Supply and Demand Trading is a method used to determine where the majority of buyers and sellers will take place. Today I want to look at trading supply and demand zones in combination with two other elements that will help you become much more consistent in your trading. When analyzing the markets it is important to get a "big picture" outlook so that you have an understanding of what the overall direction of the market is. After we determine the direction, we simply need to know where to get on board, and lastly where is it going to end. To determine this information we need to know the following three points:
1. (Big Picture Trend/ Direction) Depending on your style of trading you will want to choose a paticular chart that suits your trading time frame. For example we can look to a 60min chart to get an intraday "big picture" trend, or a daily chart for a swing trading outlook. Choose one and be consistent with it.
2. (Supply and Demand Zones) Locate these areas for reasons to buy/sell in the current direction. Defining these levels gives you not only a reason to enter, but more importantly you can reduce your risk to a specified amount. Be sure to allow your stop to take you out of the trade if you are proven wrong. We never want to allow a loser to run!
3. (Altitude of Price) Use this to determine if you are at the beginning or end of a trend. If you are capturing a trend following trade from the beginning you may consider looking for larger profits. When you are nearing levels of altitude that place you at the end of the trend you should consider smaller profits and wait for the change in direction to reverse your position.
Understanding these 3 elements of price action can be very helpful in determining trades. It is key not to over analyze a market or try to combine too many elements as this will cause too much emotion and hesitation.