Supply And Demand – the hidden secret which makes market move up or down. When demand is more than supply then prices moves up and when supply is more than demand then price moves down.
Supply and demand is a fantastic long term strategy that can get you into some of the biggest reversals and trends in the market.
Trading supply and demand on the daily timeframe is not much different to trading it on any other timeframe like 1 hour or 15 mins.
In fact, besides a couple of differences in entry and stop loss position which can be big for daily timeframe, there’s zero difference between how you trade them. The daily timeframe is made up of more data timeframes like 1-hour, 15 min, 5 mins etc, price covers a much bigger distance when it moves.
Usually I trade Supply & Demand on the 1-hour, your stop is usually decent compared to RR is between 1:5 to 1:10 risk reward. Which isn’t too bad.
On the daily, though, because it’s so much bigger, the stoploss is very big that is minimum almost double that of the 1-hour. This sounds like a negative right as it is negative. Also we don’t get anywhere near the same number of trades oppurtunities on the daily as the 1-hour.
On the 1-hour or lower like 15 mins, you expect to have trades every day, sometimes even multiple times. But on the daily, you only get a few opportunities per month.
But overall on daily timeframe as noise is filtered, you won’t lose as much because you don’t have the same amount of trades and you can be in trade for longer duration. Don’t take compounding into consideration.
Take a good S & D on the 1 hour for example…
Most traders consider a 10% win on the 1-hour a good trade as I do. On the daily The good trades tend to be upwards of 30% if not more depending on how long you hold onto them.
So while you don’t get as many trades on the daily, they do tend to make a lot more money, which means you can potentially be more profitable without considering compounding effect.
How To Trade On The Daily In 3 Easy Steps
What’s great about trading supply and demand on the daily or 1 hr for the most part, it’s the same as how you trade it on any other time-frame.
Simply, You find the zones and mark them on the chart, then trade them.
Of course, there are a couple of small differences, mainly in how you enter the zones as you can do MTF (Multi Timeframe) analysis on shorter timeframe for entry to shorten the stop loss. But if you already know how to trade the zones on the lower time-frames, switching to the daily will be a very simple, as it’s pretty much the same aside from a couple of small things.
Step 1: Locate The Strong/Weak Zones – The key to finding strong zones is to look at the move that precedes the zone. The strongest zones are those that form after a long decline (for demand zones) or a long rise (for supply zones). The longer the rise or decline, the stronger that zone is
Because the further price moves in one direction, the more people who start trading in the same direction, due to the concept of trend.
I know this demand zone is very strong because before it formed after price had been falling for a long time. If it’s fallen for a long time, that means most traders are selling.
Now think its 2 scenerious here that is
1. means the banks have a lot of sell orders to either place buy trades now. (Accumulation of stock)
2. take profits off sell trades placed earlier in the move down. (Short Covering)
Tips: The easiest way to do figure out how strong a zone is to move your chart to the point just before it formed, and then look at how bearish or bullish the market was. If the market was extremely bearish before a demand zone formed or bullish before a supply zone formed, as is the case when it forms after a long rise or decline, that zone is considered strong. Because it means the banks had lots of orders available to place trades or take profits with.
But On the flipside, if the market was really bullish before a demand zone formed or bearish before a supply zone was created, like you see with Rally-Base Rally/Drop-Base-Drop zones, that zone isn’t very strong, as the banks didn’t have many orders to use to place trades or take profits with so they continued the trend.
Step 2: Sharp Rise/Decline Or Bullish/Bearish Engulf To Form
The normal way to enter trades at supply and demand zones is to wait for a bullish/bearish pin bar or engulfing candle to form inside the zone for any timeframe.
You wait for price to enter and see if a bullish or bearish engulfing pattern forms. Pin bars work too, but I tend to leave them out, as they don’t work as well as engulfs – price often breaks the high of pin before reversing, least not in my experience. Engulfing with high and low or the body that is open and close will work.
I know a lot people like me would like to go down in time-frame to tighten up the entry, but on the daily it can be tricky as The time difference is too large for 1 hour or lower candles. 2 hr or 4 hour for that matter to confirm reversals on the daily. If you’re free during the day you can enter by watching for sharp rises and declines on the 1-hour. This is my preferred way to enter the zones.
Watching for an engulf on the daily works as well, but it typically means you have to risk more with deeper stop loss. With this method, you can cut the risk down significantly and increase the risk/reward ratio, as you’ll be entering closer to the source of reversal.
Normally the entry itself should be after you see two or three big candlesticks form.
Step 3: Place A Stop And Move It To Breakeven when in profits
Regardless of whether you decide to enter after seeing a daily engulf or sharp rise/decline, the location of your stop loss is always the same:
Below the zone for demand zones… or above the zone for supply zones…
we can decide when to move stop loss to break even really depends what happens after you enter.
If price shoots out of the zone soon after you enter with a large candlestick, it’s okay to move it halfway to breakeven, as chances are it’s not going to come back in. On the other hand, if it fails to move away quickly or the move out is only a small candle, keep it where it is because it’s more likely price will come back in before reversing.
Step 4: When to take Profits?
You should always take profits when you see price reach a zone that has a high probability of causing a reversal or large reaction.
Supply and demand on Daily timeframe can be a great long term strategy for those who haven’t got the time to trade during the day or are fed with the stress and fast paced nature of the lower time-frames.
Be sure to get check out my other Supply & Demand post with stocks i identity for more help on trading supply and demand as a long term strategy.