How To Identify Supply And Demand Areas

Knowing how to identify supply and demand areas on a chart will help you to make more informed trading decisions.

What are supply and demand areas?

Supply and demand areas are all over a chart on every time frame, supply and demand makes the market work, as it creates an imbalance in the market, and that imbalance is what makes the price go up and down.

For example: Prices move up and down on perceived value. Say Euro Dollar is trading at 13500. Some people may think that is expensive, some people may think that is cheap. The people that think its cheap are buying, and the people that think its expensive are selling.

Now, if you have an equal number of buyers and sellers on both sides, then price will stay at 13500. The currency has reached its fair value according to buyers and sellers. Price will stay at fair value until an new imbalance of buyers and sellers is found. As new buyers and sellers are continually coming into the market, fair value can last a few seconds, or price can literally trade around the fair value area for ever in theory. Until a new imbalance comes into the market, the price will not move from the 13500 area.

Its not just about the buyers and the sellers.

Now consider this, its not just about the buyers and the sellers in the market, its also about the price.

Price is the most important thing in Forex trading, and you should never forget that.

To create an imbalance you must have more buyers at a higher price than the current price, or more sellers at a lower price than the current price. You may have more buyers than sellers in the market, but the price could still go down. Or you may have more sellers than buyers in the market but the price could still go up. How does that work then? I will try to explain.

Say you have 1000 sellers around the 13500 area, but you have 100 buyers that are buying from 13480 up to 13520. Sellers out number buyers 10 to 1, but if the cumulative value of their sell orders, are not larger than the cumulative value of the 100 buyers orders, then price will still go up. The total value of the buy orders, are worth more than the total value of the sell orders, so the demand for Euro Dollar is outstripping supply, so the price continues to go up.

When the last of the buy orders are filled at 13520, and just another 50 sellers come back into the market at 13520, and the cumulative number of sell orders is outstripping the now very small amount of cumulative buy orders, you then have more supply than demand and the price will do down. So to recap, more cumulative supply and the price goes down, more cumulative demand and the price goes up.

How to identify supply and demand areas.

Now this is the tricky bit. How do you know when supply is outstripping demand or vise versa? And more importantly, how do you know when fair value has been reached? and how do you know when supply will change to demand, or demand will change to supply?

This is the holy grail as far as Forex trading is concerned. If you can identify when price will switch from supply to demand, or demand to supply, you are effectively identifying key reversal levels in the market. And if you can identify these reversal levels in the market with high probability, then you have a license to print money. A lot of what i teach in my Forex training course is about how to identify key reversal levels in the market.

Identifying these reversal levels is not as easy as it may look though. Well unless you have access to every brokers order book, which you don’t. So in the absence of every brokers order book, you have to study the chart to identify possible supply and demand areas from which to buy and sell. I cannot go in to detail about what i teach in my course, and how i identify reversal levels in the market, but you can use previous areas of supply and demand, as possible new areas of supply and demand, rather like a trader would use previous support and resistance levels, as possible areas to buy and sell.

The chart below shows you how previous supply and demand areas are respected, and how trading long and short from those areas would have produced nice profitable trades.
supply and demand

Rather like support and resistance levels, sometimes old supply and demand areas produce some nice trades, but also like SR levels they don’t always work. The skill is in knowing which ones will work, and which ones will fail, and i can teach you how to identify the supply and demand areas that will work, which will enable you to take high probability profitable trades from those areas.

What Is Advanced Price Action Forex Trading?

What i trade and what i teach is advanced price action Forex trading. There is lots of free information online about price action trading, some good some not so good. I have some free info on here about price action set ups like how to trade pin bars or how to trade outside bars, but its just basic stuff that you can find on many free sites. Don’t get me wrong this information will help you in your trading, but it will not enable you to make money consistently, week in week out from your trading. To be consistent you need to understand advanced price action Forex trading.

So what is advanced price action Forex trading?

advanced price action forex tradingAdvanced learning by its nature is to learn something at a higher level, so you are learning price action trading at a much higher level than the majority of price action traders. Every candle on a chart is a representation of price action over a set period of time. A daily candle is made of six h4 candles, 24 h1 candles, 96 15 min candles, or 288 5 min candles. To really understand what is happening in a daily candle, you have to understand what has happened on the lower time frame candles. This is part of advanced price action Forex trading as i see it. We break every candle down, and understand what is happening on the smallest time frames, to give us an indication on which way price is most likely to move.

If we notice a price action set up on a higher time frame, we can also use the lower time frames to give us a great entry point. Traders that trade the daily and weekly time frames have massive stop losses, we can enter the same trade at a precision entry, and have a much tighter stop than they have. By studying the lower time frames, we will also know if the trade is going to fail before they do. Whats the point of being stopped out for 200 pips. If you know the trade is going to fail, you can take a much smaller hit instead, many times you can get out with breakeven.

Why so many Forex traders lose money.

As you are probably aware the majority of Forex traders lose money in the markets, and the reason for this is that they only have a basic understanding of Forex trading. To be a consistently profitable trader, you have to have a complete understanding of what is happening to price on every time frame, from the 1 min chart, right up to the monthly chart. When you have this understanding, and you know what makes the market move, you can enter and exit the market safely, and make profits consistently.

What the experts say, lol.

Many so called experts will tell you that you cannot make money trading the lower time frames, because price is too volatile. You need to trade the daily and above to be successful. This is complete rubbish, and anyone that says this does not fully understand advanced price action. There are many well respected price action traders, that sell their courses to people on the understanding that this is a fact. The only good thing about trading the higher time frames, is it takes longer for you to lose your money, as the set ups on the higher time frames are less frequent. This is great for the people that sell these courses, as they will have more time to fob you off, and you are less likely to demand your money back if it takes you 12 months to realise their stuff don’t work.

What other websites are saying.

A lot of websites make bold claims that they can teach you advanced price action Forex trading, but they are mostly teaching you how to trade pin bars off support and resistance levels, or doji’s or engulfing candles of the same levels. They are teaching you how to read price action after it has happened. Anyone can teach reversal signals on daily and weekly time frames, but how many people can teach you how to get in right at the top of a pin bar, or an engulfing candle, before the candle has even formed? That’s what I’m talking about when i talk about advanced price action trading. Identifying pin point entries and exits on the chart, whether you are trend trading, or counter trend trading, that’s real advanced price action trading.

Many paid Forex training courses are a complete waste of money.

The majority of paid Forex training courses are a complete waste of time and money to be honest, and there are many experts that claim to be able to teach you how to trade, but they will only teach you basic stuff that you can find online for free at babypips or similar sites. They will not teach you how to really trade, because they do not know how to really trade themselves.

waste of moneyBefore paying these people ask yourself “if this guy can trade why is he selling me a course for a few hundred bucks” and you will get your answer. The reason my course costs almost 4k is because its worth a 100k. I am a professional Forex trader, and what i can teach you will transform your trading and change your life. If you want the same old rubbish that you can get online for free, keep throwing away your few hundred bucks, plus all the time and money you are losing while you are testing this rubbish, before you find out its the same old stuff yet again that does not work.

Don’t get me wrong just because you pay 1000s for a training course, does not mean it will be the real deal. There are also many companies that charge a lot more than i do, and their training courses are just as bad, if not worse that the ones you can get for a few 100 bucks. These big Forex training organizations have huge marketing budgets, and they can make it sound like Forex is they key to making a fortune very quickly. You need to be really careful of these companies. I have heard stories of people that have paid these companies 25k and they still cant make money. How these companies are still allowed to operate their businesses is beyond me.

Forex Trading is not easy at first, and you need the right education.

I will be honest with you, Forex trading is not easy at first, and you are not going to make big money from it right away. Its a hard job that has to be learned fully if you want to be successful consistently. I can give you the right education, but its up to you to put in the time required to make yourself successful. What i teach is not a get rich quick scheme. If you can imagine Forex trading as a journey. I can take you 80% of the way very quickly, by teaching you stuff that could take you 5 or even 10 years to learn on your own, stuff you really need to know in order to be successful, but you need to invest chart time and practice what i teach, to complete the rest of the journey. With my support of course. πŸ™‚

If you are prepared for a little hard work initially, then Forex trading will become a lot easier as you progress.

So if you are reading this and thinking “how do i know that you are not another con artist that is going to take my money and give me the same old rubbish i have paid 300 bucks for”. Well the short answer is you don’t. But you are welcome to contact any of my students for a review of what i offer, and they will tell you i am the real deal, and what i teach is true advanced price action Forex trading.

As Morpheus says. All I’m offering is the truth. Nothing more.

How To Correctly Draw Support And Resistance Lines.

Support and resistance trading.

Support and resistance trading is a major part of price action Forex trading. How the price reacts around support and resistance lines, gives a good indication of what the price is likely to do next. Knowing how to correctly draw support and resistance lines on your Forex chart, will give you a trading edge.

Support and resistance lines can be drawn on any time frame, but i generally do not draw them on time frames of less than 1 hour, as too many lines on your chart can be counter productive, and inhibit your study of price action.

Where to draw support and resistance lines.

This is very much open to interpretation. Some traders draw support and resistance lines from the open and or close of the candle (the candle body). So if you imagine a candle without pins, that is where they will draw their SR lines from. Some traders believe that the opening and closing price of the candle, is more important than the price it went to within the candle formation, which produces the pins.

I think the opposite of that. The overall candle including the pins is where in my opinion you should be drawing your support and resistance lines from. I will explain my reason for that view. Within every candle there is a series of smaller candles. A daily candle for example is made up of 6 four hour candles, 24 one hour candles, 96 fifteen min candles, and so on. Now if you are drawing your SR lines from the body of a daily candle for example, you are not including the complete price action of that day. By drawing your SR lines from the top or bottom of a candle, including the pins you are covering all the price action from that day, swing high to swing low. The same applies on a H4 candle or a h1 candle. By drawing SR lines from the top or bottom of a H4 candle, you are covering all the price action within 4 H1 candles.

How to correctly draw support and resistance lines.

The main thing you need to look for when drawing your support and resistance lines is areas on the chart where price has previously reversed. You need to make sure your SR line is at the top of the candle (including the pin) for resistance, and the bottom of the candle (including the pin) for support. If you can find 2 or more reversal areas at the same price, then that is where you need to put your SR line.

Sometimes you cannot find 2 or more areas at the same price so you need to look for areas that are as close to the reversal area as possible. A general area of rejection will sometimes be enough to give you a potential support or resistance line.

Support and resistance charts.

The charts below will give you a good example of how to correctly draw support and resistance lines.

support level on Forex chart You can clearly see the support level on this chart. There is also a nice pin bar rejection candle at the high of the move.

resistance level on Forex chart

Here is a good example of resistance on a clean Forex chart. Another bearish pin bar rejecting the resistance level.

I hope this article has helped you learn how to correctly draw support and resistance lines.

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