supply and demand zones are some of the most basic formations that we see on our
charts however they're still powerful enough that we can use them on their
own without any other trading indicators to find and execute profitable traits in
this video I'm going to break down exactly what supply and demand zones are give you
some tips and secrets about supply and demand zones and explain to you exactly how you can
get in and out of your trades using solely these very powerful levels on our charts
so what exactly are supply and demand zones supply and demand zones are essentially just areas of
resistance and support due to supply and demand imbalances Supply being the sellers in demand
being the buyers these two things are really the sole reason that we see price fluctuations in
the market many people think that it is you know things like News Press releases earnings reports
um you know different chart patterns and while those things may influence the supply and demand
the supply and demand itself are going to be what actually causes the prices to change
so if we can use these areas on our charts to see where there is more demand than there is Supply in
other words more buyers than there are sellers we can also then get in on that buying which is going
to help us buy low and then later on sell high for our profit take the chart for Bitcoin here
for example we can see that up in the 24 000 to 25 000 area there are several candles that kind
of peak in the same area and when they Peak they form these long upper Wicks on those candlesticks
and for those of you that know a thing or two about Candlestick analysis and Candlestick
trading along upper Wick or a long upper Shadow represents that the sellers are taking control
it tells us that within that Candlestick the stock price spiked up but the sellers were able to take
control and drive the price back down before that candle stay closed so that area is going
to become our supply zone for Bitcoin and we can see that there is a pretty steep sell-off to the
downside from that area it then pulls back into a level where the price previously bounced from
um in the eighteen thousand dollar area and once it gets back into that zone we can see
that pretty much the same thing happens then with the lower Wicks on these candlesticks forming a
lot of long lower Wicks telling us that the demand in that area is much higher than the supply that's
going to become our demand Zone and we can see that the price then starts to rebound from that
area and is now starting to pick up some momentum to the upside now one thing that a lot of Traders
don't know even a lot of those that regularly trade supply and demand zones is that you want
to pair these supply and demand zones to the overall trend of the stock or the ETF or the
contract or the cryptocurrency or whatever it is that you're trading so you may have heard
the popular quote don't fight the trend the trend is your friend and that still needs to be applied
to supply and demand trading and what I mean by this is if the stock is clearly in a downtrend
it's making lower lows in making lower highs you don't want to try to buy into these demand zones
thinking that you're buying in at the exact bottom of this downtrend instead you're going to be much
better off by Short Selling into Supply zones and then covering your short position into any demand
zones below by doing this and by going with the overall trend it's going to make it a lot easier
for you to actually time your entries in your exits on your trades the same is true obviously
for an uptrend when there's upward momentum in the stock is climbing higher and higher you don't
want to try to short sell into these Supply zones thinking that you're going to nail the exact top
of the short instead look for a pullback into a demand Zone and use that as an opportunity to buy
the dip now not to State the obvious but stocks are not always going to be in a clear uptrend or
in a clear downtrend sometimes they're going to trade sideways in a consolidation zone or in a
price Channel and that can happen for an extended period of time now that doesn't mean that you're
unable to trade these stocks because at the end of the day you wouldn't be fighting the trend
by buying into demand zones and you still wouldn't be fighting the trend by Short Selling into Supply
zones so when you find a setup like this you're actually going to be able to capitalize on both
sides of the move by going long into demand zones and by going short into Supply zones
now let's take a look here at the daily chart for BTU BTU was a swing trade that we nailed in the
market Master group in the past our buy alert was put out to our team here as it was pulling back
into this demand Zone and we could see that it bounced all the way down from a low of 18.35 up
to then a high just a few weeks later of 29.14 so there was huge return potential just from
swing trading this demand Zone and the beauty of it is that you can repeat this process over
and over and over until it gets a breakout to the upside or a breakdown to the downside because as
we can see here with BTU there is not a clear Trend in either direction at the moment it's
trading sideways in this consolidation Zone which means that we can buy into demand and
then we can also short sell into Supply so going all the way back to May here we could see that
we would be able to buy into this demand Zone at about twenty dollars per share and then sell up
here near thirty dollars per share flip over to the short side and then profit again from this
pullback into demand repeating that over and over making money on both the upsides and the downsides
now because nothing works 100 of the time in the stock market that is also going to be true
for supply and demand zones occasionally you're going to see a false breakdown below a demand Zone
and you're going to see a false breakout above a supply Zone a lot of inexperienced Traders think
that if a stock is moving above a supply Zone that it's automatically going to be considered
a breakout and that breakout is going to then turn into an uptrend or a run to the upside well
that may be true sometimes a lot of times there are going to be false breakouts and these false
breakouts are what cause a lot of traders to buy into the high of a move before it comes back down
below that Supply Zone and ends up selling off to the downside the same thing happens a lot of times
with a demand Zone Traders assume that the demand zone is going to hold as support the price briefly
breaks below that demand Zone causing them to cut their losses and get stopped out of their trade
and then it will reverse right back up and end up spiking to the upside so in that case not only did
the trader get stopped out and take an unnecessary loss on the trade they also then missed out on
the potential profit that followed after the false breakdown so I bring this up to say that
even though risk management is very important with stock trading it's going to be even more important
to manage your risk properly my tip to avoid getting stopped out in these false breakdowns
would be to give your stop loss some kind of room below the demand Zone that you're basing it off of
so if there's a demand Zone let's say at one dollar per share you don't want to have your stop
loss set just at 99 cents per share because that's going to make you very vulnerable of getting
stopped out on a false breakdown and missing out on a potential run now the million dollar
question is how much wiggle room do you want to give your stop loss and that is really going to
depend on the type of stock that you're Trading let's go ahead and take Apple for example apple
is currently trading at 137 dollars per share so if you think about it a one percent move in apple
would be one dollar and 37 cents one dollar and 37 cents is plenty of wiggle room below a level
of support or below a demand Zone to use for your stop loss on the other side of the spectrum let's
go ahead and take a stock like veru for example veru is one of the top percent gainers for today
it is spiking up and it's up about 48 for the day and it's currently trading just above 15 per share
so a one percent move in beru at fifteen dollars per share is going to be just 15 cents now you can
see how 15 cents is obviously much smaller than the example with Apple so using a one percent stop
loss on a stock like veru is going to make your odds of getting stopped out on a false breakdown
much higher so for veru or any other highly volatile stock you would probably want to look
to use a stop loss maybe around five percent and sometimes with very highly volatile stocks your
stop loss may be upwards of 10 from your entry price now that doesn't necessarily mean that you
should be risking way more money on a trade with a stock like veru as opposed to Apple when you find
out where your risk level is going to be and where your stop loss is going to be placed you should
use that to determine your position size for that trade and if you know that for example your
maximum loss that you want to take on any given trade is 100 while you're trading a stop like
apple and using a risk of one percent from your entry price that means that realistically your
position size can be up to ten thousand dollars on the other hand if you're trading a stock like
veru and your risk level is going to be five percent away from your entry price in that case
the most that you would want to invest into the stock would be two thousand dollars because five
percent of two thousand dollars is your maximum loss of one hundred dollars okay so hopefully
having watched this video you can see that even though supply and demand zones are very simple
levels on our charts they provide us as Traders a ton of valuable information and we can use them
not only to find our entries and exits on certain trades but also to manage our risk and to find the
ideal position size for any given trade hopefully you found some value in this video and if you did
please make sure to give it a like And subscribe to the channel and if you want to learn more about
day trading swing trading and long-term investing and join us in our daily trading group you can
find more information on that at my website Master the market which will be linked Down Below in the
description but anyway thanks again for watching I hope you enjoyed and good luck with your Trading