Supply and demand indicator forex

In this guide, you will learn the basics of how to trade using supply and demand zones. What are supply and demand? Supply is how much of an asset is available. Demand is how much traders want to buy an asset. High demand creates a rise in price, assuming it outpaces supply.

Lots of buyers are competing with each other to purchase the asset. Conversely, if supply exceeds demand, it is the sellers who are competing for the buyers. So, the price of the asset falls. Key point: Supply, demand, and price movements are all interrelated. High demand drives price up, while high supply drives price down.

What are supply and demand zones? Supply and demand zones are areas you can identify on a price chart where high demand is creating support, or high supply is creating resistance. Indeed, a lot of traders simply think of them as synonymous with support and resistance zones or pivot areas.

But it is possible to draw distinctions between these interrelated concepts. What those distinctions are though depends on whom you ask — individual traders may define these concepts in slightly different ways. Traders may differ in their exact rules for drawing supply and demand zones.

If those rules are more specific and narrow than those they use for identifying support and resistance zones, that could be another distinction between the two concepts. Some investors also feel that a narrower and more specific price range is necessary for defining supply and demand zones versus broader zones for support and resistance. So, once you understand the basic idea of supply and demand zones, it is up to you to decide exactly how you want to define it for your trading.

Key point: Supply and demand zones are very similar to support and resistance zones. The exact difference between the concepts depends on whom you ask. Different traders have different definitions. What happens when an asset encounters a supply or demand zone? When price reaches a supply or demand zone, you can expect similar behavior as you would in a support or resistance zone.

In some cases, price may not be able to break through the zone, resulting in a reversal. Sometimes, this reversal can be dramatic, resulting in a large move up or down. In other situations, price may hover at the supply or demand zone, testing it, and then break through in a continuation of the existing trend. Key point: Supply and demand zones can help you to spot reversals.

Sometimes, however, price will break through supply and demand zones during a continuation. How to identify supply and demand zones Now you know what supply and demand zones are. But how can you spot them on your charts? Because the definition of supply and demand zones is somewhat variable as discussed above , methods for identifying and drawing these zones can vary as well. Below is one basic method for how you can identify these zones.

Open your chart. The best timeframes for supply and demand zones are longer ones. So, this is not the time to be looking at your 5-minute chart. Something like a daily chart would be better. Check the current price. This step is pretty self-explanatory.

Scroll all the way to the right on your chart, and check what the price is right now. Search for ERCs. These are just super long bars or candles during which price traveled significantly and one direction or the other. They can be bullish or bearish. Note that their bodies should comprise most of their lengths, not their wicks. Along with ERCs, something else you can be on the lookout for are gaps.

Check to see what happened before the ERCs. When you spot an ERC, you then need to look to the left of it to see what happened right before the big move up or down. You will probably spot some consolidation which took place prior to the breakout. Normally, there will be fewer than 10 candles involved, though there can sometimes be more.

Ultimately, you will need to draw your own conclusions from experimentation and testing. Key point: The basic steps above can be used to identify supply and demand zones on your charts. You will encounter variations based on the exact methods different traders prefer. How to draw supply and demand zones The exact ways that traders draw supply and demand zones differ.

It is between two price levels. So this mt4 supply and demand indicator highlights that for you on the charts. On this chart below, notice that the supply zones are in maroon color and the demand zone is shown in the blue color. This is really a straight forward process. If you had a buy order and now you see price heading up into a supply zone, you should consider taking profits off your trades or moving trailing stop loss tighter.

If you enter a buy order in a demand zone, the best place to place your stop loss would be just a few pips under the demand zone. If you enter a sell order in a support zone then the best place to place a stop loss would be just a few pips above the supply zone. There are forex traders that do find it difficult to quickly identify support and resistance zone.

Good news is, this demand and supply indicator mt4 really helps you with that. One basic way to trade the supply and demand zones is simply to buy on the demand zone or sell on the supply zone. The right trading approach would be to use the supply and demand zones with the rules of your forex trading strategies or strategy or use them as a price action confluence and then based on that, you buy or sell.

This is really easy-in a downtrend the supply zones will be continuously heading down.

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