Supply &

Demand

A Price Action Trader's Guide

F o r e x B e e L t d
 A Price Action Trader's Guide

Table Of Contents

What is Supply and Demand? 2

How supply & demand works? 3

How to identify supply and demand zones? 4

How to draw supply and demand zones? 6

How to trade supply and demand? 8

Supply and Demand Cheat Sheet 13

SnD Trading Strategy with Price Action 13

General rules to follow 15

Summary 15

A Price Action Trader's Guide

 A Price Action Trader's Guide

What is Supply and Demand?

Supply and Demand represent the two most powerful forces of the forex market.

Demand means the number of buyers buying a security in the market. Supply

means the number of sellers selling a security in the market. Large supply takes

the price to move down and large demand takes the price to move up. Balance in

both forces will keep the price in sideways movement.

It is the most basic and essential element for technical analysis as well as fundamental

analysis. It is the key to understand the forex market.

The main bene t of S&D in technical analysis is to capture a Pinpoint entry exactly from

where banks start buying and selling. Another Main bene t is that we can increase our

risk-reward using a tight stop-loss or an open take pro t with a breakeven.

A Price Action Trader's Guide

 A Price Action Trader's Guide

How supply & demand works?

There are two types of states of the price of a security in technical analysis

 Balanced state

 Unbalanced state

In a balanced state, the price is moving in a range like moving sideways. Simply means

forces of buyers and sellers are balanced. Both of them don’t have the ability to create a

trend either bearish or bullish trend. After breakout (usually happens in London session)

of this sideways (range) movement of price, imbalance in price occur. And after the

breakout, the recent range will be called a base zone and the price will again come to this

base zone to pick un lled orders.

A Price Action Trader's Guide

 A Price Action Trader's Guide

How to identify supply and demand zones?

Supply and Demand zones are formed on the base region of price on the chart. There are

basically two types of movement of price in technical analysis.

 Impulsive move

 Retracement move

The impulsive move represents the price movement of market makers. Retracement

move indicates base regions where market makers decide their next direction either to

go up or down. Price moves from one base region to another base region in technical

analysis.

S&D Trading is to just gure out zones to open and close orders.

There are four basic concepts of demand and supply in forex.

Drop
  Base Drop (DBD)
Rally
  Base Rally (RBR)
Rally
  Base Drop (RBD)
Drop
  Base Rally (DBR)

A Price Action Trader's Guide

 A Price Action Trader's Guide

Key Points
Simple Formula = Big candle + base candle + Big Candle

 Body to wick ratio of the big candle should be more than 75%

 Body to wick ratio of the base candle should be less than 50%

Have a look at the picture below

These zones are everywhere on the chart I will show you at the end of this Article. The

Above image is of Drop Base Rally type of S&D. See in the chart above Market comes

down to this level and just picked orders from the demand zone and went away. Supply

and Demand is the Ever-Green Technique of forex technical analysis.

A Price Action Trader's Guide

 A Price Action Trader's Guide

How to draw supply and demand zones?

To draw a Supply or Demand zone, follow the following steps

 Measure the range of the base region of price on the chart

 Mark the highest and lowest point of the base region on the chart

 Draw a zone by meeting the highest & lowest points of the region, then extend it

appropriately to right on the chart of a currency pair

Time matters a lot to identify strong forex supply and demand zones. Because less time

spent by the price at a certain base zone indicates a more powerful zone and more

un lled orders at the recent base zone. On the other hand, more time spent by the price

at a certain base zone indicates a less powerful zone and less un lled orders by

institutions.

A Price Action Trader's Guide

 A Price Action Trader's Guide

Another method to identify strong supply and demand zones is by using the Fibonacci

tool. Most of the Supply and demand zones between Fibonacci 61.8 and 78 levels are

stronger.

During drawing a base zone in forex supply and demand trading, remember to not go far

back in history for nding a base zone because it’s common sense that institutions will

not be going to hold their trades for years or months during intraday trading. I’m not

talking about swing or long-term trading here.

Here is a video guide on how to draw supply demand zones correctly 

Click here to play

A Price Action Trader's Guide

 A Price Action Trader's Guide

How to trade supply and demand?

Supply and demand trading is not tough. Just simple is to look for the best and fresh

base zones and that base zone will act as the entry zone. Stop loss will be few pips above

or below the base zone depending on the timeframe.

For example in the case of Rally base Rally, we will draw a zone at the low and high of the

base candle. like in the below image.

In the case of RBR, a Pending buy order will be placed one to two pips above the base

zone (remember to include spread) and stop loss will be a few pips below the zone

(remember to include spread).

A Price Action Trader's Guide

 A Price Action Trader's Guide

Disadvantage of supply & demand zone

The disadvantage of supply and demand zone trading is that this technique will never

tell you about the take pro t level. Its obvious price is moving from one zone to another

zone but there is an unlimited number of zones on the chart that’s why Supply and

demand zone trading doesn’t tell us about the take pro t level.

There are many strategies to tackle with this like if you are trading a simple trend line

breakout then after trend line breakout and pull back in the price we will con rm precise

entry from a demand or supply zone with a tight stop loss and high risk-reward ratio.

Key Point to Remember:

The number of Base candles indicates the strength of the zone. More base candles more

weak a zone will be. On the other hand, the fewer number of base candles more strong

the zone will be. I will show you in chat how to draw zone and some other examples in a

single chart.

A Price Action Trader's Guide

 A Price Action Trader's Guide

Unlimited zones
Now I will explain How the supply and demand zone is everywhere in the chart just you

need the right angle to see the chart like a pro. A pro trader never changes timeframes

again and again. A pro trader can analyze all the timeframes just from a single timeframe.

Now Let me show you a chart.

A Price Action Trader's Guide

 A Price Action Trader's Guide

All in one image

A Price Action Trader's Guide

 A Price Action Trader's Guide

Watch the video below about supply and demand forex

Supply and Demand Forex | Rally base Rally supply demand | Explained

Click Here to play

A Price Action Trader's Guide

 A Price Action Trader's Guide

Supply and Demand Cheat Sheet

The cheat sheet includes a comprehensive guide to identify and draw supply and

demand zones. Everything has been explained about RBR, DBD, DBR and RBD.

SnD Trading Strategy with Price Action

The supply and demand zones in forex are used for the exact entry point with a tight

stop loss. Price moves from one zone to another zone. I don’t use supply and demand to

nd take pro t level. Here I will explain a simple trend line breakout system with supply

and demand zone. This is just to show you how it will work. Any strategy with the supply

and demand zone technique will improve your method a lot.

A Price Action Trader's Guide

 A Price Action Trader's Guide

Trend line method with S&D

There is a good trendline drawn in the image below. After the breakout of the trend line,

the price gave a pullback to the demand zone to ll the un lled orders and start a new

impulsive move. Big moves show the direction of market makers and big banks.

The Stop-loss level is just below the demand zone and entry in on the high of demand

zone. It is a high risk-reward setup shown to you for clari cation of supply and demand

zone trading.

A Price Action Trader's Guide

 A Price Action Trader's Guide

General rules to follow

Four things to remember while looking for a supply or demand zone

 Time spent by price in base zone

 Number of base candles

 Time price took to pull back towards a base zone

 Location of Supply or Demand zone

In Summary
If you want to ask me about the most basic concept of technical analysis, then I will say

“supply and demand”. There is always a tug of war between supply and demand in the

market. Base zones are the footprints of market makers, When you will try to read the

price on the chart, you will see price picking orders from one base zone and then staying

for a while on another zone.

I will recommend you to backtest this supply and demand trading method by taking at

least 100 samples. This will improve your trading a lot. Without backtesting, you will not

be able to learn it properly.

Teach a Parrot the terms ‘Supply and Demand’ and you’ve got an
Economist.

A Price Action Trader's Guide

 A Price Action Trader's Guide

Final words from ForexBee

Congratulations! If you have made it to this point, you de nitely have the price action

trading spirit in you. We know we’ve provided you with a lot to think about in this guide,

but you now have the knowledge to take the information and apply it to your trading. 

Thank You So Much!

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A Price Action Trader's Guide