Supply And Demand Trading: The Definitive Guide (PDF)

“Pin-point EXACTLY where the banks are buying and selling.”
“Get into the biggest reversals before they begin.”

Have you ever heard these statements before?
This is where you start…

I’ve got you covered…

Over the last few years, “Supply and Demand trading” has become one of the most popular Forex trading strategies, taking the best of support and resistance and combining it with the tried and true concept of supply and demand.

The result IS a strategy that allows you to:

“Pin-point EXACTLY where and when the banks are buying and selling.”

Supply and Demand trading gives you the best chance to “get into the biggest reversals before they begin.”

Sounds pretty amazing, right?

Today, I’m going to give you a full breakdown of how you can start trading the Supply and Demand strategy.

Here’s a quick look at what we’ll cover:

  • What, exactly, is supply and demand trading, and how does it work,
  • Why the normal way of trading Supply and Demand is wrong,
  • Finding, and drawing Supply and Demand zones correctly,
  • The two ways you can trade the zones,

So, get ready to learn what supply and demand trading is all about.

Let’s jump right into the guide…

IMPORTANT: Click Here To Download My Supply And Demand Guide As A PDF! 

Part 1: Supply And Demand Trading Explained

Before we get to grips with supply and demand as a strategy, we need to talk about the supply and demand as a concept.

In economics, the law of supply and demand determines the price people pay for a product.

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.

Sound familiar?

Now Forex, as well as all other markets, stocks, commodities, crypto, etc, are driven by supply and demand.

News events, economic announcements, and general market action cause different groups of traders to buy and sell, resulting in changes to the supply and demand equation.

These changes manifest visually as the rises, declines, and consolidations we see on our charts.

  • When price rises, demand outstrips supply.
  • When price falls, supply outweighs demand.
  • When price moves sideways, S & D are in balance.

Observing the previous image, you can easily see how changes in supply and demand create the moves we see.

First: Supply and demand are in relative balance, resulting in a consolidation. Supply is equal to demand. That’s why price moves sideways for a while and then it creeps higher as demand begins to ramp up.

Second: for whatever reason, something changes, and supply suddenly outweighs demand. Someone, or a group of traders, decides to sell EUR/USD en masse, causing the price to fall.

Supply outstrips demand for a while, as more and more people decide to sell.

They see price fall, so they decide to sell themselves.

Third: demand really comes in and pushes price higher, setting off a new upswing. This continues before equal supply enters the market and creates equilibrium.

With supply and demand now in relative balance, price moves sideways, and we see a tight consolidation form.

It is a “play-by-play” commentary that goes on day by day, week, month, quarter, year, etc. Of course, it also goes on hour, half-hour, quarter-hour, 5-minute, 1-minute, and yes, etc.

How And Why Supply And Demand Zones Form

With all of this in mind, you’re probably wondering:

“How does it all link together?”
“Where do S & D zones form?”

How does the concept of supply and demand create a trading strategy we can use to anticipate where and when major market changing reversals could begin in the future?

Well, it’s simple…

The answer lies in what causes supply and demand to change in the first place.

Changes in supply and demand ONLY happen when the big traders buy or sell.

Being the small fish, we can’t make price rise or fall; we don’t have enough money! Only the big players, with their deep pockets and unlimited buying/selling power, can actually make price rise and fall.

Now, here’s where it gets interesting:

In Forex, the banks can never place their full position all at once.

Their positions are so large they must break them into smaller chunks and place each trade individually, around a similar price, to avoid pushing price away and potentially forcing their following entries at a worse price.

This way they achieve the effect of placing one huge position, by placing a bunch of small ones instead.

But here’s the problem the banks face:

Their positions are often so big that not enough people exist on the opposite side, to get them placed, even if they break them down into smaller chunks. The banks need thousands of other traders completing the opposite action for them to enter their positions; buying if they want to sell, or selling when the banks want to buy.

To compensate, they must let price move away and make it return later to get the rest of their position entered.

On a chart, that process looks like this…

First: the banks place what positions they can, and price shoots away.

Next: the banks make price return to the source, the point they placed their initial position. That way, they can enter their remaining positions (like trades) at a similar price, replicating placing one total position into the market.

Then: the banks can allow price to fully reverse, and a large move ensues.

In supply and demand trading, our job is to locate and trade these points where the banks enter their positions.

These are called supply and demand zones.

Price moves from supply zones to demand zones and back: over and over again.

If we identify these zones, which I’ll show you how to do later, we can get into these monster reversals precisely at the point they begin. That will give us a low-risk entry with a very favourable risk to reward ratio.

Amazing, right?

Understanding The Zones

Let’s go over the two zones now, so you can understand how they work.

Demand Zones

Demand Zones represent points where the banks have placed a significant number of buy positions.

These are the support levels of supply and demand trading.

Demand Zones form when the banks place a large number, or size, of buy positions. This creates excess demand, and results in the price reversing and moving higher.

The point where price reverses is the demand zone.

Supply Zones

On the other side of the fence, we have supply zones.

Supply zones show points where the banks place a significant number, or size, of sell positions and these are the resistance points where price could fall.

Supply zones form when the banks decide to sell a large amount of currency. This selling creates an excess of supply, which causes price to fall, creating the supply zone.

The point where price reverses, usually a prominent swing high, is the supply zone.

If price returns here, it has a high probability of falling again.

The Two Types Of Supply and Demand Zones

We can break these Supply and Demand zones down even further.
Now, we need a quick discussion about the two types of supply and demand zones.

While supply and demand zones are the same thing, zones where price could reverse, the zones come in two types based upon whether they develop from a reversal or continuation.

The two types are as follows:
1. Rally – Base – Rally (RBR) and Drop – Base – Drop (DBD) Zones,

2. Rally – Base – Drop (RBD) and Drop – Base – Rally (DBR) Zones.

Continuation Zones:

Rally – Base – Rally and Drop – Base – Drop zones…

Form, when price moves in one direction,
Base, i.e consolidates or pauses, then
Continues in the same direction.

These zones always form mid-move, either from the banks taking profits or closing trades.

Compared to the reversal zones, continuation zones don’t tend to work that well. They develop from banks placing a small number of positions into the market. So, they don’t hold the power of reversal zones.

That said; they can give you good trades here and there, especially if you know which zones to watch for in particular.

On to reversal zones now…

Reversal Zones:

Rally – Base – Drop and Drop – Base – Rally zones…

Form, when price reverses direction,
Base, then
Reverse and set off a new swing

These zones form when one major swing changes to the other, usually caused by the banks buying or selling large quantities of currency.

Reversal zones are the ones you should be trading using Supply and Demand methods.

They’re the highest probability zones in the market.

Reversal zones are formed by the banks and other big traders placing huge buy and sell positions. These zones are much larger when compared to the much smaller positions they place to create continuation zones.

At the end of the day, don’t get too caught up on which type of zone you’re trading.

Starting out, your goal is to simply gain experience finding and trading zones.

Focus on the reversal zones if you can, but don’t get obsessed. The types don’t matter as much as whether you’re finding the right zones and drawing them correctly on the chart. That’s the key skill you need.

Once you’ve got a handle on that, you can start filtering the zones and only trading certain types.

Check my article, “The Two Types of Supply And Demand Zones,” for a more detailed overview of the reversal and continuation zones.

Finding and Drawing Supply and Demand Zones:

If you want to be successful trading supply and demand, you MUST master the finding of high probability zones and correctly drawing them on the chart.

It takes time, practice, and experience to get this right: But, I know a couple of tricks that should make everything much easier.

We’ll start with finding the zones…

How To Find Supply And Demand Zones

Now, you’re going to have trouble finding supply and demand zones. I know, I know… that’s probably not what you wanted to hear. But, stay with me, because I know a method you can use to make finding zones much easier.

Supply and demand zones are formed by the banks buying and selling large quantities of currency, right?

Well, what does that look like on a price chart?

Typically: a sharp rise, or a sharp decline, appears in price.

So, to find supply and demand zones look for sharp rises and declines in price.

These tell-tale signs reveal the banks are buying or selling a large amount of currency, which means a massive build of supply or demand must exist at the source of the rise or decline.

Let’s take a look…

Look at the rises on the chart above… see how sharp they are?

These rises occur when a huge imbalance exists between supply and demand. Demand is outweighing supply in this case.

But what causes the imbalance?
Why has price suddenly shot higher?

Because the banks have decided to enter a large buy position!

They’ve decided to take one of three actions: place buy trades, close sell trades, or take profits off sell trades. Those actions ALL require the banks to buy. Now, we don’t know which action correlates to each rise (at least not yet), but we know those are the three possible reasons behind every demand forming.

To locate Demand Zones, then, look for sharp rises…

These reveal the banks have decided to take some action in the market, like place buy trades, which means price has a high probability of reversing once it returns to the source of the rise.

This is the demand zone.

And with the zones marked, this is how it looks…

Right away, you can see how almost all the zones resulted in price reversing or at least caused a reaction of some sort.

Even when there wasn’t a large reversal, price still moved away from the zone. That gives you some idea of how accurate the zones are at predicting when and where price could reverse.

Also, notice how the zones are drawn from the base?

This is the point where demand exceeded supply and price shot up.

When it comes to drawing demand zones, which we’ll go through in a minute,we always draw them from the base, down to the most recent swing low, to cover where the banks placed their positions.

Let’s switch over and look at Supply Zones now…

To find supply zones we use the same process as with demand zones, only the other way around.

We’re looking for sharp declines.

Sharp declines occur when excess supply comes into the market, which happens when the banks sell.

If the banks sell large quantities of currency, whether to place trades, close trades or take profits, chances are they haven’t been able to sell the full amount they need to accomplish their entry.

This means it is likely the price will return to the same point, the supply zone, so they can get the rest of their positions executed.

If we mark the zones on the chart, this is how it looks.

Again, almost all the zones cause some sort of price reaction. Most result in a large reversal. But, a couple only cause minor declines, which last for two or three hours.

It will take some practice to get good at finding the right zones.
If you follow these guidelines, you will pick it up fast.

Keep in mind: Zones are formed from ALL rises and declines, sharp or not.

The sharp rises are the easiest way to find zones; but, many great zones are formed from the non-sharp rises/declines as well.

How To Draw Supply And Demand Zones

Learning how to find the right supply and demand zones is one thing; but, what’s even more important;what you really need to get right…

Drawing the zones on the chart.

Your entry depends on whether you’ve marked the zone properly, so you MUST get it right.

Draw the zone too big and your risk will be higher.
You must cover a larger area with the zone.

Draw the zone too small, which is probably even worse, and price may not touch the edge before reversing. This will cause you to entirely miss the reversal and not get into a trade at all.

Luckily, drawing supply and demand zones isn’t that difficult, once you know the trick.

Here’s how to draw demand zones:

How to Draw Demand Zones

To draw a demand zone, find a sharp rise where you think a zone has formed.

This rise seems good enough.

Now you need to locate the source of the move. The source is the point where this most recent rise originated.

The point is where the banks placed their buy positions (in this example).

If the banks still have positions left to place, they will bring the price back to this point.
We need to cover it with a zone large enough to ensure price reverses within it.

To draw this demand zone:

Open the rectangle tool from the tool menu, and
place the rectangle on the MOST RECENT SWING LOW that
formed at the source of the move.

Technically, the swing low represents where the banks placed their buy positions.

It’s the point where the market looked super bearish to everyone, meaning the banks had thousands of willing sellers ready to take the opposite side of their buy positions.

The banks need sellers to buy from; remember, this is the key: opposing orders.
However, we can’t just mark the low; because, buying came in above as well.

So, here’s what we look for:

Leave the bottom edge of the zone on the low, and
move the top edge up to the LAST SMALL CANDLE that
formed before price shot upwards and created the first big bull candle.

If the small candle is bullish, mark it to the close.
If the small candle is bearish, draw it to the open.

If you have drawn it correctly, it should look like this.

The lower edge should sit on the most recent swing low, and the upper edge should rest on the last small candle before the first big candle appeared – a small bull candle in this case.

Can’t figure out which small candle to draw the zone from?

Simple: draw the zone from low to the point where price took off.

Can’t figure out which small candle to draw the zone from? No problem – draw the zone from the low to the point where price first breaks higher.

Nine times out of ten, that will suffice as a valid zone.

Your risk will probably be a little bigger, as the zone won’t be the ideal size. But, it will cover the right price range and provide a valid trade if price reverses.

On to supply zones:

How To Draw Supply Zones

The way we draw supply zones is practically the same as demand zones.

We find the source of sharp decline:

Place a zone on the most recent swing high, bringing it down to the last small candle that formed before the decline.

Here’s how to do it:

First, find a big decline where you think a supply zone has formed.

As with demand zones, we always draw supply zones from the base or source of the move.

That is the point where the banks placed their sell positions.

If the banks still have positions left to enter, they will bring price back to this point to place their remaining positions at a similar price before causing the reversal.

Once you have found the source:

Place the rectangle tool on the most recent swing high,
drag the opposite edge down to the LAST SMALL CANDLE that formed beforeprice fell sharply and created the first big bear candle in the down move.

  • If the small candle is bullish, mark it to the close.
  • If the small candle is bearish, draw it to the open.

With the zone drawn, it should like this…

You can see the top of the rectangle rests on the swing high and the lower edge sits on the open of the last small candle before price fell sharply, which was a bear candle in this example.

Again, if the price action gets too confusing and you can’t figure out which candle is the small one: draw the zone from the high to the point where the decline really takes off!

Look for the first big candle in the decline.

That will give you a valid zone, just with a slightly bigger risk due to the increased size.

And with that, you’re all set!

How to Trade Supply and Demand Zones

As trading strategies evolve, new ways of trading them get created. Sometimes these ways work better than the previous methods or better suit a particular style of trading.

Supply and Demand has also gone through this process, and today, there are TWO different ways of trading the zones…

Price Action entry, and Set and Forget entry.

Each method has pros and cons, and it is possible to be successful with either.

I have made money with both in my time trading Supply and Demand.

Let’s go over each method now, so you can see how they work.

Set and Forget Entry

Popularized by Sam Seiden, the set and forget entry is the original way of trading supply and demand. It’s the simplest way to trade the zones and is the method most gurus and sites teach.

With the set and forget method, you trade the zones using limit orders.

The idea is that by placing a limit order at the edge of the zone, when price returns, it will execute the order and put you into the trade.

The upside being you will never miss a reversal, which happens from time to time with Supply & Demand.
The downside being price may just blast through the zone, causing you to lose money, which happens a lot!

Here’s a quick example, so you can see how it works:

Start by marking a zone on the chart.

Once you’ve found a zone, place a limit order at the edge CLOSEST to the current price.

If price is going to reverse from the zone, it must at least breach the closest edge, either by spiking through or by moving in via normal price action.

With the entry placed, now put a stop loss at the opposite edge.

Remember; don’t place the stop exactly on top of the edge. Place it slightly outside the zone, so there’s a small gap between the edge price and your stop price.

Now, just wait to see what happens…

In this case, the trade was successful: price came up, spiked the upper edge (triggering our order), before reversing and moving lower.

It’s a great trade, in anyone’s book.

Like I said, the limit order entry is a decent way of trading supply and demand. I used it for a long time, and the results were overall pretty great.

The problem is: It is flawed in a way the price action entry simply is not.

Sooner or later, you will get tired of this issue cropping up over and over again.

More on this in a minute.

First, let’s go over that price action entry.

Price Action Entry

This is my preferred way of trading supply and demand, and the method most pro traders utilise.

With the price action entry, you trade the zones using price action, candlestick patterns to be exact.

Rather than place limit orders at the edge of zones, you wait for candle patterns.

Look for pin bars or engulfing candles to form inside a zone and then enter. These price-action candles indicate the banks are interested in making price move away.

So, the price action gives you more confirmation price will reverse.

Here’s how it works:

First, find a zone you want to trade and mark it on the chart using what we learned.

Now with the price action entry, we must wait for price to enter or touch the edge of the zone BEFORE entering. We want to see evidence price is going to reverse in the form of a pattern before we get in.

This way we know our trade has a better chance of being successful and making money.

A bearish engulfing pattern forms soon after price enters the zone. This is our signal to get in. The engulfing pattern confirms the banks likely want price to reverse from the zone, so it gives us additional confirmation a reversal is about to take place.

Note: You can use pin bars for the entry too, but in my experience, engulfs tend to work better.

With our entry set, we place a stop above the zone, as price could still rise and reverse from much higher inside the zone. This happens from time to time.

Now, we wait to see if it reverses.

And in this case, it does…

A few hours after the engulfing pattern appears, price reverses and exits the zone.

Now our next task is to:
Next: lower the risk by getting our stop to breakeven.
Then: take profits as price continues to drop.

Taking profits really comes down to personal preference.

Any method will do, so long as it is safe. I like to take my profits whenever price makes a new swing: a lower low, if I am short, or a higher high if I am long. Once I see price make a new high or low, I will move my stop to the new low, or new high if I’m short, of the swing that caused the market to make the new higher high or lower low.

This newest swing is the point the banks entered their most recent positions, so the chances of price breaking past this swing, are extremely low.

So, in our example, I would take profits like this…

I also use the same method to move my stop to break-even.

When I see price first make a new higher high/lower low, I will move the stop to the low/high of the swing which was created from price making that new higher high/lower low.

That way, I reduce risk AND secure profits.

Why The Price Action Entry Is Better

I am not going to knock the set and forget entry too much, because it is a decent way of trading supply and demand, and you can be quite successful with it. I will attest to that.

When it comes to trading the zones, you need to stick to using price action.

The problem with using limit orders is a problem we price-action traders know all too well:

Confirmation.

The limit order entry provides NO confirmation price will reverse from a zone. You will blindly place the order at the edge and hope price reverses. This would not be a problem if all zones worked all the time; But, that is the thing, they don’t!

Price blasts through zones frequently, usually without stopping.

With the limit order entry, you cannot avoid this.
So, you end up with a crap-ton of losing trades.

With the price action entry, however, things are different.

You must wait for a pattern to form inside or at the edge of the zone before placing a trade. This patience confirms the banks want price to reverse. The extra confirmation allows you to avoid zones where price just blows through.

That said, it’s not fool proof…

Zones still fail even with the right price action entry.
It still stands as a better, safer way of trading the zones.

So, the point is clear:
Stick to trading supply and demand with price action.

3 Rules For Trading Supply And Demand

Now you know how supply and demand works and the two ways you can trade the zones (and which way is better). You are ready to begin using the strategy in your trading.

But wait, not so fast… there’s more…

Before you start trading Supply and Demand, there are a few key rules you need to understand to find the right zones on the chart and trade them correctly using your amazing new entry method.

Here’s what they are…

1: Old Zones Rarely Work, Avoid Old Zones !

If you search for supply and demand trading online, almost every guru will tell you old zones have the same probability of working as new zones, and those gurus are fine with you losing your trades.

I am going to tell you right now, in fact, I insist, that is complete hogwash!

THE FACT IS:

It is one of the biggest lies in the supply and demand community, and if everyone would stop and think about it for a minute, they would understand why it simply does not make sense!

As we all know, supply and demand zones are formed by the banks:

The banks need to be buying and selling with huge orders.
The banks cause the zones to form by placing a few positions.
The banks make price return to get the rest of their orders placed.
Then, and ONLY THEN, can the banks set off the reversal.

That is why price returns and reverses from the source of sharp rises and declines.

Now, here is my problem with the idea of old zones causing reversals. If the banks want price to return to a zone, whether to place trades, close trades, or take profits, they would want it to return quickly, relative to the timeframe they are trading.

They would NOT want to wait a long time!
Their reason for entering may change.

I mean, think about it…

If a bank bought 50 million EUR/USD, and still had 50 million to buy at the same 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!

For one: the price action will have changed.
Second: the economic situation would also be different, and possibly not in their favour.
Plus: the orders entering the market might not be enough to fill their remaining positions.

So, it does not make sense the banks would wait a long time for price to return to a zone to get their remaining trades placed.

Really, they would want price to return ASAP.

The quicker they get their remaining positions placed, the less chance something could happen and change their outlook on the market: be it economically, price-action based, or something else, like maybe a pandemic.

Don’t trade old supply and demand zones:
            they just DON’T work.

You will often see price reverse from old zones, yes. But, it is not the zone causing the reversal. It is probably some other technical factor.
It could be a:
Support & Resistance level,
big round number,
economic announcement, or
any number of other triggers.

Follow these guidelines to know when an old zone’s usefulness expires:
1. Daily zones = 90 days
2. Hourly zones = 20 days
3. Less than H1 = 1 day.

2. Always Put Your Stop Slightly Outside the Zone

You probably already know this; but, I thought I would put it in since it is a mistake I see many new supply and demand traders make all-too often.

When you trade a zone, put your stop slightly above or below the opposite edge.

DO NOT put it on the edge itself to skimp on the risk.

It is all- too-common for price to spike through the edge of a supply or demand zone before reversing. If you put your stop at the edge rather than leaving a slight gap, the spike will take you out and make you miss what could be a successful trade.

You can see that happen here…

Just when it looked like price was about to reverse from this zone, price spiked through the upper edge. Bye, bye stop loss!

To add further insult, price reversed in a big way soon after, meaning you missed out on a great trade as well as losing money – talk about a bad day at the office.

SO: always leave a little gap between your stop price and the edge of the zone.

How big should that gap be? Well, it’s relative to the volatility and time-frame.

Higher Time Frames = larger gap, in pips, due to size difference.

I n my experience,15 – 20 pips should be sufficient for most zones.

Add a few pips for higher time-frame zones: think 4-hour, daily.
Remove a few for low time-frame zones: 5 minute, 15 minute, etc.

That should give you headroom to avoid any random spikes while still keeping risk low.

Another big mistruth you will hear in the supply and demand community is the idea zones have the power to cause reversals more than once like support and resistance levels.

And again, this is not true, not even close.

Supply and demand zones are ONE TIME USE: Not two times, or three times, one time ONLY.

Once price hits a zone and reverses, that’s it!
The zone loses its power and validity.

The probability price will reverse again in the future is extremely low.

The only exception to this rule is if a zone forms at the top or bottom of a consolidation. These zones can cause price to reverse two or three times. They show the banks are buying/selling from similar points, so price may reverse from a zone more than once before the consolidation ends.

However, once the consolidation is over, the zone loses all its power and probably will not cause another reversal.

If you think about why a zone forms, It is obvious why they lose power after one touch.

Remember: the banks cause supply and demand zones to form because they cannot get all their positions placed in one go. They have not been able to place/close all their trades or take all their profits.

Soon after placing what they can, they bring price back to the same point, the Supply of Demand zone, to get their remaining positions placed.

That way, they can place the trades within their position at a similar price. That allows them to make a similar level of profit from each trade with a similar amount of risk.

With this in mind, why would the banks want price to return a zone a second or third time?

After bringing price back to get their remining trades placed a first time, why bring it back again? They would only bring it back the first time if they knew enough orders were free to get their remaining positions placed.

This makes it pointless to bring it back more times.

So, this idea that zones can cause multiple reversals like support and resistance levels… yeh, it’s not the case.

Sure, price will return and reverse from the odd zone more than once, but it is not often. And usually, it is not because the zone itself is causing the reversal; it is due to some other technical factor that has nothing to do with Supply & Demand.

For this reason, only trade free/untouched zones.

FAQ and What to do Next

Supply and Demand is a MAJOR focus for me on this site. I have used the strategy for a long time. It is a core component of how I trade, and view the markets.

That said, it was impossible for me to cover everything about supply and demand trading in this one writing. So below, I have put together a list of my Supply and Demand articles for you to add to the knowledge you have gained from this writing.

These additional articles cover all the bases of supply and demand.

You will learn:

  • How to find the highest probability zones,
  • Why the normal way of trading S & D (a la Sam Seiden) doesn’t work,
  • The biggest mistakes to avoid,
  • How to draw the zones correctly…
  • AND many other important aspects of a total trading regimen.

It’s a good idea to get my book too…

This will go over the 5 key rules you need to know when trading supply and demand.

Many of the rules or beliefs traders have on how to trade Supply and Demand don’t make sense in the real world, as I explained earlier. So, I created this book to clear them up.

These 5 rules will improve your trading, by helping you find and trade the best zones.

I’ve also left a small FAQ containing the most common questions people ask about supply and demand at the bottom… Check it out if you have any questions about S & D – or leave a comment if your question isn’t answered.

3 Key Facts Sam Seiden Gets Wrong About Trading Supply And Demand

While Sam Seiden gets credit for coming up with Supply and Demand, many of the ideas he promotes about the strategy are flat out wrong and at odds with how the market really works.

In this post, I detail the 3 most important facts, and explain why they don’t make sense in the market…

Read More

Why You Should Avoid Rally-Base-Rally/Drop-Base-Drop Zones 

Supply and Demand zones come in two flavours.

These two types of zones perform very different to one another due to what causes them to form. However, most traders don’t realize this… they mistakenly assume both zones form for the same reason.

I’ve written this article to explain why they don’t, and why you should stick to only trading one type of zone if you want to see good results.

Read More

Profit Taking Zones Vs Trade Placing Zones: What’s The Difference?

On top of two types of zones, they can also form for two different reasons: either the banks placing trades, or taking profits off trades. Each type of zone has its own quirks and characteristics which, if you know, can help you trade them and make fewer mistakes

To learn what these are, check out my profit-taking zones vs trading placing zone post.

Read More

3 Mistakes That’ll Destroy Your Supply And Demand Trading 

In the case of supply and demand, there are 3 key mistakes traders make over and over again that you MUST avoid to become successful. My post below details what these mistakes are, why traders make them (and it’s not all their fault in some cases), and most importantly… What you can do to avoid them yourself.

Check it out below if you’re interested.

Read More

Don’t Make This Mistake Drawing Supply And Demand Zones  

Drawing a zone correctly is the single biggest thing to get right in supply and demand trading, but many traders make a simple mistake that causes them to draw the zone the wrong way…They don’t include the nearby points where price reversed.

When you fail to incorporate the nearby rises or declines when drawing the zone, you end up missing trades that otherwise would have been successful.

To avoid this, make sure you read my post below to draw the zones correctly.

Read More

Frequently Asked Questions About Supply And Demand Trading

Q: Who Invented Supply And Demand Trading

A: Sam Seiden – a well-known forex guru.

Sam came up with S&D when working as an order runner on the Chicago Mercantile exchange. His story is interesting, which we haven’t got time to explain here, but not everything Sam claims about supply and demand is technically correct.

Check my Sam Seiden post for a detailed breakdown.

Q: Do The Banks Trade Supply And Demand?

A: No, but they do create the zones.

The banks create supply and demand zones by entering significant trading positions. In other words, they don’t trade the zones; they ARE the zones! So we use the S&D strategy to identify when and where they’re buying and selling to piggyback their trades.

Q: Is Supply And Demand A Smart Money Concept?

A: Yes, of course!

Smart money is the banks and other big insitions that create supply and demand zones. So while we can’t monitor the smart money directly, their actions and decisions still manifest as the price action we see on our charts as supply and demand zones.

Hence, the zones are a critical smart money concept.

Q: Is Supply And Demand The Same As Support And Resistance?

A: No, but there are similarities.

Support and resistance are price levels where price could reverse. Supply and demand, on the hand, are price zones where price may reverse. It’s a slight difference, but a big one. Additionally, S&D zones form due to the institutions – banks, hedge funds – entering major trading positions.

Support and resistance levels are simply points price has reversed multiple times in the past.

Q. How Long Will It Take To Find/Draw The Zones?

A. If you practice, it shouldn’t take too long.

Spend some time finding and drawing old zones. That’ll give you a good sense of how to draw them and what the quality zones look like. Over time your skills will improve until finding and drawing the zones will eventually become second nature.

Q. Can Zones Cause Multiple Reversals, Like Support And Resistance?

A. No, supply and demand zones are one-time use.

Sometimes you’ll see price reverse from a zone after it’s reversed once, but these zones typically form at the top and bottom of consolidations, so they are okay to trade. For all other zones, though, only take the trade the first time price returns to a zone.

Q. Is Supply And Demand Trading Profitable?

A. If you learn from the right places, VERY profitable.

However, most supply and demand gurus don’t know what they’re talking about. Some can provide quality info, but most possess limited knowledge of how the zones work. So if you learn from these guys, expect heavy losses.

If you learn from the people who use them in their trading, you should have a decent chance of becoming profitable.

Thank-you for your attention,
PAN

26 thoughts on “Supply And Demand Trading: The Definitive Guide (PDF)”

  1. so. for the entry signal
    we should go down to lower timeframe to find or just stay the current timeframe we trade at

    1. 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.

  2. 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

    1. 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.

    1. 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.

  3. Great post, you have taught me how to draw supply and demand zones. I have more idea now how to draw these zones.

  4. Thanks for your guidance in S&D. you enlighten me of some points as i am trading this method already. appreciating your efforts.

  5. 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?

  6. ปั๊มไลค์

    Like!! I blog frequently and I really thank you for your content. The article has truly peaked my interest.

  7. 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.

    1. 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.

  8. Roshan Thapa Chhetri

    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

    1. 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.

  9. 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

    1. Try these instead, Steve:

      1 min/5 min/15 min – 1 day.
      30 min/1 hour/4 hour – 20 days
      Daily – 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.

  10. 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

    1. Yes, you can trade them at anytime, Steve. The time of day doesn’t matter, only whether the zone is strong or not.

  11. 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

  12. 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

    1. 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.

Comments are closed.