Supply and demand trading can be a highly profitable strategy when executed correctly. It involves identifying aggressive buying and selling in the market, which indicates that big banks and institutions are entering and pushing the market in a certain direction. By waiting for supply and demand zones, traders can react to the market when these big players enter and make profitable trades.

What is Supply and Demand Trading?

Supply and demand trading is essentially about identifying aggressive buying and selling in the market. The aim is to spot the big boys — the large banks and institutions that have the power and money to move the market. When these big players enter the market, they create momentum and volume, which can be seen through large momentum candles.
The key to successful supply and demand trading is to wait for these big players to enter the market and react accordingly. As retail traders, we do not have the money or power to move the market. Therefore, we must wait for the big players to make their move and then follow them.

Why Trade Supply and Demand?

The reason why traders should trade supply and demand is simple — it offers an opportunity to trade with the big players. By reacting to the price when these big players enter the market, traders can make highly profitable trades. Waiting for supply and demand zones is a way of identifying where these big players are likely to enter and exit the market.

How to Find Supply and Demand Zones?

1. Momentum candles

To find supply and demand zones, look for at least three momentum candles in a row. These candles indicate aggressive buying or selling in the market and provide evidence of where the big players, or “smart money” have entered the market.
Once the momentum candles have been identified, the next step is to find the area where the move started. This area is known as the area of origin. To do this, use the rectangle tool on TradingView and mark the high and low of the previous candle. This area between the lines becomes the demand zone. Then, patiently wait for the price to come back down to the demand zone before entering for a buy.

There is a free indicator on TradingView by LuxAlgo, called the Smart Money Concepts which automatically displays real-time market structure (internal & swing BOS / CHoCH), order blocks, premium & discount zones, equal highs & lows, and much more. In other words, it highlights key resistance and support levels with which the big players aka “Smart Money” is playing.


Take for example the following chart of LUNC/BUSD on TradingView, which features the key resistance/ support levels automatically identified by the Smart Money Concepts indicator.

After the appearance of green momentum candlesticks (as explained above) which retested the support level from which the momentum began, we can then place a long trade to take profit at the next key resistance/ supply level, placing a stop loss just below the support level.
Likewise, if three momentum candles in a row indicate aggressive selling in the market, traders can draw a box around the previous candle’s high and low to create a supply zone. Traders can then wait for the price to come back up to the supply zone before entering for a sell.

2. Breakout from consolidation

Another way to find supply and demand zones is through consolidation. When the price is moving sideways, traders can draw a box around the entire consolidation area. When the price breaks out of the consolidation, traders can enter a trade in the direction of the breakout.

3. Wicks

Candlestick wicks serve as an indicator of price rejection at a particular supply or demand zone. When there are numerous wicks in an area, it suggests that the zone represents a significant level of supply or demand.

How to trade supply and demand?

Once the supply and demand zones have been identified, the next step is to wait patiently for an opportune time to enter a trade. If the price reaches the supply/ resistance area, enter for a sell; if it reaches the demand/ support area, enter for a buy. However, the validity of the said level must first be confirmed by waiting for price to retest the level before entering the trade. For example, if price has broken through a critical demand zone, wait for price to come back down to retest this level, before entering for a long trade. This is to ensure that there is still buying or selling pressure at that level, to avoid entering a trade on a “fake-out”.

Applying to the charts

Take a look at the chart above of PEPE/USDT on a 30 minute timeframe. The Smart Money indicator has automatically defined the key support and resistance areas.
The demand/ support zone is well validated by price breaking out to the upside from it, before going back down to the level to retest it, and heading up again. This forms a “double bottom” pattern, from which we can take up a long trade. We are currently met with heavy resistance at the level of around $0.0000019 (as price always tended to head back down upon reaching this area) — scalpers may consider taking a short position from this level to secure a quick profit.

Conclusion

Mastering supply and demand trading can be a highly effective way to make money in the markets. By identifying areas of aggressive buying and selling, you can trade with the big players and profit from their moves. The key to successful supply and demand trading is to identify aggressive buying or selling in the market and enter trades accordingly. However, it is important to note that supply and demand zones are not foolproof and that no trading strategy is 100% accurate. However, using supply and demand zones in conjunction with other technical indicators and analysis boosts your odds of success in making more profitable trades.
TradingView is an indispensable and versatile tool to facilitate trading in a wide variety of markets, offering various free and paid plans with discounts of up to $30 which you can avail here.
What are your thoughts on this? Feel free to leave your comments below; and follow me for more future articles in this trading series as we embark on a learning adventure of trading together!

You may also be interested in the following articles:
Trading 101: Unlocking the Secret Rules of Support and Resistance Levels
Harvesting Income with Grass: How To Turn Bandwidth into Bucks
How To Earn Crypto With Cold Wallets: An Introduction To Cold Staking

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