Supply and Demand Zones Binary Options Strategy
Hello traders, welcome to Binary Options Strategy and the 10th module trading binary options using price action. Today were going to focus on supply and demand zones. And supply and demand zones are not exactly support and resistance areas. As you’re going to see, supply is the quantity of an item available for buyers at a certain time and demand is the quantity of this item wanted by buyers at a certain time. So when we are talking about supply and demand zones we are talking about levels where we are going to encounter true buyers, where price is very likely to bounce. And if price breaks through these levels that we have pointed out well it means that either the buyers or sellers got swept out of the markets and price is likely to continue in a very strong trend. So this is why we are going to focus on binary options trading on supply and demand areas, rather than support and resistance levels.
First of all let’s define what supply and demand is. We already know the price moves because there is always an imbalance between these two forces. When there is more supply than demand prices tends to fall and when there is more demand than supply price tends to rise. And this is very logical and it all comes back to the same concept of when an item or when a product or service has more demand than what the market can offer. This product or service becomes very scarce. So this means that its price going to go up and when we have more supply than demand, meaning that the market is overflowing with supply [inaudible 00:02:16] price is going to go down. The same happens with financial instruments, when there is more supply than demand the price tends to fall and when there is more demand than supply, price tends to rise and we are going to take profit from this.
If the price of a financial asset is rising and then the market hits a level where the supply is greater than the demand, price will reverse. We call this a level of resistance, we have encountered a lot sellers at that point. And the same goes for falling prices and strong zones of demand. When the price of a financial asset is falling and then the market hits a level where the demand is greater than the supply, price will reverse and this is basically, how markets work and how price moves overall. This is why it’s important to locate these areas, they are going to give us excellent risk to reward setups either on a bounce or on a breakout. And because we are trading with binary options, the risk versus the reward is not as much as important to us as if we were trading with Forex or Stocks or Futures, because we don’t have a target, we don’t have a stop loss and a profit taking level but we do have the final risk. And the when we encounter these excellent opportunities, these opportunities or these setups have a higher percentage of being winners.
Now I’m going to show you how to locate supply and demand zones on your charts and how you are going to trade them using binary options. And it’s quite simple actually and you have to look the overall panorama or the overall picture when it comes to supply and demand because we are not going to be trading immediate support or resistance, we don’t care about that. We need zones where big money is going to come in and the prices are likely to bounce.
Now let’s take a look at this chart. I think this is the chart of crude oil and we are going to locate the zones of supply and demand of this chart. First of all, to locate a zone of supply or resistance we need to look for the peaks in the chart and a substantial down move from the zone or the peak. And you can see that right here we have a peek and then a substantial move down, then we have another peak and a substantial move down, again right here then we broke above it and this is called just a fake out and then we move all the way down here. So we do have some peaks and you can see by this candle right here that where we broke to the downside we did encounter some buyers that wanted to push price of crude above this high and above this area, but the candle was enabled or buyers were enabled to close this candle above the area meaning that we had a huge rejection candle and then a flush to these lows. So this is how you locate supply zone and to locate a demand zone you are going to do the same.
You are going to locate the points of support or the lows in the chart and then a substantial move up. You can see right here that this is the first part where price bounces substantially, then you can see that we do have some kind of indecision between buyers and sellers before fake out and then a move up, a retest of the same spot or the same area and then this substantial move up. And this is a huge rally. Then we tested the area again and that we have another very long rejection candle before price move all the way up here. So this is basically how you are going to look for the areas of support and resistance. And we can also use the median areas of supply and demand and you are not always going to use them but it’s very clear in this chart that they are being tested and rejected. First of all, we need to grab the first two lows and then see how price reacts to them. You can see that right here, we have a bounce, right here we have a bounce before the breakout and then a retest of the same area as resistance. So this is a great median area that we are going to trade off. So basically, this is how your chart needs to look or will look once you learn how to locate overall areas of supply and demand. And this is the very fun but how are we going to make money using this.
First of all, remember the first part of the chart is your base and from where you are going to start building these areas. So I think your first trade will be at this low. When we have the rejection of this area what you’re going to do, first of all, every time price hits these areas you are going to look for rejection. This means that you are going to look for reversal patterns or rejection candlesticks. If you don’t know what rejection candlesticks are or reversal patterns are, I suggest you go to technical course or advanced technical analysis course and you go through the modules. But when you see price hitting these areas, you are going to look for reversals and rejections and right here you can see that we have a bullish engulfing candle and a winning trade.
Then price comes all the way up here and fails to test these areas so there is no trade and the second trade comes right here. This is a very choppy environment, which you don’t want to trade, so you need a clear move to the upside or to the downside. When price breaks to the downside you can actually trade these breakout of these lows and you’ll have a winning trade trading binary options. If you were trading Forex you would have had a breakeven trade if you’re good at managing your positions, but when we break to the upside we need to see a retest of these same areas and when we retest and when we have these bullish engulfing candle again we can go long.
So this is the rejection the entry comes all the way up here and you can see that we have a winning position. Then price tests this areas of supply and we have an immediate bearish candle with a long week to the upside meaning that we have a rejection, we can buy a put option and you can see that we have a winning position. Now right here we have another rejection candle and this candle is very quick to [inaudible 00:10:11]. You can see that we have a strong move up and a strong move down and because we are so close of this area or this median area, we are not going to take this straight but have we had the same setup as before we would have taken the position.
Next we go to this medium zone and this is why it’s important for you to look at this median areas. You can see that we have a huge weak to the downside twice and then a bullish engulfing candle meaning that we have a signal to [inaudible 00:10:46] call options after the rejection of these median zone and this is of course, another winning trade. Now, when price goes through this area and the brakes above these highs we are no longer going to look for short opportunities or opportunities to buy put options because we have made higher highs and we are making higher lows, which means that we might actually break with this zone of supply and just move up. So we need to weight price out, we need to play with price section out for us to be able to have a good trade.
And the right here when price moves down then rejects this area we know that we are going to go lower and I’m pointing this area out because you can see that the move to these lows is very strong and then we have a very tight range. When we have a very tight range after a strong move we are going to be careful because this means that actually price is going to continue on its, in this case, down move. And you can see that we went all the way up here again and immediately down. So our analysis right here was excellent and when we break with this zone we have a signal to buy put options. And we buy put options and our option expires in the money and then immediately right here we have a rejection of these zones with a reversal pattern and our option expires again in the money. We actually have a two very nice short opportunities right here.
The first one, I think is agreeable, the best one because we have a huge bullish candle that has a long weak to the upside and then an immediate bearish candle. The reason why we didn’t take this straight is because we didn’t have any reversal pattern or candlestick formation to tell us that we were on a reversal. So we are never going to take trades blindly at these zones, we are going to look for these reversals, these tips that price is going to reverse. Having these supplies and demand zones is not everything we need for us to be able to trade them. We need to know our patterns. And right here we have a very nice bullish pattern when we retest these lows and you can see that these option also expires in the money and right now price is testing these same highs or these same areas of supply. And if we get a bearish candle that comes at least to these highs, we are going to have a very nice evening star formation and we are going to have a trigger to buy put options.
So basically, you need to be careful how you’re trading these areas, you need to understand and you need to go through the price action course and the advanced technical analysis course if you don’t know what these reversal patterns are, but once you get a hold that everything I’ve taught you here, I think that you’re going to find this strategy very profitable.