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Supply and Demand zones can be used to effectively find turning points in the market. In this video we highlight how to find these zones.

Watch the video to learn more…

Supply and Demand Zones

This trading technique is nothing new in the markets but can be an effective way in how you trade them. The theory around supply and demand zones is relatively simple, identifying an area where the price has significantly turned in the past and seeing if a similar or opposite effect occurs again at these points. 

It is important to remember that trading is risky and you must use these zones in context or even build a trading plan using the zones. These aren’t the answer to mastering the trading world but can be a tool to help. 

To identify a demand zone we want to see a bullish reaction from a price point with the price then either making a new high or a considerable impulsive move. To find the zone, we want to look for the last bearish candle before the price formed the new high, this will form the demand zone. If the price then retests this zone we want to look for another bullish reaction with bullish price action or popular reversal patterns such as a double bottom or inverse head and shoulders on the lower time frame. These zones can often lead to trend trading opportunities on any time frame. 

supply and demand

Alternatively a larger demand zone can be formed when the price reverses from a price point significantly, these often form on higher time frames and take long to retest but can often lead to high probability turning points.

Identifying a supply zone is just the opposite of the demand zone, instead we want to find the last bullish candlestick before the price makes a new low. We can then use this zone as an area to look for short opportunities in line with a trend. 

Do you trade USDJPY? you can see our latest analysis on the forex pair here.

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