1. Supply and Demand Trading Strategy Overview [0]

thumbnail The supply and demand trading strategy is a simple yet effective method for identifying profitable trading opportunities.

1.1. Strategy Foundation and Results [0]

  1. The core concept of the strategy is to "Buy from demand, sell from supply," which has been the main factor in the trader's profitability over 18 years. [0]
  2. The strategy has shown strong results in backtesting and live trading. [11]
    1. A backtest across 115 trades yielded a 79.13% win rate. [12]
    2. The concepts have been successfully applied in live market trading, with recent positive results and withdrawals. [13]
  3. This strategy is versatile and can be applied across various markets and at different times of the day. [16]
    1. It works for trading forex, gold, NASDAQ, Bitcoin, oil, and cryptos. [17]
    2. The trader prefers to use it during the London and New York trading sessions. [18]

2. Identifying Institutional Supply and Demand Zones [20]

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This section explains how to find institutional supply and demand zones by looking for aggressive price movements, fair value gaps, and breaks in market structure.

2.1. Finding Demand Zones [20]

  1. Institutional demand zones are identified by looking for areas where significant money enters the market, causing aggressive price pushes. [21]
    1. An example is a "big aggressive price push with four green candles in a row," leading to displacement, such as Gold moving more than $16 in 40 minutes. [22]
    2. This type of price movement indicates "billions of dollars in aggressive buyside pressure," which is characteristic of institutional activity, not retail traders. [24]
  2. A demand zone is drawn from the wick to wick of the red candle immediately preceding a large upward price movement. [28]
    1. This area becomes an "area of interest" because institutions previously bought aggressively at this level, suggesting they might do so again. [29]
  3. For a demand zone to be considered strong, three specific conditions must be met: [31]
    1. Imbalance (Fair Value Gaps): The market pushes up so aggressively that gaps in price are created, meaning the wicks do not overlap, indicating true institutional demand. [32]
    2. Big Candles: The candles in the aggressive price push are noticeably larger than previous candles, confirming displacement. [34]
    3. Break of Structure: The price movement must close above the most recent high, indicating a shift in market structure. [38]

2.2. Finding Supply Zones [43]

  1. The same principles apply to identifying supply zones for sell trades, but in reverse. [43]
  2. A supply zone is drawn on the green candle just before a significant downward price movement. [46]
  3. The three rules for a strong supply zone are: [47]
    1. Fair Value Gaps: Presence of multiple large fair value gaps. [48]
    2. Big Candles: Presence of multiple large red candles, indicating displacement. [50]
    3. Break of Structure: The last candle breaks and closes below the previous low. [52]
  4. Once these conditions are met, a short position can be set up, anticipating price to return to the supply level and then continue downwards. [54]
  5. Similarly, for a buy example, after setting up a trade and waiting for the price to pull back to the demand level, the trade plays out successfully. [56]

3. Trading with Market Structure and Trend [58]

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This section focuses on recognizing market structure and trading with the predominant trend to select which supply and demand zones are worth trading.

3.1. Recognizing Market Structure and Uptrends [58]

  1. Recognizing market structure is crucial for trading with the trend, which is considered the most important aspect after identifying zones. [59]
  2. In an uptrend, the market consistently forms higher highs and higher lows. [63]
    1. An easy way to confirm an uptrend is to draw a line from swing highs; if the price keeps breaking above the next level, it confirms a break of structure and an uptrend. [65]
  3. When in an uptrend, traders should primarily look for demand zones. [67]
    1. An example of a strong demand zone in an uptrend shows a huge price push with many green candles, clear fair value gaps, and a break of structure. [77]
    2. The expectation is for the price to pull back to this strong demand level and then continue moving up, creating a new break of structure. [84]
  4. Trading with the trend by identifying demand zones in an uptrend can lead to explosive moves and new breaks of structure, creating further trading opportunities. [86]

3.2. Recognizing Market Structure and Downtrends [95]

  1. In a downtrend, the market exhibits a pattern of pushing down, pulling back, and pushing down again, creating lower lows and lower highs. [96]
  2. A downtrend is established with a "1, 2, 3 move": a push down, a pullback, and another push down that results in a break of structure. [100]
  3. This process creates a level of supply, offering an opportunity to enter a short trading position at that supply level. [102]

4. Entry Conditions and Risk Management [104]

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This section details different entry models for trades, including normal, conservative, and aggressive approaches, along with essential tips for avoiding losses.

4.1. Entry Models [104]

  1. Normal Entry Model: [106]
    1. Price taps into the zone and the candle closes outside of it (below for supply, above for demand). [106]
    2. Entry is at the bottom of that closing candle. [108]
    3. Stop loss is placed above the supply zone (or above the wick for more safety). [109]
    4. Take profit targets recent price action, as price is likely to retest that level. [112]
    5. Partial profits may be taken at support levels. [115]
  2. Conservative Entry Model: [121]
    1. After price enters the demand zone, wait for a bullish engulfing candle pattern. [123]
    2. This means a small red candle body is completely covered by a larger green candle body. [128]
    3. Entry is on the close of the engulfing candle, with the stop loss below the demand level. [132]
    4. This model typically offers a less favorable risk-reward ratio. [134]
    5. Be cautious of opposing supply levels at the top, as price can react aggressively to them. [136]
  3. Aggressive Entry Model (Limit Order): [148]
    1. A limit order is placed, so the trade opens immediately when the price reaches the demand level. [148]
    2. The entry should be from the candle body, specifically the middle, for the sharpest entry and to capture the biggest move. [150]
    3. Stop loss is placed below the wick for safety. [155]
    4. Take profit is set to achieve a good risk-reward ratio (e.g., 1:3). [156]
    5. While effective, the normal entry model is generally preferred. [163]

4.2. Tips and Tricks to Avoid Losses [167]

  1. A close below is a dead zone: If the price closes below a demand level, the zone is invalidated and should be removed from the chart to avoid further trades. [170]
  2. Fresh zones are better: Zones that have not been touched by price previously are stronger and offer better trading opportunities. [179]
  3. Don't catch a falling knife: Avoid placing limit orders on zones when a huge, aggressive candle is diving towards it; instead, wait for slow momentum to return to the zone. [189]
  4. The lowest demand is the strongest demand: In a series of demand zones, the lowest one typically offers the best trading opportunity. [201]
  5. The level stack (Flip Zone): A demand zone is stronger if it aligns with a previous resistance level that has now flipped to become support. [213]

5. Live Trade Example [224]

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This section demonstrates a live trade using the complete supply and demand strategy, highlighting the application of all learned concepts.

5.1. Live Trade Breakdown [224]

  1. The trade started by identifying an uptrend with a clear "1, 2, 3 move" (push up, pullback, break of structure). [228]
  2. A strong demand zone was identified during a pullback, characterized by: [232]
    1. Five large green candles in a row, indicating displacement. [238]
    2. Multiple fair value gaps. [240]
    3. A break of structure, with price closing above the previous high. [242]
  3. The price was also below the 50% Fibonacci retracement, indicating a discounted entry. [244]
  4. An aggressive entry (limit order) was used, with price pulling back to the demand level and immediately opening the trade. [245]
  5. The trade resulted in a profit of over $6,000, with the price pushing up and hitting the take profit target. [226]
    1. The take profit was set at a recent price level, even though more profit could have been made. [249]
    2. The stop loss was placed tightly below the demand zone and the wick. [251]