Supply and demand concepts are fundamental elements of market structure trading, particularly within the Smart Money Concepts (SMC) framework. SMC is a trading approach that focuses on understanding how institutional traders or “smart money” move the markets. In the context of SMC, supply and demand zones are key focus areas where professional traders look to enter or exit trades.
Supply zones are regions on the chart where selling interest outstrips buying interest, leading to price declines. Conversely, demand zones are areas where buying interest surpasses selling interest, causing prices to rise. Identifying these zones involves looking for pricing patterns where price action shows a strong move away from a particular level, further interpreted as institutional activity.
Traders using SMC might look for areas on a chart where numerous orders are expected to be placed, often seen as consolidation zones before a breakout. Key to this strategy is patience and waiting for price action to reach these pre-identified zones before making trades, aiming to enter the market at points of likely reversal or continuation, riding on the momentum created by larger market players.
By analyzing these zones with other concepts like order blocks, liquidity sweeps, and market structure shifts, traders attempt to improve their understanding of market dynamics and enhance their decision-making process.
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