There are numerous ways to find exact buy/sell entries in forex trading. Demand and supply are one of them. Understanding forex trading dynamics is integral for making informed decisions, and one of the most powerful concepts used by traders to anticipate price movement is demand and supply.
Increase your win rate while finding entries on a higher timeframe
While these terms are typically discussed within short-term trades on lower time frames such as daily, weekly or even monthly charts, their application on larger time frames such as these charts is just as successful. Let’s discuss how to leverage demand/supply zones on larger time frames to enhance your forex trading strategy.
What Are Demand and Supply Zones?
These are very critical levels because obvious levels are visible to most of the traders. Liquidity is often present there, which is why traders need to be careful while using these zones. Forex demand zones or buy zones refer to areas in which buying pressure is strong enough to push prices upward, typically marked by significant drops followed by strong rallies.
By contrast, supply zones refer to regions where selling pressure prevails and are typically marked by sharp price spikes followed by swift price decreases.
These zones don’t represent random price levels, but rather reflect areas in the market where institutional traders may enter. By identifying them on higher time frames, traders could potentially anticipate future price action or market reversals by identifying these levels on higher timeframes.
Understanding Why Higher Time Frames Matter in Forex
Many traders rely on shorter timeframes, such as 15-minute or 1-hour charts, for quick entry and exit points. But larger time frames provide a more comprehensive overview of market trends that eliminates the noise that often clouds judgment on shorter charts. By identifying demand and supply zones on daily, weekly, or monthly charts, traders can get an accurate sense of long-term market sentiment and price movement. However, if you have less capital, then daily or 4-hour zones can help you, and even if one gets failed, then 2nd or 3rd one often hits your TPs..
Similarly, drawing S/R on charts becomes more valuable when you use higher time frames. As they provide traders with an efficient tool for identifying more reliable support and resistance zones in the market, making their support/resistance zones less vulnerable to being violated than levels on shorter time frames.
How to Draw Demand and Supply on HTF?
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Identify Key Demand and Supply Zones with Big Spike or Drop
To identify key demand and supply zones on higher time frames (daily or weekly charts), begin by studying their daily or weekly chart to spot any areas where price movements have changed rapidly – looking out for instances when prices have significantly shifted in either direction – then draw horizontal lines around these spots to mark them as demand or supply zones. You can also see FVG or break of structure BOS when a demand or supply zone is formed.
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Watch for Price Reactions or Rejection
A rejection or candlestick pattern with volume can help you to take confirmation for entry from these zones. Once you’ve identified demand and supply zones, observe how the price reacts when approaching these areas. A rejection from these zones could indicate high-probability trade setups.
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Confirm Your Entries with Lower Time Frames
Sometimes, a 15-minute time frame for entry confirmation is taken or a 30-minute candle as well. While higher time frames provide the bigger picture of market dynamics, lower time frames provide finer details. Once you identify an important demand or supply zone on a higher time frame (like 1-hour or 4-hour time frames), use lower time frames (such as 1-hour and 4-hour time frames ) to look for entry signals like candlestick patterns, divergence, or confirmation of price rejection.
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Risk Management Before Entry
You need to see the per-entry risk first before setting the take profit. For example, a 1 % or 2% risk per trade is reasonable. Trades taken at higher time frame levels tend to offer larger potential gains; however, their associated risk can also increase substantially, so effective risk management must always be employed with stop losses and position sizes that fit your trading strategy in mind.
Conclusion:
Employing demand and supply on higher time frames in forex trading can give traders an edge by offering them a broader and more accurate perspective of market behavior. By identifying key levels on H-4, daily, weekly, or monthly charts, they can more efficiently locate entry points, predict price reversals more reliably, manage risk more effectively, and identify entry point potential more readily. When combined with lower time frame analysis, demand and supply zones can become very powerful. Let us take an example: you mark a demand zone on H-4, then come into the M-15 timeframe. If you see another demand zone within a 4-hour zone, then high probability that the price will bounce from here.
