Over the last few years, supply and demand trading has become one of the most popular trading strategies in the forex trading industry.
People are very much eager to know does supply and demand trading work or not.
It is a trending trading strategy created in the late ’00s by Sam Seiden, who came up with the strategy using his experience working in the Chicago Mercantile Exchange. It focuses on the concept of the ancient laws of supply and demand.
What is Supply & Demand in forex?
Supply and Demand trading is the main culprit of price movement. In trading, it’s nothing but the broader area of support and resistance. Traders believe that supply and demand zones are the places, where institutional traders open/close their positions. These are the ideal places for looking for trade setups or targets.
What are the core differences between Support & Resistance and Supply & Demand zone?
The big differences between these are:
- support & resistance are drawn with horizontal lines, but supply & demand zones are drawn with rectangle zones.
- The more the SR flip (Support/Resistance) is being tested, the more it will be stronger. But the S & D zone (Supply & Demand Zone) is the opposite of it. Supply and demand zones are gradually being weaker after each testing.
How supply and demand zones are created?
In S & D trading, ‘Selling zone’ is created when a currency pair climbs to an area of resistance where supply overwhelms demand & prices go down.
‘Buying zone’ is created when a currency pair climbs to an area of support where demand overwhelms supply & prices go up.
Does supply and demand trading work?
The premise of this strategy is that supply and demand zones form from the banks and other big players buying and selling activities.
90% of supply and demand traders trade supply and demand zones with the idea that large institutions, banks, big players place pending orders at these zones. Because they are not able to get their entire trade placed into the market.
Therefore, they Place their pending orders to buy or sell at the zone. Then they wait for the market to come back to the origin zone and the rest of their orders are triggered to be filled.
But in reality, traders are wrong. They don’t know supply and demand trading secrets. The large institution, bank, big players always search for liquidity to filled their rest of orders.
In forex, liquidity means the currency pair’s ability to be bought and sold without causing a significant change in its exchange rate. Big banks, institutions place their huge orders when lots of liquidity are existed against their positions to avoid slippage
Now, you may raise the questions “Does supply and demand trading work?” or “Is supply and demand trading profitable?” or “Is Supply and demand trading really a strategy?
The answer is “yes,” supply and demand trading strategies work. It is profitable to trade with the advanced supply and demand zone.
But you have to remember that the supply & demand concept is more than an explanation than a strategy. You cannot predict future supply and demand based on current observable supply and demand.
So, you have to properly understand how supply & demand zones work. You have to spot quality supply and demand trading zones which are reliable and potentially profitable to trade. Otherwise, you’ll probably lose money or won’t be very successful.
How can you learn supply and demand trading?
You have to learn supply and demand trading from the right places. If your instructor is a knowledgable person and know how the S & D zones work, you have a greater chance to be successful with this strategy. To know about how does supply and demand trading work, you can check out this basic building blocks playlist.