Supply and demand

Supply and demand are the driving force behind changes in the price of a currency pair. When there are more buyers than sellers in the market, the market price will move in an uptrend, and when there are more sellers than buyers in the market, then the price will move in a downtrend, and when buyers and sellers are more or less even, the market will range. These simple concepts are compelling and allow us to analyze naked charts to determine where the price will likely go.

Lines example:

Here you will have a question how can we identify supply and demand on charts? We use order blocks to identify supply and demand levels.

Order blocks:

Order blocks are special supply and demand zones formed when a large number of institutional orders are sitting on a zone. These are formed by buying and selling of banks and institutions. And we identify these areas and use them in our favour.

How to choose the best order block (supply and demand), as we said, It is always the last candle before the momentum that leaves behind imbalances and breaks the structure.

Supply lines example:

Supply chart example:

Demand lines example:

Demand chart example:

In the following examples, you will see what the high probability supply/demand zone and low probability supply/demand zone look like:

High probability supply zone: We need to have a good momentum, for the price to leave the imbalance behind and finally a good candle close. When we choose the HP supply zone, the most important thing is that the momentum is present.

High probability supply lines example:

High probability supply chart example:

Low probability supply zone: Here we see that the price barely broke the low, there is not enough momentum. Also, a large wick tells us that the price has no more momentum to continue in that direction.

Low probability supply lines example:

Low probability supply chart example:

High probability demand zone: We need to have a good momentum, for the price to leave the imbalance behind and finally a good candle close. When we choose the HP supply zone, the most important thing is that the momentum is present.

High probability demand lines example:

High probability demand chart example:

Low probability demand zone: Here we see that the price barely broke the low, there is not enough momentum. Also, a large wick tells us that the price has no more momentum to continue in that direction.

Low probability demand lines example:

Low probability demand chart example:

We have 2 types of pullback to our zone.

Corrective return to demand and supply
Aggressive return to demand and supply

1. Corrective return to demand and supply:
Here we can see that after the momentum, the price went corrective to the retest. We always want to see a corrective retest. Because at that moment, the price makes liquidity, and that is another positive confirmation, when the price corrects and returns to the retest, there are fewer chances to hit our stop loss. A corrective retest tells us that the price is slowing down with momentum and that the bearish/bullish trend may continue after the reaction from the order block.

Supply line example corrective pullback:

Supply chart example corrective pullback:

Demand line example corrective pullback:

Demand chart example corrective pullback:

2. Aggressive return to demand and supply
Here we can see an aggressive retest to the order block. When we see an aggressive retest, there is a greater chance that the price will hit our stop loss. If the price returns to the retest with the same momentum with which it broke the low/high, that is volatility, and after that we can expect a correction. Of course, not every pair is the same, so it is important to do the characteristics of each pair because some pairs like to retest more aggressively.

Supply aggressive pullback line example:

Supply aggressive pullback chart example:

Demand aggressive pullback line example:

Demand aggressive pullback hart example:

There are too many examples of supply and demand. At first, it will be difficult for you,but as you progress, you will learn them better, and you will always know which POI you are looking for. If you want to understand supply and demand better, join our community and learn how to choose the perfect order blocks.