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Traders implement multiple trading strategies to determine the right position type, opening and closing value, price movement and action, and so on. While day trading is the most common form, somehow, it suffered a death blow, and traders do not completely rely on this particular strategy, especially when they open a long position.
Published on 17 October 2022
The current market statistics exemplify the popularity of the supply and demand trading system. Not only is it easier to understand than other trading strategies, but it also helps traders to make accurate calculations about that position type or the opening and closing values. As a result, the risks are reduced significantly while the profits are comparatively more than other trading strategies.
In this article, we will explain the basics of supply and demand trading strategy to clarify your doubts and offer you an in-depth clarification.
To define the supply and demand trading strategy, you must understand the concept of supply and demand zones. In usual cases, we consider the high and low-key levels to mark the highest and lowest price at a particular moment within a trend.
However, the supply and demand zones are spread over an area, so the strategy is often called a distribution strategy. A supply zone will cover all the price points at similar levels in the uptrend graph right before a downtrend is reversed. Similarly, the demand zone covers equal price points in the downtrend till it changes to an uptrend.
Several reasons can back up the growing use of supply and demand zones to determine the price action, speculate the future movement, open, or close a position, and choose the position type. Here are some of how the supply and demand trading zones have proven beneficial for traders.
Before you start applying this strategy for trading, your job is to identify the supply and demand zones in the graph. Until and unless you do so, you won't be able to get higher profits and predict a trend reversal correctly.
First, you need to find the current price point on the market graph and then find a strong slope of candlesticks in the same direction. Remember, the slope must be on the current price's left side. It can be at a higher or a lower position, but the side should be left. A strong slope means the price has been dropping or increasing consistently until the current price candle.
The next step is to find the key points in the slope region where the price index movement is consistent either in the upward or downward direction. These are identified by ERC candles or the ones with pretty long bodies. However, the ERCs do not have wicks, or the wick length is quite small.
Since you need to draw the supply zone block, you must determine its origin. It is the starting point where the price suffers minute ups and downs and then suddenly increases or decreases with the help of ERCs.
As you are aware of the basics of the supply and demand zones, the right ways to identify the starting point of the zones, and their importance, you won't have any problem applying the knowledge in trading. Ensure you study the price movement properly before opening or closing a position or deciding if you want a long or short position.
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