I write this article from my own experience after practicing trend trading with Supply and Demand zones for months. Hope you can gain more knowledge after trading this strategy.
In this chapter, I will guide you on how to enter orders and the reason behind them. And the real trading orders will be in chapter 4.
Conditions of the strategy
– I use the daily chart to analyze and predict the price because I’m not a day trader. I don’t focus 100% of my time on making money in the markets. So I use the daily chart to slow things down.
– Some of my favorite currency pairs are USD/JPY, EUR/USD, NZD/USD, GOLD (XAU/USD). Because everyone has their strengths, I’m only focusing on a few currency pairs that I understand well. If you’re in favor of the currency pairs above, EUR/JPY or GBP/JPY is also worth a try.
– I manage money according to the Risk/Reward ratio (R/R). There is a specific guide below to help you set up Stop Loss (SL) and Take Profit (TP).
If you still don’t understand the uptrend and downtrend clearly, please read the two articles below.
– We will trade with 2 steps:
+ Step 1: Identify the main Trend and Supply and Demand zones created by the market.
+ Step 2: Wait for the price to retest the Supply or Demand zone and enter an order. In an uptrend, we’ll BUY. On the contrary, we’ll SELL in a downtrend.
Detailed guide on how to trade
First, you need to identify the Uptrend and the Demand Zone.
The theory goes like this. During the increasing process in an uptrend, the market will create demand zones. We will open BUY orders in these zones.
For detailed example with USD/JPY (from January 27, 2021 to February 17, 2021)
The USD/JPY entered an uptrend period.
Identified and drew the Demand zone on the chart (yellow area). My job was to wait for the price to come back and retest this zone and open a BUY order.
The price retested the Demand zone that I drew and created a trading signal with a Doji candlestick.
+ Opened a BUY order right away.
+ Set the SL below the Demand zone.
+ Set the TP at the previous top.
The price bounced back to the TP point. In this trade, I won 2R.
In theory, the price keeps falling and enters a Downtrend. Identify the Supply zones that the market has created. Wait for the signal to open the SELL order.
For specific example with USD/JPY (from July 5, 2021 to August 5, 2021)
USD/JPY was in a downtrend. This decreasing process created the Supply Zone (yellow area) on the chart. This was the main zone I waited for a SELL order.
The price moved back to the Supply zone and showed signs of reversal.
+ Entered a SELL order here.
+ Set the SL above the Supply zone.
+ Set the TP at the previous bottom.
Result: This SELL order has reached the TP with 2.5R.
The lessons I draw after using Trend trading and Supply Demand
Trend is the most important
Remember that the main trend of the market is the first thing you should pay attention to. Then come to the Supply and Demand zones.
If it is Uptrend, find the Demand zone. Conversely, in the downtrend, you focus on the Supply zone.
Balanced candlesticks like Doji in the Supply Demand zone are good signals for you to consider opening an order. We will discuss this in detail on the next chapter.
When the market has no good signal for you to BUY or SELL at the Supply and Demand zones, ignore it. Be patient to wait for a really nice one. Do not rush because you will always have another chance.
The signal when Supply and Demand zones could be broken
Be careful with the Engulfing candlestick pattern or the inverted Pin Bar candlesticks. When the above signals appear, you can consider closing the order.
How long do the Supply and Demand zones become meaningless?
In theory with the daily chart, if the market does not return to the Supply or Demand zone within 1 month, that zone will become meaningless.
But in reality and my opinion, we will have a plan to execute orders according to how the market reacts.
Swap between Supply and Demand
When the Supply zone is broken, it will change its role to the Demand zone and vice versa. This is quite similar to the support and resistance.
So we have finished the Trend + Supply/Demand strategy. Please read it again and practice on the Tradingview basic account. Don’t worry. The basic account is completely free.
I will continue to show how to trade Forex and Gold for real on MT4 in the next article. There will be a detailed analysis together with trading psychology too. Please wait for it.