How To Trade Supply And Demand On The Daily: What You Need To Know

The normal way to trade supply and demand is on the lower time-frames, like the 5min, 15 min or 1-hour.

That’s how I trade it, as I’m sure many of you do too.

But what about the higher time-frames? Does supply and demand work as a long term strategy as well as it does a short term strategy?

The answer…

Is a definite YES.

Supply and demand is a fantastic long term strategy that can get you into some of the biggest reversals and trends in the market.

Today I’m going to show you how to trade S + D on the daily time-frame.

First, I detail some of the differences that come with trading the daily, as it’s a bit different compared to the lower time-frames. Then I’ll walk you through how to find the right zones, what you should look for to enter, and where to place your stop and when to move it to break even.

Trading Supply And Demand On The Daily: 2 Things You Need To Know

Trading supply and demand on the daily is not much different to trading it on any other time-frame.

In fact, besides a couple of differences in entry and stop position (more on this later), there’s zero difference between how you trade them.

So why don’t we just end the guide here then?

Well, the daily time frame is a bit of a different beast compared to the lower time-frames…

For one, it takes price much longer to move (due to the size difference), which means it requires a lot more patience to trade. On top of that, the size difference has a big effect on the size and location of your stop loss, as well as how many trading opportunities you receive.

There are other differences too, but those are the 2 biggest you need to be aware of.

Here’s a closer look at each one…

  1. Your Stop Loss Is Bigger… Much Bigger.

Because the daily time-frame is made up of more data than the time-frames below (a day instead of 1-hour, 5 min, etc), price covers a much bigger distance when it moves.

One of the side effects of this is it makes you stop bigger… much bigger.

When you trade S + D on the 1-hour as I do (I trade on the daily too, but not as often), your stop is usually around 30 – 40 pips per trade. Which isn’t too bad. On the daily, though, because it’s so much bigger, the stop is closer to 100 pips per trade- almost double that of the 1-hour.

This sounds like a negative and it kind of is.

But keep in mind, you don’t place anywhere near the same number of trades on the daily as the 1-hour.

On the 1-hour (or lower), you expect to have trades every day, sometimes multiple times. But on the daily, you only get a few opportunities per month.

This means that even though you’ll have bigger losses on the daily, overall, you won’t lose as much because you don’t have the same amount of trades.

  1. Less Trades, But More Profit (Potentially)

You would think trading the daily is less profitable than the lower time-frames, given that you only receive a few signals per month (depending on how many pairs you trade).

But that’s not really true…

Sure, you don’t get as many signals on the daily. That’s obvious. But the signals you do get tend to have a higher probability of working out. And they usually make more money because of how much bigger the move are on the daily.

Take a good S + D on the 1 hour for example…

Most traders consider a 100 pip win on the 1-hour a good trade – well, I do at least. On the daily, however, that’s the minimum you can expect to make on a normal trade. The good trades tend to be upwards of 300 pips, if not more, depending on how long you hold onto them.

So while you don’t get as many trades on the daily, they do tend to make a lot more money, which means you can (potentially) be more profitable.

How To Trade On The Daily In 3 Easy Steps

What’s great about trading supply and demand on the daily is that, for the most part, it’s the same as how you trade it on any other time-frame.

You find the zones, mark them on the chart, then trade them.

Of course, there are a couple of small differences, mainly in how you enter the zones (which I’ll get to in a minute). But if you already know how to trade the zones on the lower time-frames, switching to the daily will be a breeze, as it’s pretty much the same aside from a couple of small things.

Here’s a quick walk-through on how to trade the zones.

Step 1: Locate The Strong/Weak Zones

Have you my supply and demand rules post?

If you have, you’ll know the key to finding strong zones is to look at the move that precedes the zone.

The strongest zones are those that form after a long decline (for demand zones) or a long rise (for supply zones).

The longer the rise or decline (and sharper too in some cases), the stronger than zone is – there’s a bit more to it than that, but you’ll need to read my book for more info.

Notice how all the strong zones above formed after either a long down-move or long up-move?

These zones are strong because whatever the banks did to cause them to form (either place trades or take profits) took a lot of orders.

How do I know this?

Because the further price moves in one direction, the more people who start trading in the same direction, due to the concept of trend.

So, for example….

I know this demand zone is very strong because before it formed after price had been falling for a long time.

If it’s fallen for a long time, that means most traders are selling. That in turn means the banks have a lot of sell orders to either place buy trades with – which is what they ended up doing – or take profits off sell trades placed earlier in the move down.

The easiest way to do figure out how strong a zone is to move your chart to the point just before it formed, and then look at how bearish or bullish the market was.

If the market was extremely bearish before a demand zone formed or bullish before a supply zone formed, as is the case when it forms after a long rise or decline, that zone is considered strong. Because it means the banks had lots of orders available to place trades or take profits with.

On the flipside to that, if the market was really bullish before a demand zone formed or bearish before a supply zone was created, like you see with Rally-Base Rally/Drop-Base-Drop zones, that zone isn’t very strong, as the banks didn’t have many orders to use to place trades or take profits with.

This is how the market looked just before the blue zone in the previous image formed.

Looks bearish, doesn’t it?

The sharp drop coupled with the fact price has been falling for a long time makes it look like it’s certain to keep falling. When most traders look at this, they think the same, and decide to sell to try to capture what they think is going to be a continuation.

What this does is put a huge number of sell orders into the market for the banks to use to buy with, which is what they end up doing.

What happens when they buy?

A strong demand zone forms.

We know this zone is strong because lots of people were selling before it formed, due to how bearish the market looked.

When price returns…

The market reverses, and sets off a large new upswing.

I know this method isn’t easy to get your head around, but if you take some time looking at old zones that worked, you should get an idea of how the market should look before a zone forms for it be strong.

Step 2: Wait For A Sharp Rise/Decline Or Bullish/Bearish Engulf To Form

The normal way to enter trades at supply and demand zones is to wait for a bullish/bearish pin bar or engulfing candle to form inside the zone.

When you trade on the daily, it’s the same.

You wait for price to enter and see if a bullish or bearish engulfing pattern forms. Pin bars work too, but I tend to leave them out, as they don’t work as well as engulfs – price often breaks the high of pin before reversing, least not in my experience.

I know a lot people like to go down in time-frame to tighten up the entry, but on the daily, that isn’t a good idea. The time difference is too large for 1 hour or lower candles (or 4 hour for that matter) to confirm reversals on the daily.

If you’re free during the day you can enter by watching for sharp rises and declines on the 1-hour.

This is my preferred way to enter the zones.

Watching for an engulf on the daily works well, but it typically means you have to risk more. With this method, you can cut the risk down significantly and increase the risk/reward ratio, as you’ll be entering closer to the source of reversal.

Here’s a sharp rise that took place just after price entered a daily demand zone.

See how this rise is made up of multiple big bear candles?

These are the types of move you want to look for once price enters the zone. They indicate the banks have placed trades, so are a good sign price is about to reverse out.

The entry itself should be after you see two or three big candlesticks form (or one if it’s around the size of two or three). In our case, two formed, so you would enter after the second closed and then place your stop loss.

Speaking of stops…

Step 3: Place A Stop And Move It To Breakeven

Regardless of whether you decide to enter after seeing a daily engulf or sharp rise/decline, the location of your stop loss is always the same:

Below the zone for demand zones…

And above the zone for supply zones…

Knowing when to move to break even really depends what happens after you enter.

If price shoots out of the zone soon after you enter with a large candlestick, it’s okay to move it halfway to breakeven, as chances are it’s not going to come back in. On the other hand, if it fails to move away quickly or the move out is only a small candle, keep it where it is because it’s more likely price will come back in before reversing.

What About Taking Profits?

You should always take profits when you see price reach a zone that has a high probability of causing a reversal or large reaction.

I tend to take a tiny amount off if I see price enter a zone with a low chance of causing a move in the opposite direction, like a Rally-Base-Rally/Drop-Base-Drop zone. If I see it enter a zone created by the banks buying or selling a large amount, I’ll take most off and leave a little to run.

Summary

Supply and demand is a great long term strategy for those who haven’t got the time to trade during the day or are fed with the stress and fast paced nature of the lower time-frames.

Be sure to get check out my other S & D posts for more help on trading supply and demand as a long term strategy.

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