Introduction to Technical Analysis Concepts
Technical analysis relies on two foundational concepts: Support & Resistance (SnR) and Supply & Demand (SnD). While beginners often conflate them due to overlapping characteristics, these frameworks serve distinct purposes in trading. This guide clarifies their differences, explains their formation, and provides actionable strategies to combine both for high-probability setups.
Understanding Supply & Demand in Forex
What Is Supply & Demand?
Supply and Demand zones represent price imbalances—areas where large institutional orders create significant momentum. Markets naturally seek equilibrium, so imbalances (e.g., a sharp rally after consolidation) signal zones where price is likely to revisit to fill unfilled orders.
How to Identify Supply & Demand Zones
Use the "Big Candle + Base Candle + Big Candle" formula:
- Rally-Base-Rally (RBR): Strong uptrend → consolidation → continuation.
- Rally-Base-Drop (RBD): Uptrend → consolidation → reversal.
- Drop-Base-Rally (DBR): Downtrend → consolidation → reversal.
- Drop-Base-Drop (DBD): Downtrend → consolidation → continuation.
Pro Tip: Fresh zones (untouched by price retests) offer the highest trading potential.
👉 Master Supply & Demand Trading
Support & Resistance in Forex
Defining Support & Resistance
- Support: Price level where buying interest overwhelms selling pressure.
- Resistance: Level where selling interest halts upward momentum.
Key traits:
- Psychological levels (round numbers, Fibonacci retracements).
- Validated by historical rejections or breakouts.
Best Timeframes for SnR
| Trader Type | Higher TF | Lower TF |
|---|---|---|
| Swing Trader | Daily, H4 | H1 |
| Intraday Trader | H4, H1 | M30, M15 |
| Scalper | M15, M30 | M1, M5 |
Key Differences Between SnD and SnR
Similarities
- Both indicate potential price reversals.
- Operate within defined zones (not single price points).
Differences
| Factor | Supply & Demand | Support & Resistance |
|---|---|---|
| Formation | Imbalance zones (fresh, fast moves) | Historical price reactions |
| Validation | Unfilled institutional orders | Repeated rejections/breakouts |
| Duration | Short-term relevance | Long-term relevance |
Combining SnD and SnR for High-Probability Setups
Strategy: SnD Zones at SnR Levels
- Identify a strong SnR level (e.g., 1.5000 round number).
- Wait for an SnD zone (e.g., RBR pattern) to form near this level.
- Enter trades at the confluence with tight stop-losses.
Example: A Drop-Base-Rally (DBR) demand zone aligning with a major support level offers a low-risk buy opportunity.
FAQs
1. Can supply/demand zones become support/resistance?
Yes. Once price retests an SnD zone, it may transition into an SnR level if it holds.
2. Which is better for day trading: SnD or SnR?
SnD excels in fast-moving markets, while SnR suits range-bound conditions. Combine both for versatility.
3. How many retests invalidate an SnD zone?
After 2–3 retests, the zone weakens. Prioritize fresh zones for optimal results.
4. Do Fibonacci levels work with SnD?
Yes! Fibonacci retracements (e.g., 61.8%) often align with SnD bases.
Final Thoughts
Mastering Supply & Demand and Support & Resistance unlocks precision in trading. Practice identifying zones, backtest strategies, and use confluences (e.g., candlestick patterns) to refine entries.
Remember: "Practice makes perfect." Start with demo accounts before live trading.
Disclaimer: Trading involves risk. This content is for educational purposes only.
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