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Supply and Demand Trading (Part – 1)

dotnettutorials.net/lesson/supply-and-demand-trading

Back to: Trading with Smart Money

Supply and Demand Trading


In this article, I will discuss Supply and Demand Trading. Please read our previous
article, in which we discussed Market Structure through Swing. At the end of this
article, you will understand the following pointers.

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1. What are the Supply and Demand Zones?
2. Why are supply and demand zones in our chart?
3. Why does the market return to the supply and demand zone?
4. Why trade from the supply and demand zone?

What are the Supply and Demand Zones?


Supply-demand is nothing but the border area of support or resistance

Why are the supply and demand zones in our chart?

1. The supply zone was formed due to the smart money that placed the sell trades.
We can confirm this to be a fact because the market continued to fall after the zone
formed (opposite of the demand zone)
2. If you are aggressive, you want to buy or sell NOW. In other words, you place a
MARKET ORDER to buy or sell immediately at the best available current price.

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3. Because your position is pretty big, it won’t be filled all at once. It will get filled
quickly, and you will be able to enter the whole position, but the position will get split
as the price moves quickly. The aggressive market participants drive the price
aggressively up or down with their market orders.
4. So, the supply and demand zone can only be seen once the price speeds away
from the zone. It indicates that there was smart money buying or selling interest at
the origin of that move.

Why does the Market return to Supply and Demand Zones?


1. Due to a Pending Block order
2. Because the smart money position is pretty big, it won’t be filled all at once. Smart
money could not get all their trades placed when the zone formed. If they rush into
the market, the price goes along with them. This action will make them buy higher
and sell lower. They resolve this issue by leaving blocks of orders on the books.
3. To get their remaining trades placed, the banks leave pending orders at the zones
so that when the market returns to the zone, the trades they were unable to get
placed initially are executed, and the market moves back in the direction in which
the zone was created.

WHY TRADE FROM THE SUPPLY AND DEMAND ZONE?


1. Low-risk high reward
2. You are with the smart money.

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In this article, I try to explain supply and demand trading. I hope you enjoy this Supply
and Demand Trading article.

Dot Net Tutorials


About the Author: Pranaya Rout

Pranaya Rout has published more than 3,000 articles in his 11-year
career. Pranaya Rout has very good experience with Microsoft
Technologies, Including C#, VB, ASP.NET MVC, ASP.NET Web API, EF, EF Core,
ADO.NET, LINQ, SQL Server, MYSQL, Oracle, ASP.NET Core, Cloud Computing,
Microservices, Design Patterns and still learning new technologies.

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