How to Draw Supply and Demand Zones in Forex Trading - ForeXposed

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Sunday, April 9, 2017

How to Draw Supply and Demand Zones in Forex Trading

Drawing or analyzing the supply and demand zones for the novice trader is not an easy thing. Requires repetitive experience to be exactly in drawing supply and demand zones.

Since forex supply and demand strategy introduced to forex traders, there is a wide range of understanding about this. Each user has its own way about how to trade forex using this forex trading strategy.

In this article, I want to give you the understanding of how to analyze and drawing supply and demand areas correctly in the forex market, at least correct in my opinion. And expected to achieve more profitable trade in forex trading.


Drawing Supply and Demand Areas

Before entering into a discussion of how to draw supply and demand zones, it would be better if I start by determining where the actual layout of supply and demand areas in the forex market, so that beginners traders who want to know how to trade forex can understand this trading strategy.

The trading method in this discussion might be a little different from the previous discussion about supply and demand strategies. In this article, it will be shown how to determine the zones that have a high probability of winning trades. Maybe very different from the way used by the majority of traders who use this forex trading strategy.

This strategy is based on what was once described by Sam Seiden, a forex guru who teaches supply and demand method, and combined with a description of forex strategies which is taught at Forex Mentor Online. And hopefully, after reading this article, you gain a deeper understanding of supply and demand strategies.


How to Locating Supply Areas

In locating supply zones we can do it by finding for small consolidation structure or a swift drop away of the single candle that is commonly referred to as the "Base".


What is “The Base”

“The base” is tight sideways range or consolidation that consists few candlesticks.
How to Draw Supply and Demand Zones in Forex Trading

This image is an example of a supply zone which is formed by a base.

While the image below is an example of a supply zone which is formed from a single candle.
How to Draw Supply and Demand Zones in Forex Trading

How to Find The Demand Zones

To find the demand zones is to look when the price makes a large move up which is started from a single base or candle.

The image below is an example of demand zones which is formed from a single candle.
How to Draw Supply and Demand Zones in Forex Trading

This is an example of demand zones created from a base.
How to Draw Supply and Demand Zones in Forex Trading

All of these images shows the only two types of supply and demand zone that exist in the forex trading.

That is the zones which are formed from a base and from a single candle. No other type of zones.

The strength of the movement that comes from supply and demand zones does not demonstrate the strength of these zones.

During a zone has one large candle of bullish or bearish that was moving away from that zones can be considered a valid trading zone. Because it’s likely will moving away from it.


A Base as A Zone Will Result to Profitable Trades

Typically, supply and demand zones that are created from a base is expected to be so more successful trades than a zone that formed from a single candle.

This happens caused by traders psychology which are on trading positions back when a base is being created.

That is when the prices are quickly moving up or down in case the supply and demand zones provide a negative effect on traders psychology which has an open position in the base before the price moves up or down.

A zone that was created from a single candle means there are not lots of traders at wrong positions when the price moves up or down creating supply and demand zones.

Inside the supply or demand zones which are formed from a base there are more trapped traders. This happens because the price is moving sideway or consolidation before going up to makes higher or going down to makes lower.

And when prices return to a zone that was created from a base, the forex traders who were trapped, either long or short positions will begin to closing their positions on the forex trade. In addition to closing positions, they will make additional selling or buying trade which will create a more liquidity of the forex market.

The liquidity conditions give an opportunity to the bank's traders to placing their trade into the forex market without being noticed by the majority of the traders, this is why the price moving out from supply and demand zones when it returns to the zones.


How to Draw A Supply and Demand Zones on The Charts

Once we know how to find the supply and demand area on the charts, the next step is knowing how to draw supply and demand zones on our charts.

Both of supply and demand zones with a base or single candle are drawn in the same way.

For drawing the supply zones, you can use the rectangle as a tool, that you can get in MT4 on the INSERT tab.
How to Draw Supply and Demand Zones in Forex Trading

Next, locate supply zones that you want to mark, mark with a rectangle, starting from the open of last bullish candle before the drop which formed the supply areas.


Note:
Always do the drawing, starting from bullish candle before the drop occurs. If a bearish occur before the drop, then you need a rectangle to drawing on the most recent bullish candle and put it in accordance with the circumstances.
How to Draw Supply and Demand Zones in Forex Trading

The open bullish candle with an arrow which shows in the image above is a place where you can start drawing your supply area on the chart. The way is to drag the rectangle up to the most recent high before the drop occur. The chart on the image above shows the high is on the top of a bearish pin bar.


This is How to Drawing Demand Zones

Drawing a demand zones is different from drawing a supply zones as we draw the supply areas from the most recent bearish candle that found immediately before the up move to creating the zone.
How to Draw Supply and Demand Zones in Forex Trading

On the image above shows a drawing of demand zone from the open of a bearish candle that found just before the price made a move up creating the zone.

In this position, you have to find the most recent low that most near to the zone, and then dragging the rectangle to the low. Right now, the demand zone have drawn on your forex charts.

On contrary to when you are drawing supply zone (supply areas), the candle that you are drawing the demand zone must be bearish. If it occurs to be bullish trends then you have to go back and locating the most nearest candle before the move is happening and use the rectangle to draw from there.

Why this is so important, because this is due to how the banks (big player) place the trades. The banks do not place the trades to a direction that same to their directions.

Simply, the banks will not put buy trades when the current candle is bullish, and won't put a sell trades when the current candle is bullish.

This happens due to the nature of the orders that currently present on the forex market. When you see a bullish candle that means the majority of the trade orders come to the market are buy, whether it comes from traders which closing their trades causing by loss or reactive traders that open trade just because the price seen on the move.

This situation is the same for the bearish candle situation, most of the trade orders that present during the creation of a bearish candle will be sell orders for the same reason.

What we have to know is the main reason we always drawing the zones/areas from the last bearish candle is because this being the last area that the bank's traders are likely to have to place their trades.


Summary of Forex Supply and Demand

After reading this article, hopefully, you have the best understanding about forex supply and demand and know how to locating and drawing supply and demand areas.

Maybe this is can be a difficult thing for the traders who are not adept in changing to the new strategies or methods of trading. Finding out even a simple thing on forex trading strategy can be very challenging experience, especially when there are very many trading techniques that are also very tempting.


Reference: Forex Mentor Online