Best Price Action Trading Strategy using Supply and Demand zones
Are you looking for the best price action trading strategies that can help you to trade in the stock markets? If so, then you have come to the right place.
In this blog post, we will discuss some of the best price action trading strategies and also how Supply and Demand zone trading will help you amplify your trading journey.
We will also share the 4 powerful trading setups in Supply and Demand zone trading a type of Price action trading strategy. So, if you are ready to learn more about Price action trading, keep reading!
Being Supply and demand zone traders, we always tell our students there is no Holy grail in Trading. If you are new to trading or struggling with making consistent profits in the stock market then this blog is for you.
Mr. Mahesh Kaamath, Founder and mentor at MAK Trading School, a trader for the past 11 years. He first started off trading with indicators like the Relative strength index (RSI), Bollinger bands, moving averages, Stochastics, ADX, and MACD you name it and he has traded almost every indicator.
The biggest problem that Indicator based trading brings in is, all these indicators are derived from price and always are lagging. So, you never get the best price while entering and exiting a stock. Hence, you tend to lose out on your hard-earned money.
Moreover, there is always a dilemma as to which is the best indicator to use or what are the best settings for that indicator. This is where you can benefit from price action trading since there are no such complexities.
No Trading Strategy will give you a 100% success ratio. If you are looking for a 90% strike rate then close this blog, it’s not for you. If you are happy with a 50% to 60% Strike rate and Risk Reward ratio above 2:1, then we have the perfect Strategy.
What is price action trading?
Have you heard this famous quote “Price is King”? Price prevails over everything and is the best indicator to predict stock market patterns and reversals in a market. All indicators are lagging indicators, which means the signals for trading are late, hence it’s better to understand how to predict the price of a stock, commodity, or index.
Price action Trading is nothing but analyzing the behavior of security, Index, Commodity, or Currency to predict what it might do in the future. So, if the price action pattern predicts the price will go up, you can take a long position and if it predicts the price will go down then you can take a short position.
Price action signals usually involve, identifying price patterns, reversals, and key market turns with the help of price. There are different types of price action trading setups that one can benefit from trading and investments.
Types of Price Action Trading Strategies?
- Pin bar Strategy
- Inside bar strategy
- Trend trading
- Supply and Demand Zone Strategy
Let’s discuss these Price Action trading strategies in detail
1. Pin bar Strategy
The pin bar strategy is nothing but a powerful signal of a price reversal in a strong support or resistance area. To understand the Pin bar trading strategy, one must understand candlesticks. There are two types of pin bars, the bullish pin bar, and the bearish pin bar.
How do we trade them?
Once you identify a bullish pin bar, you can place a buy stop above the high of the pin bar and the stop loss below the tail of the pin bar. Reverse, for a bearish pin bar. Most traders also put limit orders and wait for a pullback to the Pin bar and keep their stop losses below or above the tail.
Let us understand the psychology behind this. Let us see the red candlestick depicted above. When the market opened, the buyers took control of the market and pushed the prices up quickly. As prices reached the top of the wick, sellers were able to come into the market and push the prices down. Sellers managed to push the prices down to the candles open, which created a long wick. This denotes selling pressure and has bearish implications.
2. Inside bar strategy
An inside pin bar strategy is a price action trading strategy that shows consolidation and helps you to predict an impending breakout. Inside bars are one of the price action setups used by many forex traders and equity traders. The strategy presents to traders that a continuation or a reversal is imminent and one can benefit from these trading setups. There are two types of Inside bar variations. One is the continuation setup and the other is the reversal setup.
How to trade the continuation setup?
When to use this setup is very important, not every Continuation setup is tradeable so timing is very crucial. The best way to use the continuation method is when there is a very powerful trend or direction. If you are a newbie, then we would suggest trading this Price action strategy on a very small capital or paper trading account to master this art.
How to trade the reversal setup? The reversal trade is entered when there is no continuation of the trend and a possible reversal is imminent probably from a strong support or resistance area. You can place a buy stop and stop loss above the consolidation or below the consolidation depending upon the trend or direction of the markets.
3. Trend trading
Trend trading is a price action trading strategy that involves analyzing the trend or direction of the stock, index or commodity, or underlying instrument. When a stock is in a particular trend say, upwards or downwards, traders would often look into the trend to enter a particular trade and gain profits. This type of trading is based on an assumption that the particular price of the stock will continue its current trend.
How to identify an Uptrend? Traders can identify a strong uptrend when the price is making higher highs and higher lows. Then it is an uptrend.
Similarly, a trend is in a downtrend, when the price is making lower lows and lower highs.
We also have a Sideways trend, where the price of the stock makes equal highs and equal lows. This type of trend most traders avoid, it is widely used by scalpers who would profit from small moves in the market.
4. Supply and Demand Zone Strategy
Supply and Demand Trading strategy is a price action strategy that identifies Institutional Supply and Demand levels or footprints and how a trader can benefit from these footprints. We will study this in-depth in this article.
This is a very popular type of trading strategy which does not require any type of indicators or oscillators. Institutional buying or selling activity creates certain price formations (footprints) on the chart. However, due to the sheer large size of their orders, the Institutions can’t get their entire orders filled in one go.
Whenever the price retraces to those footprints there is a very high probability of having pending Institutional orders around that zone. We as Supply Demand Zone traders excel in identifying those formations and participating along with the Institutions, which enhances the probability of the trades working in our favor.
Supply and Demand Zone Trading has an edge over other trading strategies. The application of this strategy is universal, meaning it can be applied in all markets be it forex, commodities, options, futures, equities, and crypto. It can also be applied in all timeframes.
It’s a very rule-based system, and if properly implemented can yield you a 50% to 60% success ratio with excellent Reward to Risk Ratios. Many traders have benefitted from Supply and Demand trading since this gives you a precise entry, stop loss, and target.
Let’s further understand the concepts of Supply and Demand trading and how to trade them in real market scenarios.
For our learning, we need only 4 powerful price patterns that are created by institutions.
- Rally-BASE-Rally (RBR)
- Drop-BASE-Rally (DBR)
- Drop-BASE-Drop (DBD)
- Rally-BASE-Drop (RBD)
1. Rally-Base-Rally (RBR)
A Rally- Base- Rally is a price action pattern that represents the formation of a Demand Zone. It is generally found in strong uptrends, indicating a continuation of the uptrend. This type of pattern is generally characterized by a leg-in candle followed by a basing of candlesticks and then another Big Explosive leg-out candle. If you look at the leg out candle created in the above picture, it shows a strong move which is likely caused by institutional buying. Retail traders like us cannot create such huge moves.
2. Drop-Base-Rally (DBR)
A Drop-Base-Rally is a price action pattern that represents another Demand Zone pattern. It is a reversal formation, in which a drop is followed by a sideways price movement and then a bullish impulsive rally. The leg out candle should be a big explosive move that is created because of institutional buying activity. You cannot master Supply and Demand zone trading if you do not understand what a demand zone is.
So, what does a Demand zone tell u?
A demand zone tells you that, there is a high probability of having unfilled buy orders in that particular zone. Since institutions wouldn’t have been able to accumulate their required buying quantity since the price moved away very fast from that zone. So next time when the price retraces back to that Demand zone, they will be having pending orders to Buy.
Rules for Demand Zones
- The Stronger the move out from the Demand Zone, the better the quality of your Demand Zone
- The Fresher the zone, the better chances of it working in your favor.
3. Drop-Base-Drop (DBD)
A drop-base-drop is a price action pattern that represents a Supply zone. A bearish drop followed by a basing or sideways price movement and then an explosive bearish continuation downwards. Mostly, if you find this in the price pattern in a downward trend, it is generally considered a continuation of the current trend.
4. Rally-Base -Drop (RBD)
A Rally-Base -Drop (RBD) is a price action pattern that represents another supply zone. This pattern is characterized by an upward move then a basing of candles and a strong impulsive move downwards. Explosive drop after basing indicates the footprint of institutional selling activity. These types of patterns are generally found at the end of the trend signaling a reversal.
A supply zone is usually formed when there is a huge supply and supply and demand traders can benefit from creating or short-selling from these zones for profit. Once the price retraces back to the supply zone, a trader can short-sell and make money.
So, what does a Supply zone tell u?
A supply zone tells you that, there is a high probability of having unfilled sell orders in that particular zone. Since institutions wouldn’t have been able to entirely sell their required selling quantity since the price moved away very fast from that zone. So next time when the price retraces back to that Supply zone, they will be having pending orders to sell.
Rules for Supply Zone
- The Stronger the move from the Supply Zone, the better the quality of your Supply Zone
- The Fresher the zone, the better chances of it working in your favor.
How do Supply and Demand Traders make money?
We do not trade anywhere in between; we wait for the price to retrace to the respective zones and then only take our trade action.
Once the price retraces to a demand zone we initiate a long trade & when the price retraces to a supply zone we initiate a short trade. By doing so we ensure that we also participate along with the institutions, which enhances the probability of the trades working in our favor.
What we have mentioned is only the foundation of the Strategy in Price action trading with Supply and Demand Zone trading. This Strategy is a rule-based strategy, and if followed correctly can give you amazing results. We have covered the basics of the strategy.
However, there is a complete step-by-step trading process that we follow before initiating any trade. This process covers aspects like identifying wholesale retail areas, multiple time frame analysis, trend analysis, decision matrix, power patterns, etc. just to name a few. Below we have discussed the list of institutes that can train you in Supply and Demand Zone trading
5 Best Indian Price Action Trading courses & Institutes.
- MAK Trading School
- Surjeet kakkar
- Online Trading Academy (Now Sharekhan education)
- Mindfluential Trading
1. MAK Trading School
MAK Trading School founded by Mr. Mahesh Kamath (ex-instructor at OTA now share khan) gives training on Supply and Demand zone trading strategy. We have successfully trained more than 5000 plus students and they have been successfully trading this strategy. We have a pre-recorded course that gives you a comprehensive course on Supply and Demand Strategy, unlike other institutes that teach the Foundation and Advanced topics separately.
One full Complete course on Supply and Demand Trading Strategy is suitable for traders who are working or beginners and traders who want to learn the advanced concepts in Supply and demand trading. We have also developed an Automated Supply and Demand Indicator which can make a supply and demand trader’s life easy. Our Vision is to impart education and make successful traders with a simple rule-based strategy.
Where to learn Supply and Demand Zone Trading?
2. Surjeet Kakkar
Surjeet kakkar is the founder and mentor at surjeetkakkar.com
Ex-instructor at OTA (now Sharekhan Education) has trained many students in Supply and Demand Trading strategy. He has courses from the Basics to Advance levels and also an indicator that he has developed for Supply and Demand traders.
Institute: Surjeet Kakkar
3. Online Trading Academy (Now Share khan education)
Online Trading Academy is now officially Share khan education. They have a list of courses from Basic to advance levels on Supply and Demand Trading. They also have online courses and Offline courses that can cater to your needs.
Institute: Share khan Education
4. Mindfluential Trading
Mindfluential traders have multiple years of exposure in the Indian Stock Markets. They trade in equities and options and have several courses on options trading and Price action trading.
Institute: Mindfluential Trading
Learnapp was founded by Prateek Singh (Founder & CEO). He began his trading career at the age of 17. In August 2018, Prateek along with 3 co-founders Ankush, Swati, and Sohail established Learnapp. Their vision is to impart real-world skills, practical learning, and insight-driven learning.
Price action trading has an edge over other strategies. A trader can apply this strategy in any market and asset class and also in any time frame. Once a trader identifies a pure price action pattern in the market he can benefit from the areas of Supply and Demand zones. Although a lot of traders feel that it’s subjective, that’s not the case. If you follow proper trade setups with planning and discipline, you are sure to get successful. Learning the right way to trade the markets with proper trade management and risk positioning rules is the Key to success in the markets. In the end, Trading is all about your mindset, controlling your emotions of fear & greed that will help you become a successful trader. Happy trading!
Written by - MAK Trading School
MAK Trading School is an online Stock training Institute in India. We are Price Action Traders and we use Supply and Demand Zone trading for our trading. We have successfully trained more than 5000 plus students. MAK Trading School is headed by Mahesh Kamath and he has been teaching and imparting his knowledge in the Stock markets for the past 12 years. His vision is to get the 95% of traders who lose in the market to the 5% category of the Winning Traders. Our Blogs will touch upon numerous topics on the Stock market to help you and educate you about Price action trading techniques.
If we missed out on any Institute, please drop in a message we will include them in our next blog. Leave us a reply below.
1. What does price action mean in trading?
Price action trading is the art of predicting the future of a stock or Instrument with the help of certain price action patterns. They do not use any other indicators
2. How do you trade in price action?
You first need to learn price action theories, you can open a trading account with any of the leading brokers like Zerodha,sharekhan,interactive brokersetc. and start trading.
3. Does price action trading really work?
Price action trading is an excellent strategy that will give you consistent returns if all possible rules and risk management
are practiced. This type of trading is becoming popular among many forex, crypto, Options, Commodities, and Equity traders
4. Is price action good for day trading?
Certain Price action strategies like Pin bar, Inside bar, and trend trading breakouts are very popular in day trading.
5. Is price action easy to learn?
Yes, Price action is Easy to learn and execute, one can learn at their own pace.
6. What is the best indicator for price action?
Best Indicator is an Automated Tool that Plot Supply and demand Levels on a chart in Tradingview. Mak Trading school has developed this tool.
7. How do you master price action?
Mastering price action is very easy if you are well-versed in your concepts and strategies.