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Supply And Demand In Forex Trading
In forex trading, supply and demand play a significant role. As a matter of fact, all the price moves you see on the chart, whether the price is going up or going down simply tells you the forces of supply and demand are at work.
So what actually is Supply and what is Demand?
To understand the concept of supply and demand, you have to go back to the high school days when you learnt about economic theory and here are the basics of it:
- if an item has a lot of demand, price increase
- if there is an oversupply of an item, price falls.
So really, in forex, when there is a demand for a currency pair, then it simply means that there are lot more buyers than sellers and therefore, the tendency to push price up.
If there is less less demand for a a currency pair (which means more there are more sellers than buyers), price falls in the currency pair.
So basically, this is what supply and demand in forex means:demand=buyers market, supply=sellers market.
What Is The Supply And Demand Indicator MT4 Used For?
Well, the supply and demand indicator mt4 is simply an mt4 forex indicator that is simply used for highlighting the supply and demand zones on an mt4 forex chart as shown on the chart below.
The keyword here is “zones” so a zone is not just one price or one line. It is between two price levels.
So this mt4 supply and demand indicator highlights that for you on the charts.
On this chart below, notice that the supply zones are in maroon color and the demand zone is shown in the blue color.
5 TIPS ON HOW TO TRADE THE SUPPLY AND DEMAND ZONE MT4 INDICATOR
Here are 5 simple tips on how you can trade forex using this supply and demand zone indicator.
#1: Use Supply And Demand Zones as take profit target zones.
This is really a straight forward process. If you had a buy order and now you see price heading up into a supply zone, you should consider taking profits off your trades or moving trailing stop loss tighter.
#2: Use The Supply And Demand Zones For Stop Loss Placements
The best way to place a stop loss is outside of the support or resistance level zones and in this case, that would be the supply and demand zones.
If you enter a buy order in a demand zone, the best place to place your stop loss would be just a few pips under the demand zone.
If you enter a sell order in a support zone then the best place to place a stop loss would be just a few pips above the supply zone.
#3: Use Supply and Demand Zones As Confirmation zones to sell or buy.
There are forex traders that do find it difficult to quickly identify support and resistance zone.
Good news is, this demand and supply indicator mt4 really helps you with that.
One basic way to trade the supply and demand zones is simply to buy on the demand zone or sell on the supply zone.
But for me personally, I don’t think this is the right approach.
The right trading approach would be to use the supply and demand zones with the rules of your forex trading strategies (or strategy) or use them as a price action confluence and then based on that, you buy or sell.
#4: Use Them As Trailing Stops
The supply and demand indicator mt4 can assist in helping you place your trailing stop loss.
This is really easy-in a downtrend the supply zones will be continuously heading down. So if you have a open sell order, you can use them as your trailing stops to lock your profits as price moves down.
Similarly, in an uptrend, the demand zones will start to increase on your chart as new swing highs are created therefore, these should give you the potential price levels where you can trail stop your buy trade and lock your profits as price continues to move up.
#5: Supply And Demand Zones Can Be Traps For Traders
Demand zones are essentially support level zones and therefore the potential for sellers getting caught out with bear traps is there.
So knowing your bear trap charts as well as having a knowledge of the bear trap trading strategy can help you get out of a losing trade and change direction immediately when that happens so you can profit from the up move price tends to make after the formation of bear traps.
Similarly in a supply zone, there’s is potential for bulls getting caught out in a bull trap.
Not All Supply And Demand Zones Are Created Equal
Don’t put too much faith on every supply and demand zones that the mt4 indicator draws on your charts.
Why I say that is because some supply zones are going to be more prominent than otherS and this also applies to demand zones.
As a general rule of thumb: the supply and demand zones that you see in the larger timeframes ( 4hr, daily, weekly and monthly) are the ones you should be watching and incorporating into your trading strategy.
Finally, here’s the download link for the supply and demand indicator mt4: SupDem Supply and Demand MT4 Indicator
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