Supply & Demand DOESN'T Work (Here's What Actually Does)

Supply and demand trading do not work. I'm sure you've marked a supply or demand level before. You waited for price to touch the level, and once it does, you enter a trade and expect it to bounce. But instead of bouncing, price instead breaks right through hitting your stop loss. Then you think supply and demand levels do not work. Now, before you get mad at me in the comments, I also trade supply and demand levels myself. In fact, it's actually one of the core strategies I use that has made me consistent profits after day trading for 7 years. So, how did I manage to be profitable, but most traders who trade the same strategy aren't? The reason most traders fail when trading supply and demand isn't because they're trading it wrong, or they don't know how to draw the levels correctly. It's because they're only using one piece of the puzzle. In reality, supply and demand is just one part of a complete trading system. If you want to become a profitable trader and successfully trade supply and demand, you need to apply the rest of the framework that makes these levels actually work. And so, the exact trading system I'm using is called the SLC system, which stands for structure, level, confirmation. And if you only trade supply and demand levels, you're only using the L part of the trading system. But the good news is, it means you've already got one part sorted out. So, all you need to do is apply the S and C part, and you will see significant improvements in your trading results. So now, I'm going to show you how to trade the SLC trading system. First, we start with the S part, which stands for structure. So, what is structure? Structure simply means the direction of the market. Now, there are three types of market structures: uptrend, ranging, and downtrend. In the SLC trading system, we only trade if the market is in an uptrend or downtrend, which means we don't trade during ranging markets. Now, the reason we must determine the structure early on is because it will determine the direction of our trades. If the structure is in an uptrend, then we only look for long trades. And if the structure is in a downtrend, then we only look for short trades. An analogy for this is like swimming in a river. If the current is moving downstream, and you decide to swim against the current, not only will you move slower, but you'll also use more effort trying to fight the momentum. But if you swim with the current, you'll end up moving faster, while also using less effort because you're being helped by the momentum of the river. Identifying the structure of a market is quite simple. In an uptrend structure, you will see price forming higher highs and higher lows. And in a downtrend structure, you will see price forming lower highs and lower lows. So, let's look at a real example of this. Here, I'm on the Nasdaq futures chart. First, you want to start by identifying the high time frame structure. In the SLC system, we like to trade on lower time frames, like the 1 to 15-minute chart. But specifically for the structure part, we want to go up to a higher time frame, like the 1-hour chart, and identify its structure there. So, let's switch to the 1-hour chart. Here, we can see that price is currently forming an uptrend. It made a clean upward move, then a slight pullback here, and price consolidated for a bit. But eventually, price continued pushing higher and formed new higher highs. So, the current move is clearly an uptrend structure. Now, it's important that you determine the structure based on the latest price movement, because if you zoom out, price was previously forming a downtrend structure. But recently, it reversed and started forming an uptrend. So, we use the latest price move as our structure. Once the recent structure is identified, we move to the L part in the SLC system, which stands for level. Now, before we continue, if you want to learn more about the SLC trading system and apply it to your trades, I created the free SLC execution blueprint that you can download for free. It's basically a checklist that walks you through the entire structure level confirmation process step-by-step. So, whenever you're about to enter a trade, you can quickly go through the checklist to make sure the setup aligns with the SLC system. You can download it for free in the description below. Now, back to the L part. So, the goal of the L part is we want to find strong levels where price has the highest chance of reacting. Within the SLC system, there are actually multiple ways to identify these strong key levels, but in this video, we're using supply and demand. Now, here's a quick explanation of what supply and demand levels are. To put it simply, these areas show where aggressive buying or aggressive selling previously took place. To find a demand level, you simply find a moment where price forms a sharp upward move. The area before the sharp move happened is what we call a demand level, and you can mark it with a rectangle. So, because the level represents aggressive buying previously took place, it means next time, if price returns to that level again in the future, we can expect buyers to step in at that demand level, which is going to push the price up. It's the same thing for supply levels. To find one, you wait for a moment where price forms a sharp downward move, and the area before the sharp move happens is what we call a supply level, which you can mark with a rectangle. Because this area represents aggressive selling that previously took place, it means the next time price steps into that supply level, we can expect sellers to push the price back down again. So, that's the logic behind supply and demand levels. Now, let's go back to our chart and try to identify the supply and demand levels there. Here, we're still on the 1-hour time frame after we've identified the structure earlier. So, now we go down to the 1-minute chart and find the levels there. And remember, the levels that we want to find here must align with the high time frame structure we identified. This is so that we don't clutter up our charts and draw random levels that we end up not using. So, since the high time frame structure was an uptrend, we are only interested in finding demand levels. So, let's find the recent demand levels in this chart. Here, we can see a sharp upward movement, which signals that there was strong buying pressure in that area. What we want to do is take the initial candle right before the upwards move happens, and that will become our demand level. Now, it's also important that we draw the level exactly before the sharp upwards move occurred. The reason I didn't draw levels in this zone or this zone is because the upward moves there are not significant enough. They're just small bumps, which means the buying strength wasn't that strong compared to this major move here. Once the level is identified, we move to the C part of the SLC system, which stands for confirmation. So, this is the last part you have to do before entering a trade, but is also the most important. To put it simply, confirmation is when we find additional factors that confirm our potential trade. In other words, we're trying to stack as many factors as possible before entering the trade to make sure that the setup actually has a high probability of working out. Now, again, there are many types of confirmations that we can use when trading the SLC system, and in the next episodes, I'll slowly reveal them to you one by one. But, to keep things simple, the confirmation we're going to use for this video is using an indicator called the Stochastic. To apply it on your charts, just go to the indicator section, type in Stochastic, and click this one. Next, you want to go to the settings and adjust them to match these values because I've found that these values tend to work the best. So, here's the specific confirmation I'm looking for. As price taps into the demand level, the blue Stochastic line needs to break below the oversold line, which is this line, and then crosses back upwards. This analysis from the indicator basically shows that price is becoming overextended and is starting to show signs of a potential bounce. So, we're simply adding another analysis to confirm that the bounce is actually happening. And this small difference alone can drastically improve the accuracy of your trades. And once everything is aligned, we open a long position. The stop loss goes slightly below the demand level, and we can set a take profit target of 2R. And in this example, price moved up and hit our take profit level perfectly. So, you can see just how powerful the SLC trading system is. All you have to do is follow a simple trading framework, and it can completely change the way you approach the market. But here's the problem. You may understand these concepts when watching my videos, but when you actually sit down and begin trading them yourself, everything can become messy. You might forget some steps, rush into trades, or even deviate from the SLC system. In the end, you'll end up losing trades yet again and drain your account. So, to solve this problem, I created something that can help you. It's called the SLC execution blueprint. Inside this blueprint, you'll find a checklist that walks you through the entire SLC trading system step by step. So, before entering a trade, you can quickly run through this checklist to make sure you're following each step of the SLC system correctly. Starting from the structure, level, and confirmation. This prevents you from taking bad setups and forces you to only take trades that follow the system. And once you start applying the SLC system, trading will stop feeling like random guessing and becomes a more repeatable process. So, if you want to implement the SLC system in your own trades, click the link below and download the free SLC execution blueprint. Use it on your very next trade. So, that's it for today. I'll see you in the next episode.