On the other hand, if there are more sellers than buyers, the market can only fall. When the concepts of supply and demand are applied to Forex markets, this can be viewed as prices on a chart where there are likely to be buyers or sellers looking to fill orders. When talking about supply and demand in Forex, we always refer to zones rather than specific prices. This is because while the market consensus may be that a particular area is where buyers or sellers want to execute their trades, not everyone is going to have the exact same price point.

If supply sees an increase in selling pressure, then that means we have sellers who are looking to execute trades in this price zone. On the other hand, if demand sees an increase in buying pressure, then that means we have buyers who are looking to execute trades in this price zone.

Supply and demand in Forex is also characterized by large clumps of orders, often from banks or institutions found within the interbank market. Supply and demand zones are often formed by large clusters of orders that are all executed at once, causing price to move sharply away.

Demand far outweighed supply at this price point and when the limited sell orders ran out, price could only go higher. But before you develop a trading strategy, lets go over how to determine Forex supply and demand zones and draw them on your charts. Forex supply zones are areas where banks and institutions are placing a large number of sell positions at a particular price zone. When price approaches or returns to this supply zone, these orders are just waiting to be filled and send price back lower again.

You can see on this chart that there are numerous examples of price returning to a supply zone, before selling again. All of these areas could have been shorted as part of a Forex supply and demand trading strategy. These are areas where banks and institutions are placing their clusters of buy orders at a particular price zone on the chart. If price moves higher and leaves a chunk of these buy orders unfilled, then they too are likely to just be left untouched, waiting for price to eventually return and trade through them once more.

Once again you can see that if we used the price preceding a major move, as our definition above said to do, then we get mostly swing lows. Zones that once again where returned to, were often areas where buyers were once again found and price was ripping higher as a result.

You should buy when the price action approaches a demand level and bounces upwards. You expect the price to increase as a result of the aggregated buy orders in the demand zone. Therefore, you have the opportunity to ride an upcoming price swing. You should sell when the price reaches a supply level and bounces downwards.

You assume that the price action will begin to trigger the aggregated sell orders in the area, which is likely to lead to a price drop. Thus, this creates an opportunity to ride a bearish move on the chart. You would put a stop loss order right below the demand area when you are long in the market. Conversely, put your stop loss order right above the supply area. The most common approach is to hold your trades until the price action reaches the opposite level on the chart.

So, if you are trading long a demand level, you should hold your trade until the price action reaches the next supply zone on the chart. Opposite to this, if you are trading short a supply level, then you should hold your trade until the price reaches the next demand level on the graph. Many times, however, there is no clear level to target or it may be too far away. Often the price may not likely be able to reach an opposite level during its move.

Therefore, I suggest you also use simple price action derived analysis when you determine your exit point on the chart. To do this, you can use different price action clues such as trends, channels , or by analyzing swing tops and bottoms.

At the bottom left corner we see a supply and demand zone. The demand zone is marked with blue and the supply zone is indicated with magenta. See that the price action creates the demand zone after a previous decrease. The price bounces several times from the demand zone, and we would have had several opportunities to enter the trade.

We assume that the demand zone will trigger new long orders, which will push the price upwards. The stop loss order should be placed below the demand zone as shown on the image.

Notice as the price increases from the demand zone, that it eventually reaches the nearest supply zone above. For this reason the trade could be held on the assumption that the increase will continue. This is exactly what happens. The price initiates a new rally. The increase continues for 1 week. A bearish attitude is demonstrated afterwards.

The red bearish channel on the chart shows decreasing tops and decreasing bottoms. This is a strong indication that the bullish trend is most likely finished and that a bearish trend might ensue. Therefore, it would be a good option to exit the trade on the second descending bottom on the chart after the creation of the two descending tops. The two small blue arrows on the chart show the creation of the first two tops in the supply zone.

We will look for Short trades that interact with that level. The price starts decreasing afterwards. Soon after, a swing low is created and we see a sharp price move to the upside. This area subsequently forms a solid demand zone on the chart. The price returns to the supply zone for a re-test afterwards.

This creates another short opportunity on the chart. The pair could be sold again after the bounce from the level. After the price decreases, it reaches the magenta demand level on the chart, creating another bounce.

The second short trade could be closed when you recognize the bounce from the magenta demand line. The price returns to the supply zone and bounces again downwards. This leads to a new price decrease. However, this time the price action creates a strong market gap down and almost goes through the already established demand zone, meaning that the bearish force is stronger than usual. In this case you would have had a sufficient reason to hold the trade on the assumption that the selling pressure has taken over, and the pair is entering a bearish trend.

We use the big bearish yellow trend line to measure the intensity of the downwards move. Then we hold the trade until the price action breaks the yellow bearish trend line. The last red arrow shows the moment when price breaks thru the trend line to the upside, which would be a valid signal that the trade needs to be closed. The stop loss orders for the three short trades are indicated with the red horizontal lines above the supply zone.

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Please note: This strategy was publicly published in the trading community and is free to use. Therefore, we are mainly explaining the components and rules of the strategy. If applicable, we are highlighting advantages, disadvantages and possible improvements of the strategy.

Price will most of the time bounce back to the downside coming from below as soon as a supply zone is reached. FREE Supply and Demand Forex Trading Strategy Download the FREE Supply and Demand Forex Trading Strategy for MT4.

With this strategy, you will exploit such a behavior of the supply and demand level with the help of an indicator. The indicator draws the supply and demand zones for you.

You can concentrate on the price action around those zones. But to take the trades, you need to rely on additional parameters along with the supply and demand levels. Chart setup with the Supply and Demand Forex Trading Strategy For MT4. The supply and demand level which is often known as the resistance and support level is one of the most important factors to consider while taking any trades. Usually, the trade setups are formed at these important levels and the traders execute their trade by analyzing other essential factors like trading sessions and reliability of the trend.

The SD indicator draws supply zones as red rectangles and demand zones as blue rectangles. If the price approaches a blue rectangle for the first time coming from above then you can expect a bounce of the price to the upside.

You can then wait for a confirmation like a bullish reversal candlestick pattern to enter a buy trade. The same can be applied for a sell trade in the opposite direction. When the price approaches the red rectangle coming from below then you wait for a bearish reversal candlestick pattern and initiate a sell trade. If the trades are taken based on the supply and demand levels, you should be extremely careful about the trading session.

First of all, pick an asset that is trading near the support and demand level during the active trading session. So, if you chose to trade the EURUSD pair, you need to look for the trade setups in the New York or London trading sessions.

Trying to take the trades during the inactive trading hours may increase the risk factors significantly. The market will not be volatile and you might get stuck with the trade during the ranging market conditions. Moreover, the spread will be much higher and it increases the associated cost at trading.

When the price is trading near the supply or demand level, it also imposes a threat to the break of critical levels. Due to fundamental factors, at times the support and resistance levels are often breached.

Usually, we can see weakness in the trend by analyzing the highs and lows of the market. During an uptrend, the price should not make any lower lows. Similarly, in a downtrend, higher highs will become a rare phenomenon. So, if you observe these rare phenomena which signify a possibility of trend change, you should not take the trades at the support and resistance level. Ignore the trade signals formed at the blue or red shaded zone to stay on the safe side.

While using the Supply and Demand Forex Trading Strategy For MT4 , we should be looking for the trade signals formed in the higher time frame. Supply and demand levels formed in the M1, M5, and M15 time frame are not that reliable and they are often regarded as the minor support and resistance level.

So, if we take trades at those levels, the system is bound to lose its efficiency. Placing the stop loss while using the Supply and Demand Forex Trading Strategy For MT4 is relatively an easy task. You may place the stop loss below the second blue shaded zone.

But if you intend to use a conservative method, the stop loss should be placed below the third blue zone. The take profit is set to the red shaded zone in the chart as this level is going to act as the resistance level. The minimum risk to reward ratio should be better than or else you should not take the trade.

In this segment, we will learn to take the trades by using the bearish engulfing or the pin bar pattern. By integrating these two price action confirmation signals, we should be able to execute the trade with more confidence. The stop loss should be placed above the second red resistance zone.

In case you want to trade with tight stop loss, you may place the SL a few pips above the high of the pin bar or the bearish engulfing pattern. The profit should be set to the nearest blue shaded zone drawn by the SD indicator. Note that the risk to reward ratio for the trade should be better than The Supply and Demand Forex Trading Strategy For MT4 help us to analyze the market in a very simple way.

The SD indicator does the core work associated with the identification of support and resistance level. But these support and resistance levels are often broken due to high impact news. So, stay tuned with the economic news release and avoid taking the trades on major news like NFP, interest rate change, ECB press conference, etc.

as these are key events that often cause a change in the trend. Using the Supply and Demand Forex Trading Strategy For MT4 requires strong confidence. So, we recommend the rookie traders use this system in the paper trading account as it will make them comfortable with the new system. While trading the real market, be aware of the risk factor since you never know the results of the trade.

Since losing trades are inevitable in the trading profession, trade with proper risk management and never lose hope if you lose few trades. Stick to the trading system and trade with a high risk to reward ratio. I'm Mike Semlitsch the owner of PerfectTrendSystem. My trading career started in Since I have helped thousands of traders to take their trading to the next level. Many of them are now constantly profitable traders.

The following performance was achieved by me while trading live in front of hundreds of my clients :. Connect With Me:. Results From 5 Months! This service starts soon! Be the first who get's notified when it begins! Request Strategy. Yes, I want to receive emails with explanations regarding the tool and the newsletter. First Name. Partially Automated Trading Besides Your Day Job. Alerts In Real-Time When Divergences Occur. About Me I'm Mike Semlitsch the owner of PerfectTrendSystem. The following performance was achieved by me while trading live in front of hundreds of my clients : Connect With Me:.

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What's Next? Sponsored Broker Home Forex Indicators Trading Best Supply and Demand Indicator for Forex Trading. How to trade with the supply and demand zone indicator? Learning to trade supply and demand in Forex, is certainly more of an art than an exact science. Double Zigzag — No Repaint Indicator for MT4 April 14, Trading reversals at supply or demand zones will give you the highest probability of success using a strategy of this type.

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