Supply and demand are two fundamental economic concepts that can influence the price movement of any financial instrument, including stocks, commodities, and Forex.
Understanding these concepts and how to trade them can give you a significant edge in the market. In this quick start guide, we'll cover everything you need to know about trading supply and demand on the daily chart. Beginner traders can get the beginner trader starter kit for free.
Supply and demand are two opposing forces that determine the price of an asset in the market. The law of supply states that the higher the price of a commodity, the more producers will be willing to supply it.
The law of demand, on the other hand, states that the lower the price of a commodity, the more consumers will demand it.
When there is an imbalance between supply and demand, it leads to a change in the price of the asset. For instance, if the demand for a stock increases, while the supply remains constant, the price of the stock will rise.
Conversely, if the supply increases while the demand remains constant, the price of the stock will fall.
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How to Trade Forex on a $500 Account
Risk Management for Forex Trading Beginners
Easy Money Forex Futures Trading for Beginners
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Trading supply and demand on the daily chart can provide you with a clear and accurate picture of the market's sentiment.Β
Since the daily chart shows the price action of an asset over a more extended period, it filters out market noise and provides you with a more accurate representation of the asset's supply and demand levels.
Additionally, trading on the daily chart allows you to hold positions for more extended periods, giving you more significant profit potential. The daily chart also tends to have more liquidity, making it easier to enter and exit trades.
To trade supply and demand effectively, you need to identify the supply and demand zones. A supply zone is an area where sellers are more dominant than buyers, while a demand zone is an area where buyers are more dominant than sellers.
To identify these zones, you need to look at the price action of the asset. A supply zone is identified by a level where the price has previously stalled or reversed.Β
On the other hand, a demand zone is identified by a level where the price has previously found support.
Once you have identified the supply and demand zones, you can use them to enter trades. You can enter a short position when the price enters a supply zone and a long position when the price enters a demand zone. Community support for beginner traders: Beginner Trader Forum.Β
To trade supply and demand on the daily chart, you need to follow these steps:
Step 1: Identify the Trend
The first step is to identify the trend. You can do this by looking at the price action of the asset. If the price is making higher highs and higher lows, the trend is bullish. If the price is making lower highs and lower lows, the trend is bearish.
Step 2: Identify the Supply and Demand Zones
The next step is to identify the supply and demand zones. You can do this by looking at the price action of the asset. Identify the levels where the price has previously stalled or reversed. These levels are the supply and demand zones.
Step 3: Wait for Price to Enter a Supply or Demand Zone
Once you have identified the supply and demand zones, you need to wait for the price to enter one of these zones. If the price enters a supply zone, you can enter a short position. If the price enters a demand zone, you can enter a long position.
Step 4: Place Your Stop Loss
After entering the trade, you need to place your stop loss. You can place your stop loss below the demand zone for long positions and above the supply zone for short positions.
Step 5: Managing Risk and Reward
As with any trading strategy, it is important to have a plan in place for managing your risk and reward. When it comes to supply and demand trading, this means setting stop loss and take profit levels based on the location of key supply and demand zones on your chart.
When placing a trade based on a supply or demand zone, you should always set a stop loss order below the demand zone or above the supply zone. This will limit your potential losses if the trade doesn't go as planned.
For take profit levels, you can use the height of the supply or demand zone to determine your potential reward. Simply measure the distance from the top of the supply zone to the bottom, or from the bottom of the demand zone to the top, and set your take profit level accordingly.
It is also important to consider your risk-to-reward ratio when managing your trades. A good rule of thumb is to aim for a risk-to-reward ratio of at least 1:2, meaning that for every dollar you risk on a trade, you aim to make at least two dollars in profit.
Step 6: Practice, Practice, Practice
As with any skill, the key to success with supply and demand trading is practice. Take the time to study charts and identify key supply and demand zones, and practice placing trades based on these zones in a demo trading account.
As you gain experience and confidence, you can start to trade with small amounts of real money, gradually increasing your position size as you become more comfortable with the strategy.
Downloadable resources for beginner traders to accelerate their learning curve: Beginner Trading Journal Template, Risk-Reward Calculator,Β
Supply and demand trading is a powerful strategy that can be used in any financial market, from Forex to stocks to commodities.Β
By understanding the basic concepts of supply and demand and learning how to identify key zones on your chart, you can gain an edge in the market and improve your trading results.
Remember, the key to success with any trading strategy is discipline and patience. Stick to your trading strategy, manage your risk and reward, and practice consistently, and you will be well on your way to becoming a successful supply and demand trader.
Beginner traders can get the beginner trader starter kit for free here.Β
If you are still early in your journey, explore this step by step guide on how beginners learn trading from scratch and build a solid foundation before risking real money.Β
For structured guidance, trusted recommendations, and proven learning tools, visit the Beginner Trader Reference Library to explore hundreds of books and resources designed to fast track your trading education.Β
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