What Are No Supply And No Demand Candles?

How to identify no supply and no demand candles.

In past articles we have talked about pin bar reversal candles, and outside bars, as potential areas in the market where price can reverse. I now want to look at another candle formation that can also be an indication of a potential reversal signal.

No supply and no demand candles take into consideration the buying and selling volume within the candle formation. By studying the volume within a candle, you can establish where buyers and sellers are active or inactive in the market.

No Supply Candles. (No Sellers)

No supply candles indicate a potential long trade. The criteria for a no supply candle is as follows.

The Volume within the candle formation has to be lower than the volume of the previous 2 candles.
The candle has to close bearish (red body).
There has to be some sort of rejection (pin or wick) at the low of the candle.
If the candle closed at the bottom it would not be a no supply candle.

Below is an example of a no supply candle on a daily chart. The dotted line highlights the bearish candle with rejection at the low, and lower volume than the previous 2 candles.

As you can see it was a nice reversal level in the pair, and went on to produce some nice pips.

no supply candle

No Demand Candles. (No Buyers)

No demand candles indicate a potential short trade. The criteria for a no demand candle is as follows.

The Volume within the candle formation again has to be lower than the volume of the previous 2 candles.
The candle has to close bullish (green body).
There has to be some sort of rejection (pin or wick) at the high of the candle.
If the candle closed at the top it would not be a no supply candle.

Below is an example of two no demand candles on a daily chart. The dotted lines highlight the bullish candles with rejection at the high, and lower volume than the previous 2 candles.

The two no demand candles both produced nice trades, but more importantly they also formed a double top in the market, which is another good reversal signal in itself.

no demand candles

If you look at the second no demand candle, you will also see an inside bar next to it, which is a sign of indecision in the market. A nice 50% retrace entry on that too before the sell off 🙂

Using no supply and no demand candles as potential reversal points within supply and demand areas is a trading strategy that can produce some nice results.

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How To Trade Pin Bars Or Hammer Candles.

How to trade pin bars or hammer candles as they are also called. Pin bars or hammers can be traded successfully on any time frame, but they tend to be more reliable on higher time frame charts, such as 4 hour and daily charts. Pin bar reversal candles are great price action set ups when traded correctly.

I personally don’t take trades based solely on pin bars or hammer candles, as my trading style is based on other factors, but lots of traders do trade them, and they do make up a large part of price action Forex trading.

I do however take notice of when pin bar set ups present themselves, as it gives me extra confirmation that i am in the correct trade, and it also helps me define a logical exit for my trades.

How to trade pin bars or hammer candles.

pin bar breakout trade

There are 2 possible entries when trading pin bars or hammer set ups. You can take a breakout entry trade, or you can take a retrace entry trade.

The chart on the right shows how to trade a pin bar breakout entry trade. You enter the trade on the breakout of the low, or the nose as its sometimes called.

The low (nose) is marked by the line, and as soon as the low is broken you will enter the trade short.

pin bar retrace tradeNow lets look at a how to take a retrace entry trade. A retrace entry trade is when you enter the trade on a retrace of the pin bar.

The most common retrace that Forex traders take is the 50% retrace.

If you measure the height of the pin bar, pin to pin, and divide it by 2 you will get your 50% retrace entry target.

You enter the trade short, when the price moves up 50% of the height of the pin bar, as shown by the chart on the right. The line marks the 50% retrace entry point.

Both of these trades show short set ups, but both can be applied to long set ups too. The candles are just inverted for a long set up.

It is important to know how to trade pin bars or hammer candles, as a lot of traders do trade them, and they do work very well if they present themselves at the correct point on the chart.

This is just basic price action trading. What i trade and teach is high probability price action trading. If you wish to learn this type of trading please consider my Forex training course.

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Why Do Pin Bar Reversal Candles Fail?

If you read my article on the pin bar rejection candle, you should know what one is. But not all pin bar reversal candles, or rejection candles work out. Why do some pin bar reversal candles fail, while others pay out?

Here are 3 reasons why pin bar reversal candles could fail.

1. A news release.

A classic reason for a pin bar reversal failure is a news release. I do not trade through news, but news can dramatically affect the likelihood of a successful outcome of a pin bar reversal set up. As a Forex trader you should always be aware of news releases, to make sure you are not either in a trade when news is coming up, or are about to get into a trade when news is pending. I subscribe to a news feed called Talking Forex that keeps me updated on any price sensitive news no matter how small it may be.

2. The components of the pin bar reversal candles.

bearish pin bar reversal candleHow the candle is made up can also affect how successful the set up will be. The ideal components of pin bar reversal candles are a long pin, or wick as some people call it, and a small body. If the body is too large, or the pin is too small the likelihood is it will not work.

The picture on the right is a great example of a bearish pin bar reversal candle. You can see the wick is nice and large, and the body is small. It is also beneficial that the body is red if its a bearish candle, as this one is, or that it is green in the case of a bullish reversal candle.

You can see how successful this bearish pin bar set up is by the strong move down on the candle to the right of the pin bar. A lot of Forex traders would have recognized this great pin bar set up and quickly jumped into short positions to promote the aggressive move down in price that we can see.

3. The location of the pin bar reversal candles.

The location of the pin bar is a common reason for a pin bar set up to fail. If the pin bar is located at the wrong position within a trend it will fail. Pin bars work best when they are located at a swing high or swing low within a trend.

If a pin bar is located between 2 candles there is also a likelihood that it will fail. The pin bar set up works better when the pin bar is protruding from the 2 candles either side of it.

failed pin bar reversal chart

The chart above shows a number of pin bar set ups. Two that have failed and one that has worked out nicely. The two that have failed are marked with arrows.

You can clearly see from left to right that the first pin bar has failed for 2 reasons. The first reason was the size of the body. The second reason is the location within the trend. Also the body is bullish (green) and it should ideally be bearish (red).

The second pin bar set up worked out nicely for 4 reasons. The pin bar has a nice small body, that is the correct colour for a bearish set up (red), and its at the swing high within the down trend, and it is protruding from the candles around it.

The third pin bar failed because of its location within the trend and the candles either side of it. You can see that the pin bar has a nice wick and a very small almost non existent body, which is very good, but its totally in the wrong position within the move down, it is positioned at a swing low, and it is overpowered by the 2 candles either side of it.

Pin bar reversal candles work very well when the correct set up presents itself. This article covers basic price action set ups. What i teach is advanced price action trading. If you wish to learn how to trade Forex using advanced high probability price action Forex trading, please consider my Forex training course.

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