Every time the trend changes direction, it is because of a change in the balance of supply and demand, but to use this to our advantage we need to know the likelihood of that imbalance being there the next time price returns to that zone. Supply and demand zones are similar to support and resistance lines in that supply zones provide resistance and demand zones provide support. When price breaks through a supply zone it becomes a demand zone, and when price breaks through a demand zone it becomes a supply zone—the same way a resistance line turns into support when broken and a support line turns into resistance.
The similarities end there, though. A support or resistance line requires at least two points separated by time to be drawn, where a supply or demand zone can be plotted from one candle. Most traders will tell you that you should have three points for a support or resistance line to be drawn. Traders are also taught that the more times price bounces off of a support or resistance line, the stronger that line is. The opposite is actually true.
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We Don't Need No Stinkin Indicators!
Some asking me, why i dont use indicators, well.. Technical indicators are the tools used by traders to aid them in the decisions of when to enter and exit a trade. They vary from oscillators, moving averages, and trend lines to complex mathematical formulas. Indicators are divided into two categories: leading and lagging. Generally speaking, oscillators like RSI and Stochastic are considered leading indicators, while indicators derived from moving averages, like MACD are considered lagging indicators. Lagging indicators get you into the trade late and leading indicators are prone to false signals. There are more than 100 different technical indicators available to traders, but you could spend all the time and money in the world learning these and you would not be much better off than when you started.
I could waste a lot of your time writing about the disadvantages of technical indicators. If you are new to trading, there is a better way. If you are a seasoned trader and you disagree with me, you can still apply the concepts to improve your percentage of successful trades while still utilizing your favorite indicators.
I am sure there are some technical traders that consistently make money, but they are the exception and not the rule. The reason these traders are successful has nothing to do with technical indicators, but everything to do with risk management. The best professional traders stick to their trading plan and never deviate from it. If you used the same strict risk management rules and your trading plan stated, “I only buy in an uptrend after a pullback and short in a downtrend after a pullback,” I would argue that you could still achieve the same results.
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Don't need to draw support and resistance lines to spot a supply & demand zone.
Great lesson! I have a question, while using S&D zones, let's assume you take a trade based off a fresh demand zone what will help one determine his target take profit if there are not prior supply zones above. I need this to help me in getting good RR ratios. Thanks
jsomoza
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Ok, thats right, but How to know the supply and demand zones? Thanks indicator here at trradingview, rules? Thanks again
jsomoza
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@jsomoza, Sorry did not read the comment, cleared, Thanks great job!!
@jsomoza, Look for very significant strong moves, and make sure its not a retest from a older strong supply/demand zone, but actually a new fresh level, by doing that, is just to look at the right. My example is on daily timeframe, and some of them dont look quite strong, but every move on my example, if you go back on 4H you will se them more clearly. I will post some examples, on how to identify and trade theese zones exactly soon.
I agree with the rules of the trader. Especially with the over-trade. That is why you need an exact entry point according to the rules of your trading system. I am just writing a series of articles on this topic. Today I published an article about swing trading using the CCI indicator.
thelion01
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thank you! I am new to trading with supply and demand zone. Great lesson!