How To Draw Supply And Demand Zones – Want to profit in bull and bear markets-No complicated indicators, fundamentals or analysis? Here’s How to… Get Your Copy (Risk-Free)
Supply and demand zones provide insight into the structure of any market. If you have an idea of how to trade support and resistance zones, you can see that supply and demand zones are very similar.
How To Draw Supply And Demand Zones
The supply and demand zones are very similar if not identical. There are certain rules that make them side by side and IMHO it’s clearer than just support and resistance. I will make sure that you find out exactly why in this article.
The Difference Between Supply & Demand And Support & Resistance
In the picture above you see the German stock market DAX. The marked red area is the supply zone. This can also be defined as an active resistance level or a place where traders are selling in bulk.
On the other hand, the Demand Zone is a broad support zone, as shown in the image below.
In the chart above you can see a supply zone or in other words a broad support level. There is also the level of focus on the buyer. As you can see every time the price approaches the supply zone, it quickly rises again.
Another characteristic of supply and demand zones is rapid price action. As pointed out above, the price map rotates around their levels very quickly so if there is a chance they will be quickly absorbed.
Support And Resistance Basics
A very important element in supply and demand trading is the use of candlestick charts along with it. Although I have written an extensive article on Candlesticks, I will briefly cover them here.
The two most important candlestick patterns used in conjunction with supply and demand are the pinbar and engulfing patterns. The majority of traders using supply and demand zones will look for a rejection or confirmation of this level.
So it is very important that you can recognize at least two of those candlestick patterns. Here are examples of both:
In the above example, there are two candlestick patterns- Pinbar and Bullish Engulfing 2. As you can see from the chart above, the price quickly moved higher after that candle was formed.
How To Use Supply & Demand Zones In Crypto Trading?
As explained earlier, support and resistance levels are similar to zones. The only difference is that the area covers a larger area. Another difference is how supply and demand zones are drawn, but we’ll cover that later.
In fact, support and resistance and the supply and demand zones of the beast have the same origin.
If it helps, you can even visualize supply and demand zones as broad areas of support and resistance with a concentration of buyers and sellers respectively.
The good news is that the Supply and Demand zones always work equally well. I still recommend using it on timeframes higher than 60 minutes. Anything below includes more noise and more false signals.
Bearish And Bullish Order Blocks
In my experience, the best time frame for supply and demand zones is 4H and Daily.
The best way to find supply and demand zones is to look at candlestick charts. Here is the order to see the supply and demand zones:
You can see in the image above, the three areas show a fast bullish zone. This is the kind of market movement you should be looking for. Now, the question remains how do we define supply and demand zones.
The best way to show it is through illustrations. Let me draw them, so you can better visualize:
What Are Supply And Demand Zones And How To Trade With Them
As you can see in the image above, the supply and demand zones cover the base at the start of the move. It is difficult to be precise to that extent and here it is more art than science.
The good news is that after a while, you will get used to that level and your eyes will become automatic scanners.
Remember: The most important thing is to first move strongly in both directions, then you can pinpoint where it started and roughly define the supply/demand zone.
In the image above, there are two potential scenarios. In the first one on the left, we have the price going down (D), then forming a base (B) and then going up (U) again. I will call this setup the DBU setup.
Supply And Demand Chart Hi Res Stock Photography And Images
In the upper right figure, there is an uptrend (U) first. Then we have the price forming a base (B), then we have the continuation of the uptrend (U). I will call this setup UBU.
In the upper left figure, we have the price rising (U), then forming a base (B) and then falling (D). I’ll call this a UBD setup.
In the upper right figure, we have the price going down (D), then forming a base (B) and then continuing to fall (D). This is the context of dengue fever.
So the 4 settings (you don’t have to remember the acronyms) are DBU, UBU, UBD and DBD. This is how you can identify different supply and demand zones.
Supply And Demand Zones Metatrader 4 Indicator
So, how to identify the 4 main types of supply and demand patterns. As mentioned above, you need to follow three steps to determine the supply and demand zones.
As outlined, it is difficult to draw an exact area – it takes time and practice to be able to see the area. All you have to do is follow the rules and practice enough until you draw confidently at this level.
Don’t forget that this is how everyone who used that level learned successfully. After a while, it will become natural and you will be able to find it quickly.
It is important to note here that the supply/demand zone can and often includes the tail of the candle. As you can see from the demand zone above, there is a large tail below that is located in that zone.
How Do You Guys Draw Your Supply And Demand Zones?
The next image is taken from the daily chart of AUDUSD. As you can see, this is a typical UpBaseUp (UBU) pattern (as defined above).
Next setting is taken from USDCAD Daily chart. In it you can see a typical DownBaseDown (DBD) pattern.
Let’s continue with the entry, stop loss and take profit rules, then look at some other examples.
In the image above, you can see the rules for trading supply and demand. This is one way you can trade with supply and demand zones. Different traders will have different rules, but it is important to note here that you should always aim for higher reward than risk.
How To Use Trend Trading With Supply And Demand Zones
In the example above, the ratio is 1:3. The entry is usually in the middle of the supply or demand zone. The stop is usually 5-10 pips below the demand zone, as indicated by the red line. Your goal should be at least 2 or 3 times your risk (as the picture above shows).
These are indicative parameters only. To become proficient in trading, you need to spend more time and practice than just reading an article. If you want to learn more about my pro trading strategies and join the rest, you can download HERE.
This example is taken from USDJPY daily chart. You can see that we have the UpBaseUp (UBU) sample above. Demand zones are clearly defined by upper and lower bounds.
Another way to approach that level is to use another tool for confirmation or another time frame for confluence.
How To Trade Drop Base Drop Pattern In Forex?
You can see two areas of supply and demand. The demand zone is where all the big buyers are. The supply zone is where all the big sellers are.
I could go on giving more and more examples, but eventually you have to start spotting the area. You have to practice until you get the hang of it. It may take some time, but supply and demand zones are great tools for price action traders.
As with anything, supply and demand zones also have their downsides. No strategy or trading tool is perfect. What makes the difference in this process is your attitude towards trading.
Being able to tick those 5 boxes will give you more freedom than you can imagine. As Auberon Herbert said:
Solution: Finding Supply And Demand Zones That Work Forex Note Business Traders Entrepreneurship
“You will not make a man wiser by taking away his freedom of action. A man can only learn when he is free to act.”
If you want to learn more about Support and Resistance, this is probably the most comprehensive article out there
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