Supply and demand trading strategy that will get you 40 pips every time you enter a trade. Trading supply and demand zones will turn into very sharp movements in the market. The supply and demand trading zones are caused by banks making large trades.
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What are supply and demand zones?
Supply and demand zones are a popular analysis technique used in day trading. The zones are the periods of sideways price action that come before explosive price moves, and are typically marked out using a rectangle tool in the stocks, forex or CFD trading platform.
Supply and Demand trading strategies use price returning to these zones as entry and exit criteria. The strategy is market-neutral – meaning it can be traded in forex markets, commodity futures, index CFDs etc.
What are zones in trading?
You can skip ahead to see how to draw the supply and demand zones for day trading strategies BUT we’d recommend a quick background on the investment theory to give you confidence in why this trading strategy works first…
What is a supply zone?
The candlesticks or bars that mark the origin of a strong downtrend are called the supply zone or distribution zone.
What is a demand zone?
The candlesticks or bars that mark the origin of a strong uptrend are called the demand zone or accumulation zone.
Wykoff & Market Structure
Let’s think about the three simplest concepts in trading financial markets
When demand is greater than supply, the price goes up
When demand is equal to supply, the price goes sideways
When supply is greater than demand, the price goes up down
These big players can’t just put their whole order into the market at once because they are accumulating so much that it would move the price. So instead, they buy increments within a specified price range. This causes what we see on the chart as a ‘demand zone’
Equally, when they are selling their position, it can’t be all done at once because the selling pressure would send the price sharply lower and reduce their profits because they would be forced to sell into a market decline, caused by their own large orders. So again they sell over a period of time to minimise the market impact of their trades, which creates the ‘supply zone’.
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