Supply And Demand Analysis | Price Action Trading Strategies Using Python | Quantra Course
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. A quant fund manager + A HFT prop desk founder + A quant teacher = a session worth watching
On 9 April, we hosted Kelvin Foo, Dr Gaurav Raizada, and Vivek Krishnamoorthy for a workshop on Algorithmic Trading & Options Risk Management.
Watch the recording:
www.quantinsti.com/articles/algorithmic-trading-python-ai-options-risk-management-webinar/
.
. A quant fund manager + A HFT prop desk founder + A quant teacher = a session worth watching
On 9 April, we hosted Kelvin Foo, Dr Gaurav Raizada, and Vivek Krishnamoorthy for a workshop on Algorithmic Trading & Options Risk Management.
Watch the recording:
www.quantinsti.com/articles/algorithmic-trading-python-ai-options-risk-management-webinar/
.
. Course on Price Action Trading Strategies Using Python: bit.ly/3hL9Nvh
Welcome to this video on supply and demand analysis. After completing this video, you will be able to explain what supply and demand analysis is and identify supply and demand zones.
Consider this price movement of a stock from $100 to $200. You can observe that instead of increasing straight from $100 to $200, the price increases in a zig-zag manner.
Why did this happen?
This movement of the stock can be explained by the imbalance of supply and demand forces. Let's understand what supply and demand forces are.
Supply is a phenomenon which occurs due to the availability of sellers in the market. Whenever there is an increase in sellers and when the sellers are more than buyers, there would be a formation of a supply zone on a price chart.
This means that more market participants are willing to sell a particular security as compared to market participants who are willing to buy it. For this reason, whenever there is an increase in supply, the price of the security declines.
Let’s understand this with an example. Consider this price chart on-screen. You can observe that whenever the price reaches between $260 to $265, it reverses and starts declining. This is because the sellers in this price zone are greater than the buyers, which indicates that the supply is greater than the demand. This is known as a supply zone.
You may be wondering, why is it a zone and not a line?
Let’s understand this with an example. Let’s assume trader A thinks that the particular stock is fairly valued at $261 and above this price, it is overvalued. Whereas, trader B thinks the price of the stock should not be more than $263.
Therefore, both traders will sell at different price levels. This implies that when the prices are reversing, they may not reverse at the same price level. They will reverse somewhere close to the price level which seems overvalued to the majority of the market participants, which leads to the formation of a supply zone.
Now that you understand the concepts of supply and supply zone, we will understand what demand is and how you can identify demand zones. Demand is generated when there is an availability of buyers in the market
and it is a phenomenon that occurs when buying overtakes selling.
Whenever there is an increase in buyers and the buyers are more than sellers, there would be a formation of a demand zone.
For example, on the same price chart, you can observe whenever the price reaches between $235 to $240, it reverses and starts increasing. This is because the buyers in this price zone are greater than the sellers, which indicates that the demand is greater than the supply. This is known as a demand zone.
By identifying the supply and demand zones, price action trading can be done. So how do you take trades based on supply and demand zones?
Once the supply and demand zones are identified, you can buy at the demand zone since you can expect the price to reverse and start increasing and sell at the supply zone since you can expect the price to reverse and start decreasing. This is the fundamental principle behind price action trading using supply and demand zones. That is all for this video.
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