4 hour ā 20 days
Daily ā 3 months
I’ve tested these myself going back quite a few years, and they seem to work really well. Just give a little leeway with the times; you don’t need to be super specific, e.g if a zone forms 1 day over the daily TF time, that’s still a valid zone. You can’t be exact with things like this, so you have to allow for a little variance with when price should return.
I’m very grateful sir. You’re doing a great job
Hi Liam,
Would like to know if S & D zones could be traded at anytime of the day, i.e. Asian, London & New York market hours. Thank you
Yes, you can trade them at anytime, Steve. The time of day doesn’t matter, only whether the zone is strong or not.
Noted with thanks sir
Hi Liam
thank you for the quality lesson above . your material has proven helpful for me and i change my whole perspective on trading.
please see “How To Trade Supply And Demand On The Daily: Full Guide + What You Need To Know” as the page does not open
thank you
Would Like To Know If You Have Written The Guide On Using The Lower Timeframe To Enter S&D Zone … And the guide on how to trade S&D zone daily
I haven’t got a guide on entering using a lower timeframe zone, Esther – I’ll try to get something out in the near future. I have got a guide on trading S & D on the daily, though…I took it off the site as I’m going to re-purpose it for another post, but I’ll send it over to you so you can read it.
Cheers,
Liam.
Hello PAN,
I have searched your site to see if you have ever written any articles relative to identifying āFreshā zones of S/D and canāt seem to find any. If you have written information on the subject can you kindly point me in the right direction so that I may read your input?
Additionally, does the daily average range play a role in your strategy?
As mentioned before, I enjoy your site and believe that its content is going to provide hours and hours of reading and hopefully results in my becoming a better trader.
Presently I am demoing and although not consistently profitable I am pretty much B.E. Breaking even isnāt the way I want to go. Studying your material has brought a new understanding of how the market is really set up to make me lose money.
If I can figure out how they plan to do it the better off Iāll be. I purchased your Zero Sum Fun book and it is opening my eyes even further.
Regards,
I donāt have any articles on identifying fresh supply and demand zonesā¦ but Iāll try to get something out in the near future.
Got my hands full at the minute!
My Main Strategy: Pinpoint zones around major swing highs and swing lows.
Every swing high or low forms due to the banks either taking major profits off their trades or placing significant trades to cause a market reversal. Price has a much higher probability of reversing at zones formed from these swings compared to zones which form in the middle of movesā(rally-base-rally or drop-base-drop zones).
As for the Average Daily Range (ADR), itās not a primary tool in my strategyā¦
I sometimes use it to gauge the potential limits of market movement during a given day.
Iāll try to explain it further in some upcoming articles. The ADR youāve noticed in my screenshots isnāt the best, as it only displays data for the past 20 daysā¦ I really need an ADR with more customization, showing the ADR for the past 5 days, 10 days, and so forth.
Hope this helps,
PAN.
Good afternoon,
I hope all is well with you!
I had last week received my free S & D trading booklet ā of which I found very useful!
However, I have 2 questions for you:
1. In order for a Supply or Demand zone to be considered tradeable, does the candle-stick that follows have to fully engulf the one beforehand?
2. Do zones expire once theyāve been hit and āusedā once? For example, say price moves into a Supply zone and then begins to move back DOWN out of it. If price then moves back up into this zone, is this zone still considered to be tradable, or would you consider it to be expired?
I have been experimenting lately with a variety of strategies, finding that some work better than others, am interested to see how this one works!
Regards,
Hi Pan,
Thanks for sharing your experience. Sam talks a lot about staying outside of fair value but doesn’t give much away on what rules he uses to identify fair value except for it’s where the majority of trading is taking place. Just wondering what your experience is with fair value and if you consider it at all?
Thanks,
Daniel
Hi,
I find your explanation on the S&D very interesting and it was different from what i have learned. May i know are you still using this S&D to trade currently? Btw, is all course content updated and applicable to current trading environment? What other courses you are teaching other than current courses found on this website?
Regards,
Ben