Price Action Trading Strategy With Supply and Demand Zones

Price Action

1.    Base:

Let’s begin with the base. The optimal structure that we are looking for is a base with one to six candles at the most. A base with many candles is not a good base to have in a zone, because the price often rejects these levels (figure 57).

We also need to pay close attention to the nature of candles that form the base. In other words, if the base has candles with long thin tails and small bodies, then the base will surely not work out (figure 58).

2.   Doji Candle:

Doji candles are also very important in spotting weak levels of supply and demand (figure 59). Whenever we have a doji candle we know for sure that this level is not going to work out as we planned.

Because doji candles are signs of indecision from both bulls and bears, which means that the supply equals demand (state of equilibrium). So when the market forms doji candles, it is a revealing sign for a potential change in direction.

3.   Engulfing Candles:

Engulfing candle is a candle whose body engulfs the previous candle’s body. We can use engulfing candles to get further confirmation from the market (figures 60 & 61). When the price returned to test the supply or demand level, if the market retest the zone but keeps ranging, we could wait for an engulfing candle to form before deciding whether we keep the trade or to close it.