Supply And Demand Guide: How To Find, Analyze, And Trade Supply And Demand Zones
Most traders depend on technical indicators to identify imbalances in the financial markets. The technical indicators provide insight into market momentum and help determine prices. Likewise, other traders closely watch key levels in price action where most actions tend to occur, leading to sharp price movements. Supply and Demand zones are crucial price levels created by banks and other large institutions from where big trends emerge.
What are Supply and Demand Zones in Share Market?
Within a pricing chart, supply and demand zones are regions where prices consistently approach each other. Here, buyers and sellers engage in fierce conflicts that frequently lead to consolidation and a subsequent price explosion
Supply Zone
The supply zone on a price chart is where traders look to sell the market. It is also referred to as the distribution zone. The zone is primarily present after a substantial price increase, which gives big institutions and individual traders a chance to liquidate high. As the zone is situated above the present price level, it offers the greatest opportunity for selling.
Demand Zone
the current price level is the accumulation zone, which is also known as the demand zone. Since major institutions typically place more buying orders in an attempt to buy low, the area is characterized by considerable buying interest or potential. As an outcome of buyers’ mounting pressure, sellers find it difficult to drive prices lower in the demand zone, which serves as a strong support level
Pros and Cons of Supply and Demand Trading
Every trading strategy be unique in itself. To use a trading system efficiently, one needs to have a solid trading mentality and frequent practice.
- If you become a master in trading than you have to focus on one strategy. This strategy used by fund manager, FII, DII, Bank etc. In this strategy you can pick stock price at a specific price point.
- this is most accurate strategy intrading system. If you become a master in this strategy you can make good money from all market like equity market, forex market, commodity market, cryptocurrency, currency market. Supply and demand work in every market.
- The framework for trade is straightforward by the laws governing supply and demand trade. The success of it has persisted throughout time because it is based on the most fundamental idea in economic theory
- CONS–Cons of this strategy is this is a time taking process.Moreover, supply and demand trading requires significant time and effort to identify key price levels, keep levels up to date, find setups, and execute trades.
How to Find Supply and Demand Zones?
Demand zone forms below current market price(CMP) and supply zone form above CMP. You’ll learn about the 4 types of supply and demand zones in technical analysis, as technical analysis is quite different from the fundamental analysis. And we can also identify zones on the price chart using simple strategies.
There are four types of supply and demand zones.
DEMAND ZONE PATTERN
Rally base Rally–Big bullish candlestick + Base Candlestick + Big bullish candlestick
Drop base Rally–Big Bearish candlestick + Base candlesticks + Big bullish candlestick
SUPPLY ZONE PATTERN
Drop base Drop–Big bearish candlestick + base candlesticks + Big bearish candlestick
Rally base Drop–Big bullish candlestick + Base candlesticks + Big bearish candlesticks
These are the four simple formulas used to identify zones. The big candlestick means a candle with a larger body to wick ratio, while the base candlestick means a candle with a smaller body to wick ratio.
A candle that has big body or body 50% greater than of wick called Filled order candle. And a candle has long wick or wick greater than body called unfiled order candle.
How Suppy and Demand Zone works
This section will explain how price picks the pending orders of institutions from the supply or demand zones.
In technical analysis, the formation of a demand zone means big traders want to buy the currency at that price.Here unfilled order candle contain pending orders of FII and DII in bulk quantities.