Trading on Supply Demand

Arjun Bakshi

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Introduction

• Charts represent filled orders over a period of time.

• Our job is to find the areas where maximum unfilled orders are located.

• Some candles represent accumulation of orders & others represent consumed orders.

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• Boring candles – Supply-Demand in Balance. Institutions are most probably accumulating orders

• Exciting Candles- Imbalance between Supply & Demand found at the origin of these candles.

• Institutions DON’T CHASE PRICE. So, there is less institutional activity in these candles.

• Boring candle -> Body of candle<= 50% of Range of candle

• Exciting candle -> Body > 50% Range

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How do prices turn?

• Prices turn when there is an imbalance of Supply & Demand

• Our job is to locate these areas of imbalance

• An explosive move followed by a base followed by an Explosive move represents this area of imbalance

• How do these look on the chart?

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Setups

• Rally Base Rally

• Drop Base Drop

• Rally Base Drop

• Drop Base Rally

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Rally Base Rally

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Drop Base Drop

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Drop Base Rally

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Rally Base Drop

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Multiple Timeframes

• Multiple time frames are necessary to provide a correct perspective of the overall market.

• Higher time frame - Range

• Intermediate Time Frame - Trend

• Lower Time Frame - Execution

• Use a factor of 5 approximately

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For Equity Markets

Trading Style

Positional Swing Intraday-1 Intraday-2

Timeframe

Range Monthly Weekly Daily 60 min.

Trend Weekly Daily 60 min. 15 min.

Execution Daily 60-240 min. 15 min. 5 min.

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Higher Timeframe RANGE

• Look for untested Demand & Supply Zones on the Range Timeframe.

• Demand zone will be below CMP

• Supply Zone will be above CMP

• Divide the area between the Demand & Supply zones into 3 equal parts

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ONGC Example

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Intermediate Timeframe – Trend

• Check the trend on intermediate time frame.

• Can be based on whatever you are comfortable with.

• Ex:- Moving Averages, ADX +DI/-DI, Price action, etc. Just be consistent with whatever you are using

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Lower time frame – Execution

• If price is Hi or very Hi in Range time frame, look for opportunities to short in good quality Supply zones

• If price is Low or very low on Range time frame, look for opportunities to go long in good quality demand zones

• If price is in equilibrium, trade in direction of trend of Intermediate timeframe.

• Example, if price is in equilibrium & trend on intermediate timeframe is Up, then look for going long in good quality demand zones.

• Target- Opposing level of Demand/ Supply. Can also look at monetary tgts or R:R tgts.

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ONGC Example Execution Timeframe

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Good Quality Zone

• Will have less than 5-6 base candles

• Will have a very powerful leg out Wide body candles, gaps.

• Ideally should be untested or very faint test of the zone

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Nifty Day trade for 10/8/2015

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Nifty Trend 60 min.

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Nifty Trade-1

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Nifty Trade-2

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More stuff to Read/Watch

• http://www.set-and-forget.com/supply_demand_beginners

• http://www.fxstreet.com/search/contributors/authors/author.aspx?id=5766b88a-1a31-4102-8221-e9bf77216d2f&contenttype=w

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Thanks for Reading

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