To identify supply and demand zones, we need to pinpoint areas on the chart where the price has made a strong advance or decline.
See, supply and demand zones aren’t just arbitrary areas. They’re places where heavy buying or selling occurred, creating a battlefield of sorts between buyers and sellers.
A demand zone is typically formed after a strong rally.
Why does this matter?
Well, this is where price rocketed upwards, indicating a strong demand.
To find these zones, look for a quick, sharp rally away from an area.
The starting point of that rally is your demand zone.
On the flip side, a supply zone comes into existence after a steep drop, a clear signal of an abundance of supply.
To identify a supply zone, look for a spot where price made a strong move downwards.
The point of origin of that fall is your supply zone.
The goal here is not to find every single supply and demand zone. Instead, we want to identify the key zones where major price movements occurred. Once we’ve got that down, we’re in a good place to predict future price movements with more confidence.
Over time, you’ll develop a keen eye for recognizing supply and demand zones.