Demand Supply Zone
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.
There is constant demand and supply trading in the Stock market. If you look at the depth of the market you will be able to see the order to buy and sell at different prices. Such numbers show demand and supply trading. How to identify supply and demand zones on a chart ? all detail are below with simple strategy for find demand and supply trading.
What are Supply and Demand Zones ?
So, what exactly is a supply zone and a demand zone.
This would be best described by a chart:
” Supply Zone ” : At supply Zone, Sellers are dominated to sell & Buyers are weak. At Supply zone, Massive selling pressure.
“Demand Zone” : At Demand Zone, Buyers are dominated to buy and Sellers are weak. At Demand zone, Massive Buying pressure.
In the image above you see the Tata steel. The red zone is marked as a supply zone. This could also be defined as an active resistance level or a place where traders are selling huge amounts. These levels are more broad than a resistance line. They are very similar to resistance zones. Here we can break candlesticks, but we don’t have to break candle stick when joining Resistance and support.
How to find out supply zone
- First of all look at the chart.
- Look at the left hand side of previous high.
- Where the previous strong down trend starts.
- Find out the origin of the strong down trend.
- Establish the base (beginning) from which price started the quick move.
- Usually, before a large move you have a small sideways move- that is where your supply and demand zone is
Let me give you an example, so you can understand what I mean by large successive candles:
You can see in the image above that the three areas are showing areas of fast moving price. These are exactly the type of market moves you should be looking for.
Candlesticks and Supply and Demand
A very important element of supply and demand trading is the use of candlestick charts in conjunction with it.’
The two most important candlestick patterns used in conjunction with supply and demand levels are the Harami and the Engulfing pattern. The majority of traders using supply and demand zones will be looking for rejections or confirmations of these levels.
Therefore, it is essential that you can recognize at least those two candlestick patterns. Below is given an example of them both:
In the example above, there are two candlestick patterns- Harami & Bearish Engulfing Pattern. As you can see from the chart above, price quickly falls down after those candlesticks have been formed. Both Harami and Engulfing are reversal patterns, but spinning top is Doji pattern, which means indecisive in market, for confirmation we have to take help of other candle sticks.
Support and Resistance Levels V/S Demand & Supply zones
As explained before, support and resistance levels are very similar to the zones. The only difference is that zones encompass larger area. The other difference is the way to draw supply and demand zones.
Time frames for Supply and Demand Zones
The good news is that Supply and Demand zones can be used with equal success on all time frames. I would still recommend that you use them on time frames higher than 60 minutes. Anything below that consists of a lot of noise and more false signals.
In my experience, the best time frames to spot supply and demand zones are the 4H and the Daily.
As already outlined, it is hard to draw a precise zone- it takes time and practice to be able to spot those areas. What you need to do is just follow the rules and practice enough until you feel confident in drawing these levels.
Don’t forget that this is how everyone else using those levels successfully has learnt it. After a while, it will become natural and you will be able to spot them quickly.
Let’s check a few other examples of supply and demand zones now.
Does Not Expect Miracles
As with anything else, supply and demand zones have their cons, as well. There is no perfect trading strategy or tool. What makes a difference along the way is your attitude towards trading.
A few are the most crucial things beginner traders need to pay more attention to:
- Proper trading education
- Trading practice (preferably on a Demo account first)
- Trading discipline
- Sticking to your rules in good and bad days
- Open mind
Being able to tick those 5 boxes will give you more freedom than you can imagine. As Auberon Herbert has put it:
“You will not make a man wiser by taking freedom of action from him. A man can only learn when he is free to act.”
Happy Trading.