Supply and Demand zones are most times very useful tools when it comes to technical analysis in the Forex market. However the most difficult aspect is the application and implementation of theses zones. If wrongly applied, a trader might get frustrated and discard these system of trading. There are numerous supply and demand zones established by price fluctuation in the market, so we must be tactical selecting the right ones.
To increase our odds of winning, we will be incorporating fundamental economic news release with these zones due to the sharp spikes produced by the news. The default basic methodology of trading supply and demand zones is waiting for price to reject or breakout these zones. So these means we can make use of limit orders for price rejections and stop orders for price breakout of these zones.
Set buy limit at the entrance of nearest demand zones and set sell limit and nearest supply zone for price rejection entries.
Set buy stop or sell stop above or below nearest supply/demand zones or enter with instant execution on the open of the next candle if price exhausts the zone.
Distance of current price before news spike to the demand or supply zone should be nothing less than 30pips.
Use 30mins or 1hour time-frame supply or demand zone for better entries.
Setting Stop Losses:
For limit order entries, use the other side of the zone drawn in rectangle for stop losses.
For stop order entries, use 20-30 pips stop loss.
Setting Take Profits:
Aim pivot points for take profits or
Aim the next demand or supply zone.
Below is a diagram showing an example of price rejection resulting from news release. The rejection of price from a demand zone resulting into a rally of 175pips and a rejection of price from a supply zone resulting into a sell off of 100pips with tight stop losses for each trades.