Master Supply & Demand trading (Ultimate in-depth guide - 2024)

mastering supply and demand in trading is one of the most important skills you can learn as a Trader and failing to learn it can be a disaster in this video you'll get an indepth guide to mastering supply and demand from our head of Trader development Jeff Holden I'm Mike Bella Fury and we're one of the top proprietary trading firms located in New York City since 2005 and proud to have developed numerous seven and even eight figure Pere Traders watch take notes and learn from a professional Trader on our desk so you can grow your trading

account in this mini course we're going to Define supply and demand the way we talk about it on the desk there's a little Nuance to it so pay attention we're going to talk about how you can use it to increase the probability of actually any trade that you're going to take by looking at the components of how supply and demand are playing out we're gonna talk about specifically how to identify supply and demand early it's different than what a lot of people talk about so let's get into that and then we're going to talk through

three essential steps when you're trading with supply and demand finally we're going to wrap up everything by going through four specific trades that we take on the desk that use supply and demand effectively as important components of the trade the first thing we're going to do is we're going to talk about defining supply and demand so how do we Define supply and demand well Supply is obviously sellers right it's where this imbalance occurs where there's more sellers than buyers that's what drives that down excess Supply can be very prevalent and show up in a very

aggressive manner but the reality is it can also be very very passive it can be tricky and and that trickiness actually is what makes it so beautiful because before that aggressive Big candled Move starts there's a lot of subtlety and we can see that shift in the supply that's in the market right now that little subtle shift is where we're going to start with a lot of our Focus because that big aggressive move comes way later so many people want to focus on the aggressive move that's really not a great way to do it you

want to notice the subtlety and that change that leads into that aggressive move and then take advantage of both those so Supply is essentially just sellers big players in the market that have a lot of shares to sell demand is essentially anybody that needs to get in demand is broken up into a couple different categories sometimes demand is people who need to cover a short they'll act in a very urgent manner sometimes it's people who want to passively buy the stock again coming back to that two components of supply and demand passive and aggressive one

thing that really bothers us and trips up too many people supply and demand are not support and resistance support and resistance are areas that are created by prior price action that can line up with supply and demand at different times but support and resistance are distinct points that are very different than the flex component that we're talking about with supply and demand that's why it's important for us to break it down that's why it's important for us to understand let's go back to that point again it's not support and resistance supply and demand is bigger

Traders those big players in the market they're in the market and they're involved in the stocks because of a distinct shift this shift can always have a couple reasons which we'll get into especially when we talk about the trades that we're taking but think about it is that distinct change a catalyst that Catalyst actually blows the support and resistance components that can lead to those predictable moves that support and resistance Traders trade it blows them completely out of the water because Supply and demand components override any support and resistance components in the right environment it

makes support and resistance actually wildly unpredictable so if we shift our thinking to know what supply and demand are know how they show up in markets and what it means we can use that Catalyst and we can show up and trade along with the big players coming in and disrupting that underlying balance that support and resistance Traders like so much this slight and subtle shift in our thinking gets us halfway to correctly identifying supply and demand we talked about this point already but let's go a little deeper now supply and demand is not just aggressive

buying and selling it would be so nice and so easy and it seems really easy if we talk about it from the perspective that supply and demand always are going to be identified using those big aggressive candles that's what supply and demand are they're big candles that show up on the chart but experience has really taught us that that's not the case we have to be so careful with this misconception because it can really lead to this false expectation and it really kind of sets a bad awful trap that a lot of Traders can fall

into you think you're trading supply and demand when you're trading these big aggressive candles but you're really trading the end of that supply and demand the worst part of it is it can lead us into missing out on some of the actual highest probability trades offered by those big players when the supply and demand components show up passively first and then aggressively later most supply and demand trading in the markets that we trade now they do show up passively it's this beautiful subtle but distinct shift it's this noticeable pattern one that produces the kind of

Trades that leave us just kind of hungry for more the trades that feel right right from the moment we put them on the kind of Trades that leave us with that feeling of connection that feeling of flow with the market we're trading so let's break it down so supply and demand trading is a catalyst it's a change in the balance that shows up as first passive and then aggressive participation if we're talking about Longs we're talking mostly about passive buying into aggressive buying and then that flow back to passive buying into aggressive buying those two

components that Catalyst and then that passive and aggressive component have laid the groundwork we now know how to use and how to identify appropriately supply and demand and that's how we increase the probability on any trade our second point is how you can use supply and demand to increase the probability of almost any trade in reality in trading we don't need much of an edge in trading to be insanely profitable we do need a real Edge we need trades with real Edge so let's cover one trade with the real Edge and then as we progress

through this supply and demand course will'll cover those other four near the Ed but once we have a trade with real world Edge we can use the supply and demand component to enhance the probability of a trade whether it's a scalp a move to move trade a trade to hold whatever time frame of the trade applying the simple direct principles of supply and demand trading learned here are likely to bring us into that flow where trading just makes sense where the edges are stacked in our favor it's that kind of feeling where maybe you get

tricked into thinking this could go a little further than I think so you want to have those problems in your trading you don't want to be in a position where you're putting the trade on and as soon as you put it on it starts to go against you applying the principles of supply and demand take an existing Edge and allow us to hop a ride on with the big players as they kind of go about their day it can literally feel like you're sitting down to a blackjack table with a positively stacked deck as soon

as you sit down you know if you play the right way if you play your games with some Edge you're likely to see those follow through over and over and over again most people will skip over this we're not going to we're going to get dirty a little bit but then we're going to come out with a new sense of how supply and demand really shows up in the actual charts we're trading now how to identify unusual supply and demand early this is that passive Supply passive demand aggressive is always going to show up as

very clear full bodies you can very easily Define aggressive Supply or aggressive demand as three fullbody candles if it's a one minute or a TW minute or a five minute or a 15 minute whatever time frame you're trading on even an hourly when you see three full bodied you know not a lot of Wicks on there of the same color same direction that can be classified as aggressive Supply if the candles are red and they they're going to the down or demand if the candles are green and going to the upside once we have that

we've identified aggressive Supply and aggressive demand when do we expect there to be a lot of aggressive Supply and aggressive demand when there's higher volatility significantly heightened volatility that means maybe the move's already started and then it gets aggressive that's also prone to much more reversion so you can see really aggressive Supply leading into really aggressive demand like we see on the chart right here it makes it dangerous to trade along with the supply in that environment it makes it dangerous to trade against the demand in that environment you want to know when to trade

aggressive supply and demand and when to look to be comfortable focused on the passive supply and demand a simple way to identify passive Supply or passive demand is when you have a 3:1 ratio so when you have one large green candle let's say and then the next three consecutive candles are red and they take out the entirety of that one green candle most of the time that's showing us that passive but sustained Supply where it looked like there was Demand on that green candle but there's passive and sustained Supply right there that can be the

beginning setup for a really big move it doesn't always show up with that one big candle and then that three very clean candles sometimes it shows up as the one candle some sideways action and then those three very distinct very subtle but distinct red candles we're always looking for that three to1 ratio when we're trading supply and demand because we're not trying to get caught in the middle on any of it we're trying to appropriately identify when that balance has shifted and a 3:1 ratio tends to be about the appropriate ratio for looking at supply

and demand changes in the table here are three essential steps for trading with supply and demand these are going to set up the trades that we're actually going to take so we need to cover those three essential steps we're going to start by looking at the initiation of where that Supply or demand started from and then we're going to allow that to play out and look for a reinitiation so again if we're seeing something passive let's see where that passive Supply started from or that passive demand started from let's see it take out that level

let's see a re re initiation of that trade that's where we're going to focus is on the reinitiation of that Supply or demand and then we're going to focus on measured targets measured targets using supply and demand some people will talk about Fibonacci some people will talk about measured move some people will talk about it trading into a prior resistance or support area another area of Supply or demand the reality is at the end of the day what we found is measured moves so measuring where the initiation occurred to where the reinitiation occurred that tends

to be the best way to set targets for supply and demand trading now let's get into the good stuff the stuff we've all been waiting for the specific trades we can take using supply and demand effectively so these are going to be four trades that we take on the desk one's in the open right on the opening drive another's the morning trade then there's a midday trade and then there's an afternoon trade you don't have to add all four of these to your playbook probably most people won't you'll find one or maybe two of them

that make a lot of sense to you on the desk you'll see people taking breaks after the open after the morning during the midday maybe we'll get some lunch or they'll kind of be a little more passive and looking for some very specific patterns to occur but then in the afternoon everybody will get focused again breaking our day up into these quarters allows us to stay in that flow of what's happening with the supply and demand components because they are always adjusting subtly but they are adjusting in markets let's start with an opening drive trade

the opening drive trade we're talking about is the gap give and go you'll see a little bit of a visual reference right there but let's walk through it together for the Gap give and go you get a gap up you see a give price action pulls in a little bit from the open it usually has to be pretty aggressive as well we don't want a methodical slow grindy give we want to see a pretty aggressive give right from the open so let's get that give and then what we're looking for on that give what actually

happens is sellers that are taking their profits that supply that was ready to enter the market hits the market right from the open causes that drop that give portion it should be aggressive that Supply should be aggressive and then we develop this really nice usually consolidation the difference between a range and consolidation a range would be wide and it could just chop around as long as it wants to a consolidation usually is a little bit tighter because there's a pending resolution to that so we get this consolidation down into an area of demand the areas

created by the buyers that are looking to go with that Gap what happen happens is there's this short-term balance between supply and demand and in the Gap given go trade we're looking for and expecting that the buyers that demand will step back in and take us higher this is probably the most basic component of that trade of of supply and demand trading because it's very simple and we see it very clearly on the tape when we look at example after example you can see that give that excessive very abrupt Supply you can see that demand

step in and then you see that urgency of the demand increase as the supply completely evaporates you see the buyer Step Up This is almost always a twoleg trade because we expect that demand to be sustained we put our stop below the low of where that demand was and we look for two waves because we expect that demand to occur the pull in that balance point and then that reinitiation point as that area develops right at the lows we're waiting for it to crack once it breaks to the upside we can enter our position right

there again stop at the low below the area where the demand was and we look for one move and then that pull in and then a reinitiation of that demand and that second move after that second move which you can use a double measured move Target if you want to you take the spot from where where the initial demand started to where that initial Supply kind of met us and then that pull in came in and then on that reinitiation we're looking for another leg that should be equal to that first leg higher sometimes it's

even more after we're done with the open a lot of times you'll see Traders reset kind of look around and see what else is out there what other Inplay names are trading here's a second trade that you'll see Traders on the desk make it's called The Good Morning America what happens in this trade and why using supply and demand components can really help drive us in the right direction is because this is an opening range that develops but unlike an opening range break the range takes about 30 to 45 minutes sometimes times longer to develop

so it's not really an opening range break and when it takes that long to develop a range break is actually a little bit prone to failure initially so what we do is we take the components of that trade look for where there was Supply which created the top of the range and demand which created the low of the range and then we look for that shift that subtle shift to occur a lot of times that shift will start at the lows so we'll see a really hard down move where it looks like there's a ton

of Supply but then that sustained buying pressure that sustained demand that does that reclaim of the entire down move and then that's the beginning part of our trade what we actually look for in this trade is we had that up move down move up move and then a abrupt down move and then we have one two three that's just the set set up for this trade what we're actually looking for is a reinitiation after the demand has been holding above that area where there was Supply previously observing that reinitiation gives us an opportunity to take

our trade we take it on the break of the top of the current range or the extended range we put our stop just below below the area of the break this gives us killer risk reward because as the trade starts to work we're risking a very small amount and what we're really trying to walk into is a trending trade to the upside so what we're expecting on this is that supply and demand imbalance that occurred is going to result in an aggressive approach of demand it's going to result in those aggressive buyers taking us all

the way out we can risk a small amount but what's our actual Target since we're initiating there and you know on the break and then our stop is just below the lows of that small consolidation that area of demand we're actually using a target of the entirety of the range so if our range is built out and then we get this little consolidation here our stop can go right below the area of that mini consolidation our entry would be right above the area of the mini consolidation but we're using the measured move of the entirety

of that consolidation as our Target so this gives us amazing risk to reward our expectation is not that it will be aggressive first our expectation is that demand is sustained but it's passive that's why it didn't just break out and make this giant move to begin with it's passive demand passive demand can lead to aggressive demand later we don't have to always look for that aggressive demand sometimes it occurs at the end of the move and that's where we want to exit our position our third trade is something that occurs sometimes in the morning but

most often and and one of the best times of day for it we found especially in the markets that we're trading right now is a midday style trade so what's happened is maybe there was something that was selling off uh through the open and then it started to put in a low in the morning and then put in a little bit of a consolidation and it gave it's giving us an opportunity for a really nice scalp we call this the backside scalp it's a great midday trade uh midday being like 11:30ish to to 130 or

something like that it's a great trade because it tends to catch people a little off guard but if you're ready for it and you're just sitting at your seat or maybe you went and got some lunch and came back and we're surprised that there was some buying pressure off the lows let's say you can walk into a really good scalp and let's break out where the supply and demand components come into play so for the scalp we're going to talk about there being some selling pressure on the open a lot of times that sustained selling

pressure that gets a little more aggressive later in the day it's just a really common pattern for the that sets up the backside scalp then we're going to want to see some demand come in again this is all something that happened in the morning we're not worried about taking that trade off the low what we're thinking about is if the price action kind of comes in puts in a distinct higher low and then puts in some sort of consolidation we can then look across and notice where is that entire consolidation occurring is it occurring below

an area that could be where excessive Supply was or has that Supply now turned into potential demand demand when that area that this consolidation is occurring above an area that could have been referenced as Supply we can now use that switch of those components to to take advantage of the opportunity presented by those aggressive shorts and look for a very distinct break of the range with our stop below here and a quick fast Target of vwa what's really happen happening with that trade is all the supply that was there on the open is exhausted but

Traders are still looking at Price saying well I think there's going to be more Supply there what is really going on is it's shown nothing but demand for the last period of time since the lows were put in there is a very clear and distinct big player that's present so what we're doing is we're allowing the price action to move around a little bit but then allowing it to set up this very important moment for us which is that consolidation as soon as that consolidation breaks to the upside we can enter our trade our stop

is below that higher low and we're targeting vwap it's a little scalp that you'll see traders in the desk do it's a little thing that doesn't seem like that much but you do it effectively and it adds up really really quickly it uses the components of that subtlety of maybe aggressive demand off the lows into passive demand where there once was aggressive Supply now there was aggressive demand and now there's passive demand and the way that we're entering our trade-off of that passive demand is now we're looking for aggressive demand to give us a reason

to exit finally the last trade that we're going to cover is something we call above the clouds it's a trade that was inspired by one of the people on our desk um he loves hiking he took this beautiful picture and it was a picture where literally he was above all the clouds it was unbelievable that day or maybe a day later we were all trading and this stock just made this move that went up through the day and it held above all of the area of Prior resistance it was just holding above the clouds in

the afternoon that can signify the potential that this stock is going to close high of day so what we do to identify this trade into the afternoon we look around at the stocks that were in place if we see something that is put in a Range where there's maybe some Supply and there's some demand then we wait for that range to get broken to the upside we confirm that the demand is there by seeing the supply turn into demand the price action has to hold above those clouds it has to hold above that prior Supply

area if it does this then ideally the time frame that it'll do it is about 10 at 15 minutes sometimes 20 minutes but if it does that and it breaks to the upside we can risk against that area of Prior Supply now we're observing as current demand and we can look for again a measured move of the entirety of the range or if we're trading this for close of high of day we can just hold it till the end of the day it's very similar to the morning trade but the components there are different because

in the morning trade we're expecting it to be more of a trending trade we're expecting that demand to be subtle and then grow and then get more aggressive in the afternoon in the above the clouds trade we're actually expecting aggressive demand we're expecting aggressive demand from the initiation of our trade if it doesn't go in our favor relatively quickly it's probably not not going to work out as well as we think so with this trade we have an expectation that it'll start to work quickly and then it'll start to get a little more subtle but

we're looking for that very clear and distinct change where Supply turned into demand and then we're looking to go with that on that continuation that reinitiation to the upside so we talked about measured moves being our primary exit strategy you know we measure the range or we measure the move of that of that demand there's a really great video that we put together that talks about a lot of different ways to exit trades and if you've been struggling in your trading or you're in a position where tra you're in trades and they're starting to go

for you but you feel like you're giving too much back go check out that video because it's a really good guide of different ways that you can use exit strategies in different situations different trades entirely that