Updated: Oct 26, 2022
What are supply and demand zones?
Supply and demand zones are a popular analysis technique used in day trading. The zones are the periods of sideways price action that come before explosive price moves, and are typically marked out using a rectangle tool in the stocks, forex or CFD trading platform.
A supply zone forms before a downtrend A demand zone forms before an uptrend
What are zones in trading?
You can skip ahead to see how to draw the supply and demand zones for day trading strategies BUT we’d recommend a quick background on the investment theory to give you confidence in why this trading strategy works first…
What is a supply zone?
The candlesticks or bars that mark the origin of a strong downtrend are called the supply zone or distribution zone.
What is a demand zone?
The candlesticks or bars that mark the origin of a strong uptrend are called the demand zone or accumulation zone.
Supply and demand vs Support and Resistance
Supply and demand zones are typically drawn close to support and resistance levels (S&R levels) but are not quite the same.
Support | is drawn at the low of a candlestick that has had at least two candlesticks with higher lows on either side.
Resistance | is drawn at the high of a candlestick that has at least two candlesticks with lower highs on either side.
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