While many struggling retail traders will continue to look for magical non-existent Fib levels in the middle of nowhere, re-counting Elliot Waves to see where they've "miscounted" and rubbing rabbit feet while praying to a higher power, those traders who have managed to survive in this job over a number of years will almost always know how to locate the real supply/demand. And for this feat, you don't need any indicators or special level 2 data that costs an arm and a leg. Nor does it require knowledge of astronomy and possible order of seasons on exoplanet Alpha Centauri Bb. All you need is your own two eyes.
Isn't supply/demand just support/resistance?
In short. No, it's entirely different from support/resistance. Comparing apples and oranges comes to mind. Both fruits, but one is a malus fruit, the other one citrus.
Support/resistance is marked whenever there is a low or a high on the chart. Supply/demand is only marked when there is equilibrium prior to the move. Anything else are pivotal highs/lows that are much less important. So you want to be looking for areas of prior large moves that came out of a consolidation - out of previous balance. This implies that prior to the large move, everyone agreed on the price.
Most struggling traders might look at a chart and know how to read where the price turned. But do they know the REASON why the price turned? I'm not talking about fundamental news - I am 90% a technical trader and news are not a big factor in my decision making process. I am not blind to a possibility of changing interest rates and NFP numbers, but I certainly won't close my trades out if I'm 200 ticks in profit and a UK PMI figure comes out. Why? Because in the grand scheme of things, if my analysis is correct and interest rates are the same, technical side of charts should tell you a very precise story on where market participants agreed on the price previously. In other words, equilibrium. In other words, supply/demand. True supply/demand.
There are really only about three reasons why prices might change direction.
First one is profit taking.
Second one is either short covering or long liquidation. This might also fall into profit taking.
Third one is a change in supply/demand from previous equilibrium.
Think about this last one for a minute. If at any one point, all market participants agreed on a particular price, how is that going to look on a chart?
Something like this?
A rectangle with several sideways candles. When you see such a price action on your chart, it's a good idea to see what price does AFTER it's created this. Assuming that the price proceeds to move MINIMUM 3x away from the egde of the now very obvious zone (although I aim for 5x because 3x will make you a barely profitable trader until you get your accuracy fairly decent), you can then mark it as your level of interest. If it scores well on the probability enhancers, you may decide on a limit order or a confirmation as your method of entry.
This works on ANY chart but you have to be VERY exclusive with your levels.
I mention something called the "normal" formation of s/d zones in my webinars. These "normal formations" are comprised of two candles. When you see these on lower timeframes, like m30 and lower, they are NOT valid levels unless you can find an even lower level base/equilibrium that preceded the move away. Reason for this is because these moves are made by people taking profits, NOT by people agreeing in price!
However if they are located on a 4 hour chart and above I usually go down to lower timeframes to investigate whether there's a "base", indicating agreement on the price prior to the move. If I find my "base" there, I will mark it as my point of interest to make a trade.
Cue Megan Trainors "All about the bass" song :)