Supply & Demand Zones

As you can see from the demand zone above, there is a large lower tail that is included in the zone. So, how to identify those 4 major types of supply and demand formations. As pointed out above, you need to follow the three steps in order to identify the supply and demand zones. As you can see in the image above, the demand and supply zones are encompassing the base on the beginning of the move. It is very hard to be precise with those levels and here it is more of an art than science. In practice, support and resistance and supply and demand zones are beasts from one and the same origin.

supply demand zones

Thanks to the nature of this candlestick pattern, we can minimise our risk on the trade. Since, I am a price action trader, I will go with the latter option. After the price makes a correction, it forms a base by a few small-bodied candles, which are followed by large red candles.

Supply and Demand Zones And Candlesticks

After defining the two main types of supply and demand zones, let’s explore a few more variations of these levels. I strongly recommend that you familiarise yourselves with those candlesticks, since they are the most commonly used ones amongst supply and demand traders. Supply and demand zones are those levels in trading that attract most buyers and sellers. Do not forget to think about what is going on in the present.

Any statements about profits or income, expressed or implied, does not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. The use of this system constitutes acceptance of our user agreement. Recently added to the NinjaTrader Ecosystem’s trading apps & services, T2SSupplyDemand is an indicator used to enter high-probability trades. Be notified in real time by email, text message or your favorite sound when price is about to enter key support or resistance zones.

To access the premium indicators, which are plug and play ready, sign up for VIP membership here. If you have a trade that went south and want to see if the indicator in your video would have made a difference. You won’t always find the candle bodies lining up this uniformly, but when they do, it makes for a good zone with extra confluence.

A narrower area will mean the market is finding equilibrium. Please note that the information and data above are cited from third-party sources & whitepapers and do not represent MEXC. This is not financial advice and does not constitute an offer or solicitation to offer or recommend any investment product.

You can learn more about supply and demand and other profitable trading strategies from our free Telegram channel where we interact and share more knowledge. I also give out 2 to 3 live Forex signals per week for free in that channel. In technical analysis, we draw the zones on the price chart using the natural price behaviour like the triangle or wedge patterns. These patterns also form on the price chart after irregular intervals of time. In the same way, there are other natural patterns like compression and rarefactions, etc. These patterns depict the presence of supply or demand in a specific price range.

In this example, we have an uptrend and a bearish wick, which is the beginning of the demand zone establishment. But as with anything else trading related, there are different ways to trade with supply and demand. As you have seen from above, understanding candlesticks is the same as understanding the psychology of the market players. This is the moment, when you can clearly see where the demand zone is based. As always, demo test changes to your trading method before you go live with them, even if all you are doing is integrating supply and demand for confluence or context.

+ Set the stop loss a few pips above the Supply zone to avoid being swept by the market. You can also just think of this as confluence by another name — you have two things telling you to trade, the price formation itself, and the zone that it is in. For a pinbar to make a good setup, it not only needs to be well-formed, but it has to be in a suitable location.

Supply And Demand Zones (Use THIS Method To Find Trades Now)

Supply and demand zones are a popular analysis technique used in day trading. As explained before, support and resistance levels are very similar to the zones. The other difference is the way to draw supply and demand zones, but we will come to this later.

Your next step will be up to you… take this new found knowledge from my article and videos today and put them to good use, with trying to trade supply and demand. While the price was just forming, the seller decided to sell at the lower price and they were able to sell and pocket their money. The buyer decided to stay with the current price level, as the price was just forming. By knowing where this bowl imbalance exists you will be able to work out where the market is in its weakest position and where it’s strongest position lays. By being able to identify and sell from the market’s weakest position, the profit potential is much higher and will lead to massive gains. I have often found myself using the term supply and demand level zone.

Make better trading decisions with less noise

This leads to being able to then identify those fresh and tested supply and demand level zones. IT consultant for investment banks turned professional day trader. Technical analysis, but not the type you find in standard textbooks! I employ a mix of Supply and Demand, Support and Resistance, Market Structure and proprietary price action patterns to read the markets. Supply zones help you identify selling price ranges where big money set limit orders to sell shares.

What happens when an asset encounters a supply or demand zone?

For instance, let’s say you use pinbars to spot potential reversals. For example, you can draw Fibonacci levels, and see if those line up with the zones you have identified. Note that some traders may disagree over exactly what constitutes an appropriate “base.” For instance, they might contest whether a single candle can constitute a base or not. High demand creates a rise in price, assuming it outpaces supply.

Supply and Demand zones do offer a great insights into the structure of any market. If you have an idea of how to trade with support and resistance zones, you might find supply and demand zones very similar. Gaps are also one of the best ways through which you can identify supply and demand zones. A gap is where the price rises or falls from the previous candle close without any trading happening in between. They also represent enormous supply and demand imbalances and are often accompanied by major economic news or events which create this market conditions. A supply zone comes into formation before a downtrend, whereas a demand zone forms after an uptrend.

This is why the new price will show a very low volume for a while, which is a clue that the supply and demand level is not in a fresh zone. Another characteristic of supply and demand zones is the quick price action. As pointed out above, price action is very fast around those levels, so if there are opportunities they are quickly absorbed.

When there is a small amount of volume when the bar above “X” is being drawn, this will allow you to identify the “X” bar of the horizontal axis. Big money/whales are what move prices of the markets, not us retail investors. So we want to try to find what price range they could be buying and selling at. Ideal examples of supply zones still in play are shown in the red rectangle .

The Solana Cryptocurrency chart below shows a good Supply Zone base. The market makes a fast, impulsive move out of the first base. The market doesn’t look back – it shoots straight up, caused by an imbalance of buyers vs. sellers. This impulsive move confirms that the base IS indeed the complete turtletrader review a Demand Zone. In over a decade of teaching Supply & Demand trading, I still see Supply and Demand zones drawn the wrong way. If you’re ready to take the next step in your supply and demand trading, then you seriously need to check out my masterclass course right now clicking here.

The “base” is where you can draw the supply or demand zone. It is important to know that there is no “official” right answer here. So, once you understand the basic idea of supply and demand zones, it is up to you to decide exactly how you want to define it for your trading. Indeed, a lot of traders simply think of them as synonymous with support and resistance zones or pivot areas. Because you know that this is a supply zone, you will be in the market before chart pattern traders.