The ULTIMATE Supply & Demand Guide (My Secrets)

Summary

This video dives deep into the concept of supply and demand zones in trading, explaining their importance and how to draw them correctly. It covers key elements like identifying aggressive buying and selling, validating zones with a break of structure, and ensuring a strong risk-to-reward ratio. The creator shares insider tricks to enhance zone accuracy, such as waiting for a slow price return and identifying fair value gaps. With these techniques, traders can make more informed decisions and improve the performance of their trades in the market.

Takeaways

• 😀 Supply and demand zones are essential for understanding price movements in trading, with everyone discussing them due to their effectiveness.
• 😀 A supply zone is an area of aggressive selling, while a demand zone is an area of aggressive buying, both driven by significant market action.
• 😀 To identify valid supply and demand zones, look for aggressive buying or selling, rather than small or insignificant price movements.
• 😀 When drawing demand zones, identify the red candle before the aggressive buying move and draw the zone from the low to the high of that candle.
• 😀 When drawing supply zones, identify the green candle before the aggressive selling move and mark the area from the low to the high of that candle.
• 😀 A valid supply or demand zone is confirmed when there is a break of structure (BOS) after the aggressive price movement, signifying a significant market shift.
• 😀 Invalid zones are those without a break of structure; they do not qualify for trades.
• 😀 An indicator tool can be used to automatically display breakup structures, saving traders time and minimizing errors in identifying key zones.
• 😀 When entering trades based on supply and demand zones, enter as price returns to the zone, set stop loss below the zone for demand, and above for supply, and set take profit based on the opposing extreme.
• 😀 Secret trick: Price should approach the zone slowly for higher accuracy. Sharp or aggressive moves into a zone are less reliable for entry.
• 😀 Secret trick: A fair value gap (imbalance) at the start of a move can improve the chances of a zone being successful. The gap should be connected to the first candle of the zone, and an indicator can highlight these gaps.

Q & A

What is the basic concept behind supply and demand zones in trading?

Supply and demand zones represent areas on a chart where aggressive buying (demand) or selling (supply) occurred, causing significant price movements. These zones are used to identify potential reversal points based on historical price action.

How does aggressive buying or selling affect supply and demand zones?

Aggressive buying or selling is a key factor in defining a supply or demand zone. The strength of the price movement—whether it's sharp and sustained—determines whether the zone is considered valid. Mild price movements don't qualify as valid supply or demand zones.

What is the importance of the break of structure in validating a supply or demand zone?

A break of structure is crucial for validating a supply or demand zone because it signifies that the price action has moved beyond a significant level of support or resistance, confirming the strength of the price movement and the likelihood that the zone will hold.

How do you draw a demand zone using the method described in the video?

To draw a demand zone, find the red candle before the aggressive upward price move, and then draw the zone from the low to the high of this candle. This marks the demand zone where the aggressive buying originated.

How is a supply zone drawn according to the tutorial?

For a supply zone, locate the green candle immediately preceding the aggressive downward price movement. Draw the zone from the high to the low of this candle, marking the supply zone where the selling pressure began.

What is the risk of trading zones that have not experienced a break of structure?

Trading zones without a break of structure is risky because the price has not proven its ability to reverse or continue in the expected direction. Without a break of structure, the price action might not fully validate the zone, leading to higher chances of failure.

How can traders use an indicator to simplify identifying break of structure?

Traders can use the private indicator mentioned in the video, which automatically displays all major break of structures (BOS). This saves time and helps avoid marking incorrect structures manually, ensuring a more efficient and accurate trading strategy.

Why is it important for price to approach a supply or demand zone slowly?

When price approaches a zone slowly, it indicates a more sustainable move, which increases the likelihood that the zone will hold. A sharp and aggressive approach might suggest that the market is overshooting the zone, potentially invalidating the setup.

What is a fair value gap and why is it important for supply and demand zones?

A fair value gap occurs when there is a quick, sharp price movement that leaves an imbalance, creating a gap. This gap increases the chances of the zone being respected when price returns to it, as the market often seeks to fill these imbalances.

What steps should be followed to execute a trade using supply and demand zones?

First, identify an aggressive price move and validate the zone with a break of structure. Then, wait for price to return to the zone. Enter the trade when price reaches the zone, set a stop-loss just outside the zone, and set a take-profit at the high (for demand) or low (for supply) of the price move.