Complete Supply & Demand Trading Guide (DRAW - FIND - TRADE Zones)

trading with Supply demand is very very powerful it puts us in the position to trade on the same side as smart money buy when smart money is buying and sell when smart money is selling big Banks institutions or just Traders with a large enough pocket that they can move the market now why ninety percent of Traders fail is because they're buying when they should be selling and they're selling when they should be buying and trading with supply and demand and using this smart money following the paths of smart money we can capitalize on bigger moves and put ourselves in the position to make more money so this is going to be a complete guide I want to go over first on how to stop thinking like a retail Trader getting our mindset focused away from a normal retail Trader and putting ourselves in the position of smart money and buying at lower prices and selling at higher prices I'm also going to get into water supply and demand zones show you what I look for show you how I draw them how I trade supply and demand zones along with Trends and continuation and then I'm going to get into some some trade examples so now let's put ourselves in the position of a retail Trader and what we see off of this chart is we just bounced off of a support level this line it is a valid support level the market is bounced off of it three different times and now we're starting to move higher putting in higher highs and putting in higher lows this chart does look extremely bullish now the problem with most is they see the market moving up and no other reason that the market is moving up they get along the market now if we are in Long over here not realizing we're inside of a supply Zone what's going to happen is the market is going to hit this Supply Zone and if we get some selling to confirm this move down we are just gonna sell down where we would normally get long we are providing liquidity for those who are looking to sell every order in the market for everybody that's buying there's a seller and for every time that someone's selling there's a buyer so if we're buying up here we have to ask ourselves who is selling the market now when we add a supply Zone to the picture we know who is selling the market and this is Traders with very large Pockets that are moving the market or just areas based off of value that sellers find that this is very unfair value that price should not be this high and then the market is going to reject and move lower here we have the supply Zone again we just rejected Supply now the market is putting in lower lows and lower highs now what we see here is this support level and in our heads as a retail Trader we're going to say okay I want to short or sell the break below this support level you got to ask yourselves why would it be better to sell down here after the market has already made about 150 200 Point move to the downside why would not have been good to sell up here near Supply now if you don't know supply and demand zones you're going to be looking at this lower low lower high little structure that we have forming right here and say okay we're coming down I want to break below the support level let me play the market short we break below support we get in short we sell the market and look what happens if we add a demand Zone which formed a few days prior to this we are basically selling inside in an area where there is large buying activity at one point in the past and we are our sell orders as a retail Trader selling below support providing liquidity for smart money to buy this move up if we got short down here where we hit this demand Zone perfectly this move up would have stopped us out and this would have just fueled a further rally higher and we kept moving up and this provided a perfect opportunity to get long whereas a lot of retail Traders are going to be thinking it's a perfect opportunity to get short so essentially you want to be buying at discounted prices and you want to be selling at inflated prices when everybody is looking to long a move you should say okay I don't want to be long I want to look at ways that these buyers could be in the most pain because when there is the most pain in the market there's the most gain so an edge in itself is understand where retail Traders are buying where they're stopping out where they're selling and do the opposite not always do the opposite but put yourself in the position of where they're going to be in the most pain where their positions are and then we could get a serious advantage of that on top of adding buying and selling when smart money is buying and selling with it so in this example we have a bunch of retail Traders seeing the market move up they long the market they buy it up here then the market starts moving lower they freak out and either they stop out of their position or they just open up a new sell position in this red area over here not realizing we are inside of a demand Zone and where they're selling and where they're stopping out smart money is on the other side especially at a demand Zone buying this move up if we are stopping out or we are selling a position we are providing liquidity for smart money big money to be buying our orders are the little Bait fish in the ocean for big fish who are fishing to take our orders and their positions get filled and then the market starts moving in their Direction and not in the direction that we want so now in this example the market starts moving moving lower a retail Trader sells short now they're in their short position the market starts moving up and they stop out of their sell order their sell position for you to stop out of a short position you have to buy to cover now when the market comes up and we start buying to cover and not realizing we are inside of a supply Zone our buy order as the market is moving up is inside of a supply zone smart money is selling here our stop loss gets hit at the same point smart money is buying or selling this is a perfect recipe for the market to reverse and continue moving lower especially if a lower high gets put in right at the supply Zone these retail Traders stop out of their short positions smart money is selling inside of Supply then the market starts moving lower and we can capitalize now instead of being a retail Trader let's put ourselves in the position to sell when smart money is selling and buy when smart money is buying now a while back on my Instagram at best to trade I recommend everyone to follow me on here there will be a link in the description below a while back I posted a screenshot of big Market players and basically how we are little fish basically providing bait for Big Market players to be fishing for us and if we take their bait the market is going to reverse on us and our position is not going to work out in our favor how many times have you entered a trade it starts moving in your favor then all of a sudden we start reversing you freak out you stop out and then the market does a complete 180 and we do a complete reversal from where we got in at we are small fish in a big ocean to position ourselves to win we have to be big fish and we have to be the fishermen putting ourselves in the position or fishing in the right Waters that we know the bait fish are going to come and take our bait and that's when we're going to make the most money and that's where we're gonna have the best setups so what even our supply and demand zones to keep it simple before we get into how to draw them what we look for Supply wise or demand wise is very strong aggressive and violent moves to the downside if we're talking about Supply or to the upside if we are talking about demand when the market creates a supply imbalance or a demand imbalance what this tells me is the equation of Supply to demand if we're talking about Supply Supply exceeds demand and demand exceeds apply for a demand Zone when we have the imbalance when one side is greater than the other this is when we have an imbalanced Zone and this is when we could formulate a supplier demand Zone there are two ways the market facilitates trade balanced where buyers and sellers are agreeing on price and imbalanced where buyers or sellers are not agreeing on price and when they're not agreeing on price to the downside that's when we have Supply and when they're not agreeing to the upside that is when we have demand zones so ideally you want to First find areas of consolidation the market basing before a move down for Supply or consolidation or basing before a move up for demand the more aggressive the more violent the move the stronger our Zone will be so just think about it in imbalance forms because the market moved away from an area in a sharp manner what causes the market to move away from this area very violently and fast is Big Money entering the market smart money taking the market away and being an initiative from when we were balanced now either sellers step in and move the market lower or buyers step in and bring the market higher that initiative move by one side of the equation sellers to supply buyers to demand formulates hour demand imbalance this is Big Money basically moving the market you do not want to find zones that lack strong violent aggressive follow-through also do not want to see moves up that lacked continuation or didn't really bring strong initiative moves from buyers or sellers the weaker the move to the downside the weaker the move to the upside the weaker The Zone in fact I do not even pay attention to areas that look like this because it's just more noise and it's going to basically make us plot areas on the chart that aren't so valid for us to be trading on the same side as smart money and this is just more noise in my opinion you want to be focusing on clean clear and aggressive strong initiative moves from either buyers or sellers formulating A supplier demand a balance the most asked question how to draw supply and demand zones and I first off want to say that there are many ways to draw them everybody draws them differently I could only speak on how I use them based on what I've tested and based on what I found to be the most reliable and first things first the time frames that I use it's very important to really start on a higher time frame and then work your way lower to see if any smaller imbalances form inside if you want to pause the video These are the time frames that I do look for Daily 4 Hour three hour all the way down to 30 minutes sometimes I will go to 15 minutes but it has to have a very strong move or else I'm not going to look at it so going back to the charts here this is the example I gave you all earlier and as we can see from the top over here we had a very strong aggressive move to the downside validating that this area over here was a supply and balance now there are many ways like I said earlier that people draw zones some people draw them from multiple Basin candles some from singular I basically look for a singular candle because this on a smaller time frame I'm going to show you is going to look differently some use the wick some use the body it's really all a preference the idea here is finding a consolidation range before a violent move to the downside this is going to constitute our supply Zone and we wait for the market to come test this area again at some point in the future with valid confirmation we look to sell the market where many are buying and we could capitalize on a nice downside move lower lows and lower highs same thing for the demand side right the market starts moving lower we consolidate on a four hour time period Then the market starts moving up we have continuation some more consolidation and then a move to the upside this area over here validates our demand Zone again you could draw it to the top of the wick the start of the body it really does not matter the areas are always going to be so close and really why it doesn't matter and you know it's why it's a preference to figure out what works for you the best because now if we go to smaller time frames such as a 30 minute chart if we zoom in now to this range what we saw earlier with on a four hour chart that Supply Zone being one very aggressive move to the downside with one four hour candle now on a 30 minute chart we see the consolidation a little bit better this is Market structure move up consolidation sell off from this consolidation and now we're going to start to see more aggressive candles with not just one of them validating that this is a valid Supply Zone and again the zone is unchanged the the price does not change we tag it at some point in the future and sell off same thing to the demand side the market started moving lower we consolidate in this range and now on a 30 minute chart this move to the upside looks more aggressive looks more violent and we had continuation so that's why starting higher time frames go to your lower time frames confirm the area of consolidation followed by a move up or move down this is our demand Zone fast forward a few more days we broke that support level pulled back right into this demand Zone and then we had a strong rally and a nice reaction off of that we could have day traded this some people like swing this I prefer scalping and day trading it and it had a nice Rally from this when majority were selling stopping out perfect area for a market reversal so the key with finding zones is finding areas of consolidation maybe a full area of Market structure consolidation or maybe one candle of consolidation followed by a move down or a move up and that is going to validate our supply and demand Zone and this is when we can look to sell or buy the market now now there are many ways you could trade the supply and demand zones I want everybody to think of these imbalances as a core that we could add other tools or other strategies to the Arsenal to give us more conviction and provide us with high quality setups it's a core and a tool to use for other strategies this also works in any Market crypto stocks options Forex how the market facilitates trade is because of supply and demand buyers and sellers just like any auction any Marketplace the market is no different so this works with any market so here we have the NASDAQ and this is an area of consolidation before a strong drop to the downside this validates our supply zone now fast forward about five days later the market now rallies up back into this area if we didn't have a supply Zone here this chart looks very very bullish right we're starting to Trend up pullbacks are getting bought up we're breaking previous highs and this chart looks ready to go in fact there's actually another Supply Zone up here in this area from this valid drop to the downside so now the market starts consolidating how do we look to enter the trades or confirm the setups we can draw supply and demand zones all we want but if we don't execute we're not going to make money we're not going to put a trade on how I confirm my trades and some people I see do this I do not do this myself a lot of people put a limit order right at the start of his own wait for it to hit and then they expect the market to go in their way in my opinion using limit orders is not viable for myself it's not reliable and I never had success with it instead I wait for valid confirmation to take the market short at Supply or long at the man you want to be trading on the same side as buyers or sellers now why we wait for confirmation is because the market could easily blow past this Supply Zone if buyers are strong in this area in fact that example I gave you earlier on the S P 500 that sold off a few days after after we bounced off that demand Zone we came back up to test the supply Zone and look what happened the market broke through this don't so if we break above Supply I will remove the Zone but what this tells me is now at one point seller's worth selling sellers found value at this area now buyers are moving the market higher buyers are stronger buyers are finding value at higher prices and this is a good sign of continuation to the upside now that's why I don't use a limit order the zones are not magic this is just giving us areas of interest on the chart that smart money is buying or selling off of the charts so going back to the NASDAQ example this does not really give valid confirmation to take the market short yet so what I'm going to do is since specifically I am day trading is I'm going to go down to a smaller time frame chart such as a five minute chart and I'm going to wait for some type of structure to form something that's going to give me an edge or saying okay we're at Supply let me see if I can find sellers at Supply if we're looking to sell the market or be short or be a bear we want to make sure that we're following the footsteps of other Bears or other sellers providing a reaction at the supply zone now there are many things you could look for chart patterns candle patterns new supplier demand Zone forming something on the level two where time and sales aka the tape order flow some type of flag pattern wedge break some type of Market structure breaking so now what we could do is draw a trend line the Market's making higher Highs but now we're also putting in lower highs so once this structure breaks and the market breaks this trend line now we could take the market short and what we could do is put our stop loss above the previous structure high or just the overall High some people put it at the top of the Zone in my opinion it depends on the trade that we're taking and where my target is the risk of reward is too high I will never really put it up to the top of the Zone I basically put it at the high if we're talking about supply of the structure that I am shorting now our risk is really low and maybe we can look to Target recent swing lows or maybe new demand zones that formed somewhere in specific areas that we could Target to the downside somewhere that the Market will reverse is where we could Target once we look to enter the trade so now we're in this position the market starts moving lower we break that trend line and now we can capitalize on that downside move this chart looks very bullish higher highs were breaking previous highs and now we have that nice sell-off to the downside capitalizing on taking the mark short or you see the market coming up maybe we see new Supply forming inside of a supply Zone maybe we see a bunch of Wicks then the market starts dropping maybe we don't take the market short here maybe we didn't see confirmation we don't have to take every single zone that we see a lot of people see a Zone they say okay we're coming up to a pink box let me get short the market or okay we're coming down to a green box let me automatically get long they don't wait for confirmation they get too trigger happy because they think we're in a Zone and the Market's magically gonna work in their favor and they get short or long not getting valid confirmation and then the market does reverse on them even though they are using supply and demand zones so in this example maybe we had some Wix maybe we we had new Supply form that was our confirmation to take the market short but let's just say we didn't have valid confirmation to take the market short this formulated new Supply in this area right here right is we can wait for the market to come back up retest this area of Supply now we have a large Wick here we just retested this Supply now we can take the market short put our stop loss Above This High valid dropped to the downside and maybe we could Target the lows or demand that formed in this area over here right always look for new structure new zones that form candle patterns chart patterns something on the tape something that's going to put you on the same side as buyers for demand and sellers for Supply different markets bring different conditions and different conditions bring different confirmation factors so it's very vital for you to collect the journal collect data and figure out what works for you the best in different conditions and what gives you the best confirmation with the best risk and the highest win rate in this example the Market's making love lows lower Highs coming down into this demand Zone once we start seeing a shift of Trends maybe a higher low gets put in then we can look to take the market long for example in this case right here came down to demand we were putting in lower lows constantly now what low gets put in but now when the market starts moving up and pull back the current low is higher than the previous low and we can get valid confirmation there take the market long put our Target maybe in this area over here and we could add a stress-free trade blew right past the Target and we had continuation to the upside smashing our take profit friends and continuation and understanding Market structure is vital supply and demand zones work best when the trend is in our favor the trend is your friend so Supply zones work the best in downtrending markets if we just look at a higher time frame chart we could obviously see that the market is down trending putting in lower lows relief bounces gets stopped short at Supply and we're also putting in lower highs so the market is downtrending here significantly this is when we're going to see the most Supply zones form and this is when we're going to see the most demand zones not be reliable at all if the Market's down trending and supply and demand is basically a reversal strategy then demand zones are not going to be met with strong buying that are going to reverse the market so the best thing to do in downtrends is look to open new short positions inside of supply and take profit at demand take profit at support or just take profit at an area that you are comfortable that the market can reverse on if you are day trading or scalping up trending markets if we zoom out now and in this example we see a perfect example of uptrend and an immediate switch of trends near the high that formulates a downtrend up trending markets now are better to look to open long positions or pullbacks inside of demand and look to sell your long position inside of Supply I'm not saying Supply zones are not going to work out it's usually in uptrends they are met with strong buying and that's when we get more continuation to the upside and uptrends counter Trend rallies selling short inside of Supply on an uptrend could work you could scalp a couple points off of it you can make money off of it but they are better in uptrends to take profit at Supply and long at demand whereas downtrends are better to take profit at demand and look to take short or sell at Supply the trend is your friend use it in your favor make sure you have high conviction off of Market structure and multiple pieces of Confluence to give you higher quality setups now remember what I said earlier about there are many ways to use supply and demand zones this just basically gives us structure with the auction place to understand where buyers and sellers are factored in at this is an example this was the S P 500 of a trade that I took and this was the pre-market plan post these every single day in the Discord of set up some watching levels I'm looking out for and on Friday October 7th we were bearish as long as the s p remained below this buyer's above level around three seven five oh three seven three five I want to lead on the short side targeting 3675 five three six five six demand now the reason why I used a demand Zone to Target a short position was because the market is in a severe downtrend now the market isn't a downtrend we've seen demand zones recently not be very reliable and Supply zones be extremely reliable where buyers are basically not buying at demand the market starts moving lower often news we find no buyers at this demand zone so one way to use supply and demand is use these levels as magnets to price meaning if we break below demand maybe we form new structure something of that nature we can look to say okay we just broke below demand or we just broke below this structure there's no other support or there's no other demand until 3675 and we can look to Target that level if we can find ways to play short prior to that level triggering I don't want anybody to get short just because we break below demand or get long just because we break below above Supply you have to use more clues and more structure to that in this example we didn't see any buyers at this demand Zone we saw a bunch of upper Wicks and then the market started moving lower this is where you could capitalize on your short position and say okay there were no buyers at this demand Zone there's no support until 3675 triggers I'm gonna look to take it short stop above the high Target the 3675 level and I expect the market to gravitate or this demand Zone act like a magnet to price we had a nice little lower low lower high sell-off and as soon as we hit demand I sold this full position we got a quick little relief bounce again the market is down trending on not only a smaller time frame but also a higher time frame chart the relief balances are short we got even more consolidation more structure and then a breakthrough again to the next demand Zone at three six five six which could be a target from the previous day's uh rth session and then the last way I use it is just how well I just explained in this whole video shorting at Supply longing at demand again it all depends on the market conditions you are trading and the structure that we see in the market combined with Trends there are many different ways to trade supply and demand zones put yourself in the perspective of a struggling retail Trader and figure out where they're going to be in the most pain or where they are going to lose the most this is our area of consolidation sharp decline to the downside fast forward to the following day the market has a very large rally inside of this Supply zone now how I've been confirming a lot of my trades recently is using order flow using the tape the time and sales and level two and spotting sellers or buyers basically behind the candlesticks and the orders coming into the market if you think about it the market moves because of volume and buyers and sellers in the market so if we can gauge how they are buying and how they are selling how aggressive they are how passive they are and understanding their true intention behind the candlesticks this gives us an edge in itself and when we combine it with supply and demand it's even a better Edge and even more powerful so we see some Wicks here this is a five minute chart and if we're on a one minute chart we're going to see a bunch of smaller Wicks and once we get a break of this little structure over here and confirming confirming passive sellers on the tape aggressive participants out of the supply Zone we can look to Target smaller structures especially since the market is up trending aggressively we can look to Target this area if we are short Market pulls back into this area and this is where you could sell your short or cover your short position and then we get a consolidation range this area of consolidation actually was an area that formulated new Demand on a higher time frame right the market moves up we consolidate and then we get a strong aggressive move out of this consolidation range if we go to a higher time frame chart we're going to be able to see a new demand Zone in this area and then a few days later we pulled back into this range and bounced pretty well so you can use supply and demand zones as targets to get long or short or you can lose them how I've been saying in this whole video look to get short at Supply or long at demand as long as the conditions and the confirmation factors fit it's vital for you to collect the journal build a database see what works out for you the best and build upon it and scale up that's how you get better at trading and that's how you make more money the zones are not magic we break through zones all the time you know this is a perfect example of that if buyers are stronger than sellers that Supply the Market's going to move up if sellers are stronger than buyers at demand the Market's going to move down it's not like we bounce back and forth between supply and demand zones constantly the market doesn't work in a perfect world The only thing that we could do as Traders is manage our risk and trade when our Edge and our strategy tells us to I'm going to leave you all off on that note hope this video helped drop a like comment if you have any questions and be sure sure to subscribe to the channel I would appreciate it peace out

Channel: Carmine Rosato

Views: 36,605

Keywords: carmine rosato, supply and demand, ricky gutierrez, learn plan profit, ross cameron, warrior trading, tim sykes, day trading, stocks, stock market, day trading recap, trading recap, thinkorswim, tdameritrade, institutional trading, institutional forex trading, trading with big banks, order blocks, trading order blocks, smart money trading, institutional trading strategies, supply zone, demand zones

Id: _ffbix1afZs

Length: 26min 51sec (1611 seconds)

Published: Sun Oct 09 2022