Supply and Demand Zone Basics

Note: All you need is to conceptually understand how it works. You will see that this is baked into some other strategies so we want you to know at least what they are.

Supply Zone:

‍ This is a price level where there are a lot of people trying to sell something, causing the price to go down. You can spot it on a chart when you see the price has gone down from that level multiple times before.

Demand Zone:

This is a price level where there are a lot of people trying to buy something, causing the price to go up. You can spot it on a chart when you see the price has gone up from that level multiple times before.

What it Means:

• When more people want to buy than sell, prices tend to go up.
• When the number of buyers and sellers is about the same, prices usually stay the same.
• When more people want to sell than buy, prices tend to go down.

This is why we talk about the four market phases, and it helps us predict what might happen in the future based on these patterns.

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Supply and Demand Patterns

Continuation of the trend means that the price will continue to move in that direction. Here are the bullish and bearish continuation patterns.

Now that we have just whoen you the continuations, here are the two reversal bullish and bearish patterns.

Effectively all that matters is how price reacts off the demand or supply zone. If it breaks through the supply it's a continuation and if it bounces off it is a reversal. Same with breaking demand becoming a continuation of bearish momentum and the bounce of supply being a reversal pattern.

Overall example from Dot Net Tutorials

How to identify zones (absolute basics)

Firstly, figure out the current market condition (price, momentum, trend) Secondly, look left on the chart and find a big red or big green candle depending if you are looking for supply or demand. (green for demand, red for supply) Thirdly, find the origin of where those big candles or candles came from. Basically follow the candle looking in the past for where the big candle's move started. Finally once you have found the origin, draw a rectangle extending to the right.

How to identify zones (in depth)

There are two types of zones you will need to look for on the chart that will come prior to the big price move.

1. From a base
2. From a single candle

What is a base‍

A base is a way of referring to the bottom of a movement. In supply and demand, a base is a small series of candles (typically less than 10) in a tight consolidation. What this means is that there will be a series of candles that aren't moving wildly up or down after the previous move (if it was a move down buyers are accumulating and if it was a move up sellers are accumulating).

Here is an example of a supply zone using our steps for base identification

We found the origin after the big red candle (giant hole in graph) and plotted the supply to the right

While you can identify with just a single candle that candle is almost always found within a larger base, so as long as you can identify a base correctly the single candle that is the other technique will be found within.