1. Introduction to Supply and Demand in Forex Trading in ICT
Supply and demand is one of the most fundamental principles in trading, especially in Smart Money Concepts (SMC).
It dictates how prices move based on the balance between buyers (demand) and sellers (supply).
When demand exceeds supply, prices rise, and when supply exceeds demand, prices fall.
Institutions and smart money traders use supply and demand zones to enter and exit trades with precision.
Understanding these zones helps traders identify high-probability trade setups and avoid retail trader traps.
2. Key Concepts of Supply and Demand in SMC ICT
1. Supply Zone (Resistance Area)
- A price zone where selling pressure is strong enough to overcome buying interest, leading to a price drop.
- Typically found at the end of an uptrend or before a reversal.
- Institutions sell from these areas to take profits or induce liquidity.
2. Demand Zone (Support Area)
- A price zone where buying pressure is strong enough to overcome selling interest, leading to a price rise.
- Found at the end of a downtrend or before a bullish move.
- Institutions accumulate buy orders in these areas before pushing the price higher.
3. Identifying Supply and Demand Zones in ICT Forex Trading
1. Look for Strong Impulsive Moves
- A valid supply or demand zone is usually followed by a strong price movement in the opposite direction.
- The sharper the move, the stronger the zone.
2. Identify Consolidation Before the Move
- Before a strong uptrend or downtrend, price often consolidates in a small range, forming a base.
- This base acts as a supply or demand zone when price returns to it.
3. Engulfing Candlesticks and Order Blocks
- A supply or demand zone often contains an order block—a key price level where smart money entered the market.
- Look for strong bullish or bearish engulfing candles confirming institutional interest.
4. Liquidity and Stop Hunts
- Smart money often manipulates price to grab liquidity before a major move.
- Price may wick into a supply or demand zone, triggering stop-loss orders, before reversing.
4. Supply and Demand Trading Strategy in SMC ICT
Step 1: Identify the Zone
- Find a strong supply or demand zone using price action and market structure.
- Confirm with previous support/resistance levels or order blocks.
Step 2: Wait for Price to Return to the Zone
- Be patient and let price revisit the zone to test its strength.
- Avoid impulsively entering trades before confirmation.
Step 3: Look for Smart Money Confirmation
- Watch for a liquidity grab (stop hunt) before price reverses.
- Confirmation signals include wick rejections, bullish/bearish engulfing candles, or a break of structure (BOS).
Step 4: Enter the Trade
- Place limit orders at the demand or supply zone for precision entries.
- Use a stop-loss just beyond the zone to protect capital.
Step 5: Set Take Profit Targets
- Target the next major supply or demand zone.
- Use market structure (higher highs, lower lows) to determine exit points.
5. Example of Supply and Demand Trading Strategy in SMC ICT
Example 1: Demand Zone in EUR/USD
- The EUR/USD pair is in a downtrend, and price drops sharply from 1.1100 to 1.0950.
- After a period of consolidation, price forms a demand zone between 1.0950 and 1.0970.
- Smart money pushes price back down to this zone, triggering retail traders’ stop losses.
- A strong bullish engulfing candle forms, indicating institutional buying.
- Enter a long trade at 1.0960 with a stop-loss at 1.0945.
- Take profit at 1.1050, the next resistance area.
Example 2: Supply Zone in GBP/USD
- GBP/USD rallies from 1.2500 to 1.2700 before consolidating.
- A clear supply zone forms at 1.2680–1.2700.
- Price revisits this zone, grabbing liquidity before a sharp rejection.
- A bearish engulfing candle confirms smart money selling.
- Enter a short trade at 1.2685 with a stop-loss at 1.2710.
- Take profit at 1.2550, the next demand area.
6. Common Mistakes to Avoid in SMC ICT
- Entering Trades Too Early
- Always wait for confirmation before placing trades.
- Ignoring Liquidity Hunts
- Smart money manipulates price to trigger stop-losses before the real move.
- Not Using Stop-Loss Properly
- Place stops beyond the supply/demand zone to avoid unnecessary losses.
- Trading Weak Zones
- Focus on strong impulsive moves with clear market structure confirmation.
7. Conclusion
Supply and demand trading in ICT and Smart Money Concepts (SMC) is a powerful strategy for identifying high-probability trade setups.
By understanding how institutions manipulate price through liquidity grabs and order blocks, traders can enter and exit trades with better accuracy.
Mastering supply and demand zones helps traders anticipate reversals, avoid retail traps, and align trades with smart money movements for consistent profitability.
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