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What are Supply And Demand zones?
A supply zone is going to represent an area in which price drops from and A demand zone is going to be an area in which price rises from.
The Difference Between Support/Resistance And Supply/Demand?
Supply and demand is very similar to support and resistance. the biggest difference is that support and resistance is going to be represented in a horizontal line and supply and demand is going to be represented with a zone. A zone is simply a rectangle box. When traders trade supply and demand, they will typically understand that the market is moved through buyers and sellers. With this knowledge, they will draw demand zones in which buyers are presents and supply zones in which sellers are present.
Why Are supply and demand Zones Important?
Supply and demand is important to understand because the market moves through the amount of buyers and sellers at a given time. Although support and resistance levels do work at times, it is crucial to look at the market through buy orders and sell orders. The sooner you can view the markets in this fashion, the sooner you will be able to ride along side of the banks. Understanding supply and demand will also help you understand order blocks later on in the course.
How To Spot Supply and Demand Zones
Demand Zones
Demand can be spotted anytime the market reverses from bearish to bullish. Typically they are located at structure lows and internal structure lows.
Supply Zones
Supply can be spotted anytime the market reverses from bullish to bearish. Typically they are located at structure highs and internal structure highs.
Demand And Supply Zones From A Bank Perspective
Demand Zones
Demand is simply an area where buyers were present. In order for the market to go bullish, there had to be buy orders coming into the market. It is called demand because if the demand of something goes up, so does the price.
Supply Zones
Supply is simply an area where sellers were present. In order for the market to go bearish, there had to be sell orders coming into the market. It is called supply because if the supply of something goes down, so does the price.
Demand Exceeding Supply And Supply exceeding Demand
Demand Exceeding Supply
When price is printing bullish structure (example 1), you will notice demand successfully pushes price higher and supply fails to push price lower. In this scenario, you can state that demand is exceeding supply. Based off of the law of supply and demand, when demand exceeds supply, the product’s price will increase. It can get a little confusing when price is showing complex structure (example 2) because you will have many supply and demands zones to consider. In these cases, you will need to focus on the demand zones that make new structure highs. As long as these demand zones hold, Demand is still in control.
Supply Exceeding Demand
When price is printing bearish structure (example 1), you will notice supply successfully pushes price lower and demand fails to push price higher. In this scenario, you can state that supply is exceeding demand. Based off of the law of supply and demand, when supply exceeds demand, the product’s price will decrease. It can get a little confusing when price is showing complex structure (example 2) because you will have many supply and demands zones to consider. In these cases, you will need to focus on the supply zones that make new structure lows. As long as these supply zones hold, supply is still in control.
Examples OF Demand And Supply Zones On The Charts
There are several ways traders may draw a supply and demand zone on the chart. Some will only use the wicks and others may incorporate candle bodies. For the following examples, I will only draw them using the wicks. This section in not intended for you to draw supply and demand zones correctly. This section is strictly for conceptual purposes and will be a stepping stone for another section coming up.
