How to Trade Using the Supply and Demand Indicator on Thinkorswim
You have a few options if you wish to trade using the supply and demand indicator on Thinkorswim. There are built-in versions and more advanced customized scripts.
We will look at the basic economics on which is based, how to trade using this knowledge, and then the free and paid add-ons you can use to help you on Thinkorswim.
Back to fundamental market economics, supply and demand is when too much of something is made or there's not enough of something. This affects the markets because if there's too much of something, the price goes down, and if there's not enough of something, the price goes up.
How to find supply and demand zones on a chart
This theory applies to all markets, in the stock market, and especially with technical analysis, supply and demand zones are most relevant for traders or investors.
These areas on a chart are where the supply and demand for a particular security is equal, which means that the price of the security is not likely to change in this area, so you might want to consider trading in that direction.
To help you identify these zones easily it’s best to use a supply and demand indicator on Thinkorswim.
Things to keep in mind when trading with supply and demand zones
When you're trading with supply and demand zones, there are a few things to remember.
- First, you need to make sure that the zone is truly a supply or demand zone. You can do this by looking at the volume of trades in that area. If the volume is high, it's likely a supply or demand zone.
- Second, you need to make sure that the price isn't too close to the zone. If it is, it might not be a valid zone.
- Third, you need to consider the overall trend of the market. If the market is trending up, you might want to look for supply zones to short. If the market is trending down, you might want to look for demand zones to trade long.
Options to Implement a Supply and Demand Indicator on Thinkorswim
User Code: Free
The Supply and Demand Index Support Resistence indicator automatically draws the supply and demand zones which of course is a huge help when trading. However, some users report that it only works well on the daily time frame
It was created by the well-known Thinkscript coder Mobius, we talk about another of their scripts, the Bull Flag Scanner for Thinkorswim here.
Free Indicator from TOSIndicators
TOSIndicators have a free downloadable supply imbalance indicator
They recommend it for day trading anything that is heavily weighted in the indices.
They have a 19 minute video explaining how to use the indicator in conjunction with their paid tool, the volatility box which on September 9th 2022 was $169 per month.
Paid Indicator from TradeEdge
Another paid option is the Supply and Demand Zones Indicator and Scanner from Trade Edge coding, currently available at the pricey $299
Its creator claims it is highly customizable and its features include the ability to add filters, change the strength, number, and width of zones shown.
Back in February 2018 it appears this was the only option you had and at that time users said the indicator worked well and that customer service was good.
However on Reddit in February 2022 a user claimed it either flags too many zones, or not enough zones.
You might be interested in How to Setup Thinkorswim Aggregation Period for Your Benefit and How to use Donchian Channels on Thinkorswim.