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Tips for Identifying Supply and Demand Using Price Action

Supply and demand play a crucial role in trading, and employing price action can aid in identifying demand and supply zones more effectively. Here are some tips for identifying supply and demand using price action:


Key Point: Turning Points in Supply and Demand Changes

  1. 1. Basic Concept of Supply and Demand:

      • - When supply exceeds demand, prices fall, and vice versa.
      • - Pay attention to the Depth of Market (DoM) to observe buy and sell order quotes along with volume.

  2. 2. Turning Points and Supply vs Demand Zones:

      • - Turning points occur when supply surpasses demand, acting as resistance.
      • - Turning points occur when demand surpasses supply, acting as support.

Utilizing Supply and Demand for Profit

  1. 1. Focus on a Price Level (Price Level Zone):
      • - Utilize price action to identify potential price levels.
      • - Employ swing highs/lows and Fibonacci levels as references.
    • Example:
      On the chart, observe price bounces from Fibonacci levels (23.6%, 38.2%, 50%, 61.8%).

Practical Steps:

    • Focus on price levels identified through price action.
    • Use swing highs/lows and Fibonacci levels as guidance.
  1. 2. Observe Occurrences at Support/Resistance Areas:
    • Watch for indications when prices approach support or resistance levels.
    • Increased Demand Indications:
      • Bullish candlestick patterns (e.g., bullish engulfing).
      • Failure to penetrate support levels.
      • Volume increase.
      • Consolidation (sideways movement).
    • Increased Supply Indications:
      • Bearish candlestick patterns (e.g., bearish harami).
      • Failure to break through resistance levels.
      • Volume increase.
      • Consolidation.

Example:

    • Increased volume when prices approach support levels may indicate rising demand.

Closing: Money Management and Certainty

  1. 1. Risk Management (Money Management):

    • - Set stop-loss and take-profit according to sound risk management principles.
  2. 2. Understanding Possibilities, Not Certainties:

    • - Indications only suggest possibilities, not certainties.
    • - Be prepared to limit losses if prices do not meet expectations.


Leveraging price action to identify supply and demand can assist traders in recognizing potential market turning points. By focusing on price levels, observing price action at support/resistance areas, and practicing sound risk management, traders can enhance their profit potential. It's crucial to remember that trading always involves risks, and there's no guarantee of 100% success. Combine price action analysis with appropriate money management strategies for more consistent trading outcomes.
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