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Supply and Demand – Trading Strategies – 15 November 2023

November 15, 2023| Forex Market

Only 2 options with Supply and Demand.  

  1. Reversal
  2. Breakout

1. Breakout Trading:

  • Breakout: A breakout occurs when the price moves above a resistance level or below a support level, indicating a potential change in the market sentiment.

How Breakout Trading Works:

  • Long Breakout (above supply): Traders look for a breakout above a supply zone. This could signal an increase in buying interest and a potential upward trend.
  • Short Breakout (below demand): Traders look for a breakout below a demand zone. This could indicate an increase in selling pressure and a potential downward trend.


  • Trend Continuation: Breakout trading can capture trends early, allowing traders to ride strong price movements.
  • Clear Signals: Breakouts provide clear entry signals when the price moves decisively beyond a key level.


  • False Breakouts: Markets can experience false breakouts, where the price briefly moves beyond a level but then reverses.
  • Missed Reversals: Breakout traders might miss potential reversal opportunities as they focus on trend continuation.

2. Reversal Trading:


  • Reversal: A reversal occurs when the price changes direction, moving from an established trend to a new trend.

How Reversal Trading Works:

  • Long Reversal (at demand): Traders look for signs of a reversal, such as bullish candlestick patterns or divergence, around a demand zone. This could indicate a potential shift from a downtrend to an uptrend.
  • Short Reversal (at supply): Traders look for signs of a reversal, such as bearish candlestick patterns or divergence, around a supply zone. This could indicate a potential shift from an uptrend to a downtrend.


  • Early Entry: Reversal trading allows traders to enter the market early in a potential trend change, maximizing profit potential.
  • Lower Risk: Reversal traders may enter positions with tighter stop-loss orders, reducing potential losses.


  • Risk of Timing: Reversal trading requires accurate timing, and entering too early can lead to losses if the trend continues.
  • Choppy Markets: Reversals might not work well in choppy or sideways markets.


  1. Confirmation Signals:

    • Regardless of the approach, traders often use additional confirmation signals, such as candlestick patterns, chart patterns, or technical indicators, to strengthen their trading decisions.
  2. Risk Management:

    • Proper risk management is crucial for both breakout and reversal trading. Setting stop-loss orders and determining position sizes are essential to protect capital.
  3. Market Conditions:

    • The effectiveness of each approach can vary depending on market conditions. Trending markets may favor breakout trading, while ranging markets may offer more reversal opportunities.

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