Forex Zone Trading Pdf – Supply and demand zones are the most basic Terminology in forex trading. Without supply or demand, the price cannot move on the chart, and it will always stay in a straight line. Supply-demand creates an imbalance in the market resulting in price fluctuations.
In this article, you will learn about the 4 types of supply and demand zones in technical analysis, because technical analysis is quite different from fundamental analysis. And we can also define zones on the price chart using a simple approach.
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Demand zones represent rally bases and rally-fall bases, while supply zones represent bearish bases and rally-fall bases.
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These are the footsteps of market makers, and advanced forex traders use this concept of supply and demand in the technical analysis of currency pairs. You can study this pattern in detail, but I explained a simple formula to determine this zone on a price chart.
These are four simple formulas used to determine zones. A large candlestick means a candle with a larger body to wick ratio, while a base candlestick means a candle with a smaller body to wick ratio.
The main importance of supply and demand zones is that these zones show pending orders of institutional traders and large banks.
In other words, supply and demand trading is a way of keeping up with banks and large traders. About 94% of the forex market is traded by central banks, hedge funds and institutions. The remaining 6% are retailers. That’s why if you want to make money, try to predict the movements of these market makers. If you are trading like a retail trader with emotions, you will lose in this market.
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The second important point is that the basis of supply and demand zones is price action. Since the price repeats the above four price patterns after irregular time intervals on the candlestick chart, this is a price action strategy. It does not come from mathematical formulas but from natural patterns.
This section will explain how price selects pending institutional orders from supply or demand zones.
For example, in USDJPY, the price forms a demand zone in a rally base rally. This request zone is still fresh because it has not yet reached the zone. So, this means that the pending buy order is still there. In technical analysis, the formation of a demand zone means that large traders want to buy the currency at that price.
Whenever we see a rally base rally zone, we also place pending buy orders in the demand zone to trade with the institutions.
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After the swing is completed, the price will return to the demand zone with momentum. When the price meets the pending buy order, it will continue the uptrend because demand has increased. As a result, prices will rise.
Check out this Supply and Demand indicator which is based on a semi-manual trading strategy. It automatically retrieves the most accurate supply/demand zone using price action. This will help increase the profit potential in supply and demand trading.
Prices always move due to differences in supply and demand of a particular currency or asset. For example, if more consumers want to buy dollars, the demand for dollars will increase. This increase in demand is directly proportional to the increase in the price of the US dollar. Conversely, if more sellers are willing to sell dollars, the supply of dollars will increase. This will result in a devaluation of the dollar.
The method or news that tells us about the demand for dollars or the supply of dollars in the market is basic analysis.
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In technical analysis, we draw zones on price charts using natural price behavior such as a triangle or wedge pattern. This pattern also forms on price charts after irregular time intervals. In the same way, there are other natural patterns like compression and rarefactions, etc. This pattern describes the presence of supply or demand at a certain price range.
The rally base rally and fall base decline show the phenomenon of compression and rarity on the price chart.
I hope you understand this difference. If you haven’t succeeded, continue reading. You will understand this after reading the entire article.
Supply and demand trading is the best method in technical analysis and fundamental analysis. There are many other trading methods such as volume spread analysis, naked chart, Elliott waves, etc., but supply and demand is the best of all.
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I have studied all the trading methods in the beginning, but now I stopped trading supply and demand. I just improved this technique over time. I also recommend that you stick to supply and demand for trading.
You can also take a combination of other methods, but your approach should be based on supply and demand.
It draws real-time zones that will show you where prices are likely to test in the future. Supply and demand when trading Forex is no different than supply and demand in any other real world trade.
Although many trading websites will try and make this topic too complicated, the truth is it is not.
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However, the trick when using supply and demand levels when trading is to find these levels quickly and easily to find and then manage your trades.
In this post, we explain exactly what supply and demand are and how you can use them in your trading.
Supply is the amount offered for a particular product, asset or in the case of Forex trading, a currency.
For a simple real-world example, think of gasoline/gas prices. When there is a lot of gas around and a lot of supply, the price will go down and it will be cheaper.
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However, on the other hand, if demand increases and supply is scarce, people will start paying higher prices.
Supply and demand can be seen in everything from house prices to how much you pay for your food.
If there is a large amount of demand for a particular currency, then it will increase. If however, demand falls and there is an imbalance where there is too much supply, then just like in the real world prices will start to fall.
The easiest way to think of this is what happens when prices start to rise rapidly in a rising market. When the price starts to jump higher, more traders try to enter (increased demand). Since there was not enough supply to keep up with this increased demand, prices rose.
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There are many ways to view supply and demand levels on your Forex chart. Common methods are trend lines, support and resistance and also use dynamic support and resistance with moving averages.
However, the easiest way for you to see supply and demand levels on your chart is at key support and resistance levels. This level at which the price continues to rise indicates a consistent level at which the price is seeking excess supply and a level at which demand is increasing.
Prices are in a constant tug of war between buyers and sellers. This tug of war is to determine the level of supply and demand and ultimately who controls the next step.
As the example chart below shows, when prices are falling, there is excess supply and lack of demand. This results in lower prices. The price will move to the level of demand (support) where the dynamics of the market change. At this level aggregate demand increases and since demand is now higher, supply begins to decrease. This sends prices back higher.
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As prices recover, traders begin to cash out their profitable trades. As traders exited their positions and sold, suddenly the supply around increased. What happens when there is more supply and less demand? Prices started to drop again.
While there are many complex ways you can start using supply and demand levels in your trading, the simplest and often the best is with a clean price action chart.
What does net price action chart mean? No pointers or any other distractions. Raw price action only.
See the sample chart below. You will first notice that the price is in an upward trend. Then you want to look for long trades that are in line with the current trend. As this example chart shows, you get two potential trade signals to go long.
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The price first returns to a clear demand (support) area where you can go long. The price then made a second pullback to the same demand zone before making another big move higher.
Once you learn how to spot clear supply and demand zones on your charts, you can start using them to both find high-probability trades and manage your trades as well.
You can use this level to make very high reward trades and also to set your stop loss and profit targets.
The next two examples of supply and demand trades are the setups you will see
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