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Supply and Demand Strategy

The Core Concept​

This strategy trades supply and demand, framed as indecision: where there's a pause in a move, that pause is where the trade is taken.

The pattern:

  1. Push
  2. Pause (indecision candle)
  3. Continuation in the same direction

That pause will be retested, and then price continues in the direction it was going before. So the trade is based on the market retesting that indecision candle, then continuing in the same direction.

Context: Support and Resistance​

It's always in the context of support and resistance.

  • The upward push and pause (demand zone) has to be off the back of a level of support
  • The downward push and pause (supply zone) has to be off the back of a level of resistance

The market, even across different timeframes, is always playing within support and resistance. So even if it's an uptrend - that uptrend, for example, in a 15-minute timeframe, is really just consolidation on a 4-hour timeframe.

So it's always in the context of some level of support and resistance.

The Process​

Step 1: Mark Support and Resistance​

Identify market structure with breaks of structure.

Start by zooming out to a high-level overview of the 15-minute chart. Mark the support and resistance lines, but only the lines relative to where price action is currently. If there are more, mark them.

To see the higher timeframe, zoom out so everything is smaller scale, which shows the bigger moves within the 15-minute chart. At that scale, the detail of individual candles can't be seen, but that's alright - the general move is still visible.

This tends to be easier than switching between timeframes.

Step 2: Find Supply/Demand Zones​

Find the indecision (supply and demand) within the bounds of support and resistance.

Look for:

  • Demand or supply zones
  • In line with push against the key level
  • Followed by imbalance (momentum candle)
  • Unmitigated

Step 3: Trade the Zone​

Trade that supply/demand zone and target the respective support or resistance, depending on which direction the move is in.

The Setup​

The Entry​

Set a limit order at the zone

The Stop Loss​

At the edge of the indecision zone (or the most key level if it is close enough)

The Take Profit​

The opposite level of structure

Key Notes​

Zone Must Be Unmitigated​

The demand/supply zone must be unmitigated and not retested. The strategy is built upon the principle of the market retesting and balancing itself. So if the zone has already been retested, that trade and setup is now void.

Only trade supply and demand that hasn't been mitigated or rebalanced.

Indecision Must Be Amongst Momentum​

The indecision/pause has to be amongst decision and momentum. The wicky and stable pause must be in the middle of strong candles and big moves.

The stronger the momentum off the indecision, the better quality supply or demand zone.

Best Zones Are Doji Candles​

The best supply and demand zones are those that are doji candles.

How Price Should Return to the Zone​

The slower price trickles back into the supply or demand zone, the better. It should ideally be a strong push off of the zone, and a slow trickle back in.

Time in Zone = Weakness​

The longer price remains in a zone, the more likely it is to fail. It should only tap or wick into your indecision zone.

Depth in Zone = Weakness​

The deeper price goes into a zone, the higher the chance it will fail.