introduction to supply & demand

So, what is the difference between supply and demand?

When it comes to defining a term, I try to keep it simple:
supply = sell
demand = buy .
While this isn't the textbook definition, it gives you a good sense of what they are.
An area with increased supply is an area with increased selling pressure. An area with
increased demand, on the other hand, refers to an area with increased buying pressure.
Why are Supply and Demand Zones Created?

Supply and demand zones are defined when an imbalance in the buyers and sellers
occurs.
Thinking of supply as a commodity product is a simple way to picture this. Let's use
apples as an example. We can also think of demand as a group of people who go
shopping.

Assume that this was an excellent year for apple growers. They've produced a large
number of apples. Shoppers, on the other hand, will be willing to buy just enough. This
indicates that there is a greater supply of apples than there is a demand for them.
Farmers would have to encourage purchasers to buy more if they wanted to sell out of
their stock. The simplest way to do this is to lower the price of apples. Now that the
apples are on sale, buyers will consider buying more since they can afford it. The price will
keep dropping until all of the apples have been sold. That would be the equilibrium point,
or the point at which there are enough buyers to meet the market's supply of apples.

Farmers clean their inventory as the apple season draws to a close, and a lower supply of
apple is now available on the market. apple demand has reverted to normal levels, with
the same amount of shoppers buying them as before. Because there are fewer apples to
sell, the price will increase. It will rise to the point where any buyer wanting to pay a
greater price will be able to purchase an apple. That level is the equilibrium level in these
market conditions.

The price of that commodity will remain within a restricted range as long as there is
enough commodity to whet the appetites of buyers. When one side's volume surpasses
the other's — for example, if there are more offers than buyers — an imbalance occurs,
causing prices to fluctuate until the two sides are in balance again. On the price charts,
this imbalance can be seen as a large shift away from the current price level.
In the financial markets, the asset is the product and the rate value is the demand. If the
price is cheap, it means there is more supply than there are willing buyers. If the product
is getting expensive, that means there is more demand (buyers) for less supply.

By understanding the supply and demand concept, it will be very simple to spot SD zones
on charts. Although this would be a hindsight observation, it will give us a good hint of
where to look for our trades in the future.

It is critical to recognise that the supply and demand forex trading is based on analysing
and finding these zones in the past then these zones will help us predict how the price
will behave in the future.

Why should we expect a price change? Let's return to the topic of apples and shoppers.
For example, suppose you could buy one apple for $1. We only have five apples to sell,
but buyers are requesting ten apples. As a result, five apples were sold for $1 each, and
no buyers were located for the remaining five orders. Keep these five unfulfilled orders in
mind for later.
Obviously, the price would rise to $1.50 per apple in order to attract additional growers
and increase supply. Later, when supply outnumbers the buyer's willingness to pay for
the pricey apples , the price lowers back to $1. Now the five orders that were unfulfilled at
$1 per apple they are still assumed to be there waiting. Their request will be now be filled
immediately, as they are first in line for apples at the rate of $1.

Something similar happens in the Forex market. When the price changes, we can assume
a high likelihood of unfilled orders. These orders are waiting and they will be the first to
be executed once the price returns for the first time to the demand level of $1.

Now lets get into the more technical side . How would an area of supply and demand look
like on the chart ?
Before I go any further, I'd like to emphasize that supply and demand are divided into two
categories. They are divided into two categories based on whether they form as a result
of a reversal or a continuation.

lets talk about 3 key words that you must familiarize yourselves with before getting into it:

Rally - Buyers exceed sellers

Base - Sellers and buyers are equally to eachother

Drop - Sellers exceed buyers

so lets begin , these are the following types :

a continuation zone - a continuation zone is formed when there is a rally then a base
then another rally (RBR) and in a bearish example a drop then a base then another drop
(DBD) .

Then we have a reversal zone - it is formed when there is a rally then a base then an
impulsive drop (RBD) and in a bullish example we have a drop then a base then an
impulsive rally (DBR) .

Don't worry if you're still confused; we'll go through some textbook and chart examples.

Continuation Zone
These type of zones form, when price moves in one direction , con solidtaes and
then continues moving in that same direction .
DROP

RALLY STOP LOSS

SUPPLY
ENTRY
BASE
BASE
ENTRY
DEMAND

STOP LOSS
DROP

RALLY
lets see some examples on the chart

RALLY

BASE

DEMAND

RALLY

DROP

SUPPLY

BASE

DROP
 Reversal Zone
Reversal zones is the same concept as tradingorderblocks . it is formed when price
reverses direction and sets of a new swing .

BASE

SUPPLY
RALLY

DROP
RALLY

DROP DEMAND
BASE

lets see an example on the chart

RALLY
SUPPLY

BASE

DROP
What do I draw my zone off ? Do I mark out the entire base ?

Now that you've identified your base, you might wonder what exactly we're looking
for and if we're supposed to mark out the entire base. The answer is no.

I frequently draw my zones using an indecision candle as a reference point.

An indecision candle is one in which both buyers and sellers have equal power,
resulting in a candle with a small body and mostly wicks. The body of the candle will
normally close in the middle.

it looks something like this

high of wick

open

close

low of wick

STOP LOSS

ENTRY
 correctly locating your zones

If I identify multiple zones zones which one do I choose ?

This is a very popular question supply and demand traders have and hopefully I will be a able
to break it down for you guys as much as I can . but to understand which zone to select first
you must learn what equilibrium , discount & premium prcing is ?

Equilibrium is the midpoint of a price range or you can say the midpoint of a swing . it is the
level at which an asset is neither expensiv or cheap . Therefore when price is a level of
equilibrium it wouldnt be of interest to execute an order of this level .

When executing we want to be buying in at a cheaper rate which is below the equilibrium this
is what we would call our discount pricing , and we would want to be selling at a more
expensive area which is above the equilibrium that area is what we would call premium pricing
.

SWING HIGH These levels can easily be identified using our

fibonacci tool .The levels we are interested in
PREMIUM are 70.5% and 79% .To identify your
discounted areas when looking for long
EQUILIBRIUM 50% opportunities you must plot your fib tool from
the swing low to the swing high
and for your premium areas you must plot it
DISCOUNT
from the swing high to the swing low .

SWING LOW
Now with the knowledge have
just shared with you guys ...
Which demand zone would
you look to take an entry off ?

The zone that aligns with the

50% or 70.5%

ENTER HERE ?

OR ENTER HERE ?

as you can see the one at the

50% did not hold , price pulled
back into a deeper level which
was the 70.5% discounted
level , then rallyed nicely from
that level of demand

ENTRY

STOP LOSS
 ENTER HERE ?

OR ENTER HERE ?

STOP LOSS

ENTRY

and as you can see price pulled

back very nicely into this premium
level of supply which alligned nicely
with our 70.5% and 79% FIB level
and completely violated the supply
at the 50%