What Are Supply And Demand Zones

Mostly all market prices are controlled by the laws of supply and demand. These zones put the economic theory in a trading strategy with the help of price charts. Before you know how to draw a supply and demand zone, you should understand what it essentially is. Demand and supply zones are basically a common analyzing technique that is used in day trading. These are denoted as periods of sideways price action that occur before explosive price changes and are usually marketed out using a rectangle tool in forex, stocks, and CFD trading platforms. Keep reading this article to learn more about the same. With this knowledge, you can not only make better investments but also plan your financial assets to maximize profit.

To understand the supply and demand zones, you need to know that a supply zone will always form a downward trend while a demand zone forms an upward trend. Both supply and demand trading strategies utilize price returning as the entry and exit criteria. The strategy, however, is always market neutral, meaning it can only get traded in commodity futures, forex markets, and index CFDs.

How Would You Mark A Demand And Supply Zone?

To mark a supply or demand zone in a chart is quite easy with the right steps. The main objective is to find a place on the chart where the demand overcomes supply, usually for long trades, and the supply overtakes the demand for short trades. Further mentioned here are some of the essential steps required to correctly mark both zones.

1. Identify the market price.
2. Look on the left side of the chart.
3. Look for a big green or red candle.
4. Find the starting point of these candles.
5. Mark your zone around this.

How To Draw The Supply And Demand Zones?

Now that you know how you can mark the supply and demand zones, it is time that you know how to draw demand and supply zone as well. There are two main types of candles that you should be looking for on a chart, either of which will result in a big price change, namely one from a base and the other from a single candle.

In trading terms, a base mainly refers to the bottom of the chart. However, in this case, it means a small series of candles, conventionally less than 10 in a tight group. On the other hand, a single candlestick is enough to know how to draw demand and supply zone. If there are two candlesticks together, they are often called a classic Japanese candlestick pattern, which looks like a hammer or shooting star.

With the information present in this article, you now know a lot more about supply and demand zones. However, this might not be enough to be an absolute pro at this subject. This is why it is best to take the help of a professional team. They will have the right knowledge and experience to help you make more informed and better decisions. This is why it is better if you read up on the necessary topics.

Ricky is a graduate of computer science engineering, a writer and marketing consultant. he continues to study on Nano technology and its resulting benefits to achieving almost there.