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Price Action and The Best Way To Trade Supply & Demand Zones


Supply and demand trading is a trading method where the idea is to find points in the market where the price has made a strong advance or decline and mark these areas as supply and demand zones using rectangles.

Price action trading fits perfectly well supply and demand to trade.

There is no better confirmation for a SUPPLY or DEMAND ZONE that a PRICE ACTION pattern.

 

Demand Zone Example with Price Action

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Above is a great example of a combination of price action trading and demand zone.

There is a bullish pin bar that formed inside the demand zone.

As you can see, it influenced the price and led to a strong buy signal.

 

Supply Zone Example with Price Action

Above is a great example of a combination of price action trading and supply zone.

There is a bearish engulfing bar that formed after touched the supply zone and it forms a great reversal point.


From my experience in trading, there is nothing more powerful than a combination of price action trading and supply and demand zones.

 

Risk Management and Supply Demand Zones

Risk management is the key aspect of trading with supply and demand zones.

All Forex traders should never ever RISK more than the REWARD he expects to gain. While other industries favor this (e.g. binary options industry), for a Forex trader this is something outrageous.

Therefore, the risk-reward ratio must have a bigger reward than the risk.

Of course, you may look for 1:10 or 1:30 (i.e. risking one pip to get ten or thirty pips). But, these are not very easily attainable returns. Even if they are attainable, they would be very rare.

As such, a realistic risk-reward ratio is anything between 1:2 or 1:3.

That means, for every pip risked, the expectation is for two pips or two and a half pips gain.

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