Supply and demand levels can be found on any and all price charts, on every time frame for any instrument, but not all SD levels are created equal. Whilst we can never know for sure which levels will hold and which ones won’t, some carry a much higher probability of success than others.
I have already mentioned one of the ways I use multiple time frame analysis starting with the higher time frames to find great SD levels to trade from in previous articles, and in this article I am going to share another one.
A brief summary of what to look for is below:
- Identify Supply and Demand on the Weekly chart
- Wait for a big move on the Daily chart away from a Weekly SD level
- Drop down to the lower time frames to find an SD level within the Daily PA caused the move
- Wait for a retrace and enter using small time frame PA
The above is by no means a trade plan but it shows what you can look for at a very basic level.
Higher time frames are king in trading. Levels on these charts carry a lot more weight than those on the smaller time frames so it always makes sense to know where we are in relation to the higher time frames. Although I will sometimes look at the monthly chart, my trading decisions are not based on it too much. The weekly chart is the highest chart that I’ll look at as a guide for my trading decisions on a regular basis. This gives me an idea of which direction to trade in. If we are at a supply level on the weekly chart then I will be looking for an indication that price will lower until price reaches weekly demand.
The daily chart is still the main analysis time frame. This is where I look for trading opportunities. Using the example above, if we are at a weekly supply level then I will be looking for a significant move visible on the daily chart that makes a move lower. By significant I mean price must break previous levels. This could be a demand level, a prior low or another decision point on the daily chart. This can be displayed by one daily candle which might be a momo (momentum) candle, or a series of candles. When I see that happen on a daily, this is the signal to drop down to the lower time frames to try and find a supply level from which to trade.
The idea behind this is the fact that for price to drop in such a fashion to create a momo candle on the daily chart and/or break a decision point on the daily chart, there must have been a big supply/demand imbalance i.e. supply overwhelmed demand. These levels of imbalance are not always visible on the daily so this is why I drop down the time frames to see if I can find a nice looking level to trade from within the daily move. This also means that I don’t have to trade with a large stop loss either.
Some recent examples are below:
The process for finding high quality demand levels is similar to the above for supply but in reverse:
- Identify demand on the weekly chart
- Wait for demand on the daily chart away from the weekly demand level
- Drop down to the lower timeframes to find the demand level that caused the move
- Wait for a retrace and enter
There are a few things to consider when adopting the methodology above.
Less Trade Setups
There will most likely be fewer trading opportunities to take depending on your current trading style. This however was not a problem for me. As traders the goal is to make money not make a certain number of trades. If you can achieve your goals by trading less then that’s a good thing as far as I’m concerned.
Looking for entry levels on the smaller time frames means that we can limit the risk on each trade. We are trading big time charts from small time frames.
Longer waiting period
The overall waiting time can be quite long. Long to wait for setups to appear, long to wait for the entry and long to wait for the exit, whether that be at profit or a loss. Whatever method you adopt for trading, a substantial amount of time will be spend waiting. This is inevitable. Each individual will need to decide which trading style they will adopt and for me the waiting period between trades is fine. All it means is that I have more time to do other things whilst I let my trades run their course which could be anywhere from a couple of hours, days or even weeks.
Greater Profit Potential
This method is based on big moves on the daily chart. The benefit of this is that the profit targets are often quite large and trades often run for over a hundred pips.
Identifying supply and demand levels based on daily price action helps to filter out lower quality levels so that action is only taken when the conditions are highly in your favour.
I hope you found this article.
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