In this article, I will show you step-by-step how to trade a Forex chart using Supply and Demand strategy.
Step1: Monthly Time Frame Analysis
The first step consists of selecting the right time frames to analyze in order to trade supply and demand zones.
The monthly time frame is the first chart to start with. It gives us a clear idea at where the price is located right now and where it might go next.
Also, it is useful to identify the curve. The curve is a simple tool to help us gauge the location of the current price in relation to the supply and demand in control.
The chart above represents the EURNZD monthly time frame.
The price is very low on the curve and is testing the demand zone around 1.38925-1.47408 levels, which means that we buy only.
No selling is allowed at this price levels.
Step 2: Weekly Time Frame Analysis
The second time frame to analyze is the weekly chart.
As we can see, price is now testing the monthly demand zone at 1.47408 level for the second time.
We have a weekly demand zone around 1.38989 and 1.43107 levels coinciding with the monthly zone.
We also identify weekly supply zones; 1.58497-1.60822 and 1.64365-1.67244 levels. The last one is coinciding with the monthly supply zone around 1.72669-1.78870 levels.
The overall trend is down as price is creating lower highs and lower lows.
Step 3: Daily Time Frame Analysis
On the daily chart, we need to identify fresh supply and demand zones to place our positions.
As we can see, price is still moving down and respecting the trend line.
We identified a fresh daily demand zone around 1.41557-1.44104 levels.
A daily fresh supply zone is also identified above current price around 1.62182-1.63439 levels.
How to plan your trades
At this point, we buy only, no selling.
On the daily chart below, price created a new demand zone around 1.45322-1.46818 levels. This is a good zone to trade because it coincides with the monthly zone.
Price tested the demand zone and broke the trend line as shown on the chart below:
Our take profit is the fresh supply zone above current price at 1.62182 level.
Between this supply zone and current price, there is no fresh supply zone that we can use as a target.
Price moved higher creating a new demand zone around 1.50490-1.52025 levels and broke the trend line creating this time a new supply zone around 1.53937-1.54810 levels.
Here we must remember that price is low on the curve, which means that we prioritize buying over selling.
In this example, we will ignore the supply zones created at this price levels.
We can place another buy order at this demand zone if we missed the first entry at 1.46818 level.
As we can see, price retested the demand zone and gapped up and moved all the way up to 1.58497 level (non-fresh weekly supply zone).
Our target is still the fresh supply zone at 1.62182 level.
Price continued to move higher and violated this weekly supply zone as shown on the chart below:
As price reached our target, we should expect some pullbacks to the downside:
As soon as price broke the trend line, we have a new supply zone created around 1.58931-1.60123 levels on the daily chart.
Once price breaks the trend line on the daily chart, we need to find a coinciding demand zone between weekly and daily charts to place our buy order.
In this case, we will place our buy order at 1.53568 level and wait for price to come down to test this level.
Price went all the way down to 1.53568 level and retraced back up to retest the 1.62182 level. From there, price continued moving higher until it reached the monthly supply zone around 1.74318-1.80168 levels.
To sum up
– When price is located very low on the curve, we buy only.
– Trade with the trend, as long as price is respecting the trend line and all three time frames are aligned in the same direction, we buy at demand zones.
– We prioritize fresh zones over non-fresh zones.
– When price breaks the trend line, we trade coinciding zones.