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

If you’re a trader who prefers a more laid-back approach, or perhaps you just don’t have the time to be glued to the screen all day…

Trading supply and demand on the daily chart might be right up your alley.

But this begs the question:

Can you effectively trade SD zones on the daily chart? Does supply and demand work as a long-term strategy just as well as it does short-term? Absolutely!

It’s way less stressful, too (and potentially more profitable!)

Today, I’ll explain the key differences between trading supply and demand on the daily timeframe and the lower ones. Then, I’ll walk you through:

• Finding the right zones (using SupdemV2).
• Identifying the right entry signals.
• Placing your stop loss.
• Moving your stop to breakeven.

Let’s get started…

Let me cut to the chase:

Trading supply and demand on the daily timeframe is almost identical to trading it on the lower time-frames.

Here’s The Truth: Besides a couple of small differences in entry and stop position (more on this later), there’s zero difference between how you identify and trade the zones on each timeframe. But the daily time frame can also be a different beast compared to the lower time-frames.

What to Expect:

1. Your Stop Loss Is Bigger… Much Bigger.

The daily timeframe, encompassing a significantly longer duration than lower timeframes (1-day versus 1-hour, 5-minute, etc.), necessitates price covering a greater distance to exhibit meaningful movement. One consequence of this is wider stop losses – sometimes MUCH wider.

When trading supply and demand on the 1-hour chart, as I often do (I also trade on the daily, but less frequently), my stop losses typically fall within the 30-40 pip range per trade. Not bad, right? However, due to the increased data encompassed by the daily chart, stop losses can balloon to upwards of 100 pips per trade – nearly double that of the 1-hour timeframe!

This might sound like a downside, and to some extent, it is.

But here’s the key point: The daily chart provides less opportunities but higher quality trades compared to the lower timeframes.

While you’ll sometimes see bigger losses on the daily, overall, you won’t lose as much because you don’t have the same amount of trades.

2. Less Trades, But Higher Profits (Yes, Sir!)

You might assume trading the daily chart is less profitable than lower timeframes… I mean, you might only get a few zones entries per month, right? (depending on how many pairs you trade).

But that’s not entirely accurate:

While it’s true you receive fewer signals on the daily chart, the opportunities you do get tend to have a higher probability of success, since the zones must cover a wider price area (between 30 – 80 pips, usually). Trading daily zones can also yield substantially more profits aswell.

Check out this Eur/Usd daily demand zone:

Most traders consider a 70-150 pip win a fine trade – at least, I do.

On the daily chart, however, that’s the bare minimum you can expect to make on an average trade. Even capturing small retracements can yield upwards of 150 pips, if not more. That’s a 3/1 risk/reward ratio, assuming a 60-pip stop loss; similar for most pairs on the daily timeframe.

So, expect greater profits per trade, and (potentially) be even more profitable overall.

What’s great about trading supply and demand on the daily? For the most part, it’s similar to how you trade it on any other timeframe.

Here’s a quick guide:

1. Wait for the price to reach a zone (drawn manually or using SupdemV2).
2. Enter upon seeing a candlestick pattern (Pin Bars or, preferably, Engulfing Patterns).
3. Place a stop-loss a few pips above the zone’s distal line (the edge furthest from the price) and wait for a reversal.

Simple, right?

There are some minor differences, mainly in how and when you enter zones (which I’ll cover shortly). But if you’re familiar with trading supply and demand on lower timeframes, transitioning to a slower, more relaxed experience on the daily chart should be a breeze.

Let’s walk through some examples:

Trading supply and demand on the daily chart means identifying and drawing potential zones. You can do this manually by or by using an indicator like Shived SD 1.2 for MT5.

Struggle with finding/drawing zones?

My Advice: Save the hassle and use Shived SD 1.2.

Check it out: Shived SD automatically identifies supply and demand zones using un-tested/tested rules.

Why Use Shived SD 1.2?

• Saves Time: Manually identifying zones can be time-consuming. Shived SD automates the process, freeing up your time for watching for entry signals or other important trading tasks.
• Improves Accuracy: Even experienced traders can sometimes miss subtle zones or draw them incorrectly. Shived SD 1.2 can help improve the accuracy of your zone identification.
• Increases Efficiency: By quickly identifying potential zones, Shived SD allows you to focus on other aspects of your SD trading strategy, such as waiting for the right entry triggers and trade management.

Don’t Forget, Shived SD it still just an indicator following hard-coded parameters.

Use your own judgment to confirm the validity of any supply and demand zones. Shived SD 1.2 may outperform many other SD indicators, but it can’t match someone well-versed in finding and drawing zones manually.

Entry mirrors the approach used on lower timeframes. It’s all about waiting for a clear price action signal price is likely to reverse from the zone.

Here’s a breakdown of the process:

Zone Confirmation: Monitor your chart and wait for price to reach a supply or demand zone previously identified (manually or using Supdem).

This could involve the price tapping the closest zone boundary (proximal line) or moving into the zone itself.

Many traders prefer to drill down to a lower timeframe to fine-tune higher timeframe entries. However, when trading supply and demand on the daily chart, this isn’t always the best approach. The time difference between the daily and lower timeframes (like the 1-hour or 4-hour) is significant:

Candlestick patterns on a lower timeframe might not accurately reflect the momentum on the daily chart.

Once price interacts with the zone, look for a candlestick pattern that signals a potential reversal. Focus on engulfing patterns, as they often provide stronger confirmation than pin bars.

• Bullish Engulfing: In a demand zone, a bullish engulfing suggests buyers are stepping in and price might rise.
• Bearish Engulfing: In a supply zone, a bearish engulfing indicates sellers are taking control and price could fall.

Why Engulfing Patterns Are Preferred

Engulfing patterns provide a clearer signal of a potential reversal compared to pin bars. This is because they demonstrate a more decisive shift in momentum, with the second candle completely engulfing the body of the previous candle, showing a clear change in the supply and demand balance.

Pin bars can also be effective, but sometimes lead to false signals.

Pro Tip: If you’re determined to use lower timeframes for entries on daily supply and demand zones, look for a steep, impulsive rally or decline originating from within the zone itself.

This swift rally from daily demand suggests smart money is actively buying, increasing the likelihood of a bullish reversal.

As a general rule… aim to enter after two or three large candlesticks.

In the example, three prominent bullish candles pushed price out the demand zone. The ideal entry point here would be after the second or third candle closes (either inside or outside the zone). Place your inital stop-loss under the demand zone, as always, then move to the low created by the rally.

Speaking of stops…

Placing a stop-loss order is important for managing risk in any trade, and trading supply and demand on the daily chart proves no exception.

There are two main options for stop-loss placement:

Below the Zone Low (for Demand Zones): Place your stop-loss order a few pips below the low of the demand zone. This helps protect your trade from false breakouts, where price might briefly fall below the zone edge (distal line) to spike any orders below before reversing upwards.

Above the Zone High (for Supply Zones): Place your stop-loss order a few pips above the high of the supply zone to avoid price spikes and stop hunts.

Once your trade moves in your favor and reaches a certain profit level, you can consider moving your stop-loss to your entry price (breakeven). There are a few different approaches here. Some traders move their stop as soon as the trade shows a profit, while others wait for more substantial price moves. There’s no right or wrong answer; it depends on risk tolerance and where your entry signal appeared.

Pro Tip: Moving a stop-loss order should always be based on price action, not just to reduce risk prematurely.

What About Taking Profits?

Your profit targets should be based on critical areas of “true” support and resistance. Use psychological levels (prices ending in 000, 0000) or other daily SD zones.

Psychological levels act like magnets for buy and sell orders, transforming them into high-probability reversal points. Smart money use the orders around the level to help execute their massive positions, resulting in a spike or reversal from the level. This makes them especially potent for timing when moves generated by daily supply and demand zones may end to take profits.

Check out the spikes on Oanda’s Open Orders graph:

The highest concentrations of orders cluster around psycholgical levels. These are significant pools of liquidity (orders) smart money can tap into to execute their trades more efficiently.

Profit Taking Strategy: Identify any psychological levels above and below your zone.

As price approaches a level, closely monitor the price action for signs of a reversal. When you start seeing common candlestick patterns (like engulfs or pin bars) or other technical signals indicating a potential reversal at the psychological level, either on the daily or lower timeframes, consider taking partial or full profits.

Remember, price doesn’t need to touch the level to signal a reversal!

Buy and sell orders tend to cluster around psychological levels, creating a zone of activity rather than a single price point like traditional support and resistance.

Pro Tip: Check for daily supply and demand zones found around psycholgical levels.

Order clusters around the levels boost the power of any zones – even zones formed by weak rises and declines (like rally-base-rally or drop-base-drop zones). Psychological levels also become even more potent reversal points when price is driven into them by a swift, impulsive rally or decline.

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 up with the stress and fast paced nature of trading lower time-frames – I can relate! Check out my SD guide for more in-depth help finding and trading supply and demand.