Thread by @_0dte

Supply & Demand Zone Educational Thread 🎯

Management of Emotions ✅

I think supply and demand zones are much more conducive to the success of new traders. Why? It reduces the high-tempo and stress driven emotions of trading breakouts that often lead to fake-outs and longs/shorts trapped.

Discounted Premiums ✅

Supply and demand zones allow you to buy premiums at a discount because you are buying calls at support and puts at resistance. As the underlying price increases, put premiums decrease as they approach resistance and vise versa.

Risk/Reward Clearly Defined ✅

When entering puts at resistance (supply zone), your stop loss is on confirmation above the supply zone. When entering calls at support (demand zone), your stop loss is on confirmation below the demand zone. This is covered in more detail shortly.

How to Identify Supply Zones ✏️

Supply zones are areas where traders typically sell. When the stock price hits this level, sell orders are completed that bring down the stock price. When looking at the chart below, we are able to see a clearly defined zone where this takes place

How to Identify Demand Zones ✏️

Demand zones are where traders typically buy. When the stock price hits this level, buy orders are completed that bring the stock back up. Again, when looking at the chart, this area is clearly visible and defined as price reverses to the upside

How to Trade Supply & Demand Zones ✏️

As previously mentioned, calls are bought at the demand zone, otherwise known as support. Highlighted in the yellow is your stop loss, representing a confirmation below the demand zone and support now turned into resistance.

In this next example, we look at buying puts at resistance with your stop loss clearly defined on confirmation above the supply as this would indicate resistance now turning into potential support.

As we can see, this example gave us multiple opportunities to play both calls and puts as most supply and demand zones will do. Once a supply or demand zone is broken, large moves are often the result as buyers or sellers have exhausted and can no longer hold that zone.

Taking Profit 💰

As the market makes money available to you, take it. There are a number of different strategies to take profit but I recommend utilizing the 9 EMA intraday to trail your position. In calls, if price is above the 9 EMA, let the trend continue and trim profits

as the stock price trends higher. Once a candle closes below the 9 EMA, that's an indication that the trend could be reversing and would be a good opportunity to realize your gains. The inverse is true for put positions. An example below.

It's important to understand that there is no perfect strategy. Supply and demand zones can be utilized with high levels of success with proper risk management. If the trade has become invalidated, exit for a small loss and stay patient for the next A+ setup. Hope this helps!