• One Percent Trading Group

Introduction into Supply & Demand

Updated: Aug 30

As a side note, back during my starting days when I was looking up articles about a trading topic, I would realize that they’re almost 3000 plus words, so I’ll try to get straight to the point, and I hope you find value in this article. Lets get down to business.

First, we’ll start with the definition, so what is supply and demand, then separate both terms to apply meaning to each.

Supply and demand

Supply: Increased selling pressure.

Demand: Increased buying pressure.

Extra terms to be defined:

RBRRally Base Rally (Demand Zone)

DBRDrop Base Rally (Demand Zone)

DBD Drop Base Drop (Supply Zone)

RBDRally Base Drop (Supply Zone)

Now briefly it works like this:

An area on the chart which the price made a strong push to the upside is usually marked by a trader that this area below is known as a demand base, the opposite of this movement is called a supply base, but worry not I will explain it to you. An area on the chart in which the price made a strong push to the downside is usually marked by a trader above this area is known as a supply base.

Now that we have a clear understanding of what supply and demand is, we can now move on to the rules.

Trading fresh bases

Bases that have not been tested is called a fresh base, after price retests a supply or demand base its still becomes a strong base but has come to pass as the chances of it working again is very low because the banks are the ones buying and selling. Price usually returns to these points because the banks might have not placed all their positions or have outstanding position in that price area. The more time it hits these areas the more time it weakens the base.

The direction of the most recent high or low

Trading along with the direction of the market is always better than trading against it, there’s a tendency of traders only marking up the bases which the market hasn’t tested while on the other hand bases are being made toward the direction where the market just left. This leads to more traders losing on potential trades. An example of this shall be attached below.

Source: Trader Tai - One Percent Trading Group

Trade the trend from the time frame you trade-off

Trade the trend from the time frame you trade-off, this is probably the most talked about rule in most places, I say this because most people take this rule the wrong way.

Trade the trend from the time frame you trade-off

Let’s say you’re on the daily and your see that price is on a downtrend and you go place a trade on the hourly, the hourly might be on an uptrend, and the price is only making a higher low to drop even further.

Below are a couple of examples of what I have explained above:

Price movement on a daily chart
Price movement on the 30 minute chart

The daily time frame trader might have a different analysis from the hourly time frame trader. To counter this, simply look for the trade on the time frame you trade from.

The quicker the price returns to the base, the better

It is believing that the market should take long before it comes back to the base the batter, this is found in most trading books, the amount of time doesn’t matter if the banks haven’t collected all the orders, they will take some profits off their trades and force the market back into the region where their trades were placed.

Thank you for taking some time off to read this article, I tried to keep everything as simple as possible.

For education on Supply & Demand, I recommend The One Percent Trading Group, and I’d like to thank them for contributing Screenshots for use as examples.

YouTube channel that has free content: https://www.youtube.com/c/OnePercentTradingGroup

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