Transcription
This is supply, and this is demand. These are three insane tricks I'm going to be sharing with you, including this trick that'll make your zones three times more accurate.
Supply and demand is one of the most important subjects to understand in trading. Even the kids are talking about it these days.
"Dude, have you heard of that new supply and demand stuff?"
"Yeah, dude, that is awesome!"
There's a good reason for that. Everybody's talking about it because of how well it works. So who better to make a video on it than your good old pal, Trading Lab?
I'm going to be showing you how to draw zones correctly, what to look for, how to enter, how to exit, and of course, I'm going to give you some secrets on how I improve the performance of my supply and demand zones. Basically, it's a full in-depth guide on supply and demand, absolutely for free. That way, you don't have to go to a scammy website like readprofit4you.net and download their free ebook just to get a virus on your computer.
Oh, enough with all the intro stuff! Let's get into that juicy, finger-licking good value.
So, what is supply and what is demand?
Supply is an area where price had aggressive selling, and demand is a scenario where price had aggressive buying. So, supply goes down, demand goes up.
But one of the very key important factors of supply and demand is that the move has to be aggressive. For example, here, this move would not be considered an area of demand. Sure, you have a decently sized green candle right here, but this wouldn't be considered enough to be an area of demand.
What we are looking for is aggressive buying—like I'm talking moms on Black Friday!
For example, here you can see from this point on, there was extreme buying once price hit this area. So, once price hit the zone, there was aggressive buying, as you can see from this price action right here. This would be considered a successful demand zone.
To recap, you need aggressive buying or selling in order for it to be a good zone. If it's just a couple of candles moving up or down, it's not considered a supply and demand zone.
Let's move on to how to draw these zones correctly, then I'll give you a secret trick to make them more accurate.
There are many ways to draw supply and demand zones; everybody has their own way of doing it. This is just how I personally do it, as I've seen the best results with this method.
Here we have our chart, and as you can see, we did step one and found some aggressive buying. How I like to draw my demand zones is to find the opposite colored candle before the aggressive move. Since this is a large aggressive upwards move, we are going to draw a demand zone.
So, what we want to do is find the red candle right before the aggressive buying, which is right here. Then you want to draw your area from the low to the high of the candle. This is your demand zone. Isn't it beautiful?
Here's an example we found for supply. Here we have aggressive selling, so we find the green candle right before the big move. Draw an area from the low to the high of the candle. This is our supply zone. Pretty simple!
So, that's the easy part. The easy part is drawing the areas, but not all of these areas that we draw are going to be good areas. Actually, most of them are going to be invalid areas.
This is how you decipher a valid area from an invalid area. But before that, have you tried Anger Trade? It's one of my favorite brokers of all time because of these reasons: some of the absolute lowest fees on the market, their spreads go as low as 0.0 pips, and if you're an absolute maniac, you can use up to 500x leverage with them—500x!
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Okay, back to the video.
So, this is how to decipher a valid zone from an invalid zone. A valid zone will have a break of structure. Here we have an aggressive downwards move, so we follow the steps I told you before and make our supply zone.
Next, we need price to break this structure right here, which it does. This means this zone is now validated, and we can trade based on it.
In this example, we again have an aggressive downwards move, but this time it does not break the structure. So this zone is not validated, and we would not trade off of it. It needs to have both an aggressive move and a break of structure to be a valid zone.
Just as a little tip, my private indicator automatically displays all break of structures for you. All you have to do is go to the settings, scroll down to Smart Money Concepts, and enable BOS. This will automatically display all the main break of structures for you, so you don't have to mark them yourself. It'll save you a lot of time and will also only display the main structures, so you don't accidentally mark the wrong one.
If you want to check out the indicator, you can go to tradinglab.ai, or I'll put a link in the description.
So, moving forward in this video, I'm going to be using the private indicator to display my break of structures for me.
Now that we know the criteria of a valid supply and demand zone, let's move on to how to actually enter and exit based on that criteria. Then we'll go over that secret juicy trick to improve your zones and make them spectacular.
Here we have aggressive upwards buying. We have a big movement, so that's step one complete. During this big movement, there is a break of structure, as we can see from the indicator. That's step two complete.
So we draw our zone from the previous red candle. Now, this is how you would do your entry and exit: you are going to enter as soon as price comes back down to the zone. You are going to set your stop loss right below this zone, and you're going to set your take profit at the high of the upwards move.
So you'd set your take profit right here. As you can see, we have a great risk-to-reward ratio, and the trade instantly hits our valid demand zone and skyrockets to our take profit for an easy win.
Let's do a supply example, and then we'll go over the secret trick. Here we have aggressive selling. While this aggressive selling was happening, the indicator says there is a break of structure, so we're good there. We mark a supply zone at the green candle right before the move.
Wait for price to come up to the zone, enter here, set your stop loss right above the zone, and set your take profit at the low of the move. And just like that, we have a nice and easy trade.
Now it's officially time for the secret tricks to improve the strategy even more. These tricks will significantly improve your supply and demand zones.
First trick: you want price to slowly approach your supply or demand zone. For example, if price goes up aggressively and you draw your demand zone like normal, you want price to slowly come down to that demand zone. When it returns, the slower and the more steady, the better.
If price returns to your zone like this in a very aggressive and sharp manner, you would not enter into this trade. You want price to slowly come down to your zone. This tip in itself is a game changer.
Tip two: you want a fair value gap at the beginning of the move. Remember how I told you to mark your zone off the previous candle before the big aggressive move? You want a fair value gap connected to that candle.
So here you can see price jumped up super fast after this candle and created an imbalance right here. This is exactly what we want. If this happens, it'll improve the chance of your zones working even more.
If something like this happens when price just slowly creeps up after the candle, this would not be good. The zone still might work, but it has a way higher chance of working if it has a fair value gap like this example.
Also, as a quick hint, my private indicator displays fair value gaps for you. Just go to the settings, scroll down to Smart Money Concepts, and enable fair value gaps. The green rectangles are bullish fair value gaps, and the red rectangles are bearish fair value gaps.
So a good example of what you're looking for is where the fair value gap is displayed by this rectangle, and it's connected to the very first candle of the zone.
So, quick recap of the perfect supply and demand trade: first, you want a strong aggressive move. The move must be aggressive; this is very important. During this aggressive move, it should have made a break of structure displayed by the indicator, like it did here.
You should have also created a fair value gap during this move, connected to the very first candle, like it did here, displayed by the indicator with this rectangle.
We then want price to slowly come back down to the zone—no sharp movements, nice and slow. Once it comes back down to the zone, enter here, set your stop loss below the zone, and set your take profit at the high of the move. And just like that, you have a perfect trade.
I made this video because I posted a Discord announcement saying if this post got a hundred emotes, I would make this video for absolutely free. Let's just say it got a little more than 100 emotes.
If you want more trading tips and strategies like this, join my Discord for more trading tips. I'll leave a link in the description. It's also a very cool place to just talk to other like-minded traders.
Thanks for watching, and I'll see you guys next time!