Supply and Demand Trading (Part – 2)

Supply and Demand Trading (Part – 2)

This is Part 2 of Supply and Demand Trading. Please read Supply and Demand Trading Part – 1 before proceeding to this article. As part of this article, we are going to discuss the following pointers in detail.

  1. Which supply or demand zone reject the price
  2. Good zone vs bad zone
  3. Price action at supply and demand zone for confirmation
  4. How to find supply and demand zone
  5. How to draw supply and demand zone
  6. How to trade with supply and demand zone
Supply and Demand Zone types

There are different supply and demand zone patterns. shown below:

TREND CONTINUOUS BASE
  1. RALLY BASE RALLY(RBR)
  2. DOWN BASE DOWN (DBD)
TREND REVERSAL BASE
  1. RALLY BASE DROP (RBD)
  2. DOWN BASE RALLY (DBR)
TREND CONTINUOUS BASE
  1. Rally Base Rally (RBR)
  2. Down Base Down (DBD)

Supply and Demand Trading

TREND CONTINUOUS BASE

Rally Base Rally (RBR) and Down Base Down (DBD)

TREND REVERSAL BASE
  1. Rally Base Drop (RBD)
  2. Down Base Rally (DBR)

TREND REVERSAL BASE

Rally Base Drop (RBD) and Down Base Rally (DBR)

What is supply and demand zone trading?

What is supply and demand zone trading?

How to trade supply and demand zone

How to Find Supply and Demand Zones or institutional activity?
  1. Start at the current price
  2. Look left and find smart money activity
  3. Mark the base from which smart money activity initiates the trade
Smart money activity

There are three main signs of smart money activity we can spot with volume Price Action:

  1. Strong aggressive move with clear volume expansion
  2. Strong rejection or trapping
  3. Gap (check which gap)
Aggressive initiation activity
  1. If you are aggressive o buy or sell, you want to buy or sell now. It means, you place a MARKET ORDER to sell or buy immediately at the available current price
  2. Because your position is big, it won’t be filled all at once. It will get filled fast, you will be able to enter the full position, but the position will get split (due to the big position) as the price moves upward quickly. It is the aggressive market participants, who move the price aggressively up or down with their market orders.
  3. So, the supply and demand zone can only be seen once the price speeds away from the zone. It indicates that there was smart money buying or selling interest at the origin of that move
Aggressive volume price action activity
  1. STRONG AGGRESSIVE CANDLE
  2. CLEAN CLOSE
  3. INCREASING VOLUME

How to Find Supply and Demand Zones or institutional activity?

The strong rejection or V TURN
  1. Strong rejection of price levels is a sudden price reversal. This zone is made when the price goes one way aggressively and then turns quickly and with the same aggression and speed goes the other way
  2. What happens here is that one side of the market is aggressive and moves the price in one way. Then it clashes with the other side which suddenly becomes even stronger and even more aggressive. So, the price turns back quickly, and the stronger side takes over. Like V reversal
  3. The zone where the other side took over is very significant because it marks a place where strong market participants rejected aggressively and started a strong countermove. This zone is significant for us because it will most likely be defended again if the price gets near again. It becomes a new demand or supply zone.
  4. Pin bar or any reversal candlestick pattern formed at this zone

The strong rejection or V TURN

GAPS ARE THE STRONGEST FORM OF IMBALANCE
  1. Mark the gap from where it occurs
  2. Draw the zone(demand/supply) that is right below/above the gap, not the zone right before it.

GAPS ARE THE STRONGEST FORM OF IMBALANCE

Smart money activity

Please watch the following video if you want to learn and understand the Supply and Demand Trading concept in a better way.

Here, in this article, I try to explain Supply and Demand Trading. I hope you enjoy this Supply and Demand Trading article. Please join my Telegram Channel to learn more and clear your doubts. https://t.me/tradingwithsmartmoney.

In the next article, we will discuss the following pointers in detail.

  1. How to mark supply and demand zone using candlestick
  2. How to define strong and week zone
  3. How to trade supply and demand zone

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