Trading supply and demand is very powerful, if you’re able to qualify these areas effectively. You can consider a supply and demand area as qualified if they are able to show some muscle and commitment by breaking the structure of the market, either in the form of consuming opposing supply and demand or, breaking respected trend-lines.
In order to best assess the strength of a given area supply or demand, you need to see it within the context of the rest of the market, as not doing so will often leave you in the dark. When these areas are brought to your attention, either using the Pipnotic supply and demand indicator or by performing the process manually, you need to view them in relation of historical areas of supply and demand to assess their strength and validity.
Here are a few good tips for identifying good levels of supply and demand:
- The move away from supply or demand must be strong
- Price must commit to the move away from the area of supply or demand, and hold away
- The levels must be clear and have, preferably, full bodied candles (smaller wicks)
- The area of supply or demand must not have been tested since it was established
There are a few rules that can be used to help identify these price sensitive areas, and in this video I will discuss two of them. For an area of supply or demand to be valid, it must show some force/commitment, which can be evaluated by looking at what price was able to do once an area of supply or demand has been established. If price moves slowly away from an established area, then the area can be considered to be weak and should not be traded. If on the other hand, price manages to break the structure of price either in the form of a trend-line or opposing supply or demand, this is a clear sign of strength.
Let’s have a closer look in this video below.