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How To Draw Supply and Demand
How To Draw Supply and Demand
How To Draw Supply and Demand
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Home / Blog / How to Draw Supply and Demand Zones?
Contents hide
4 Examples
5 Conclusion
Page 1
How to Draw Supply and Demand Zones? | Trading FX Hub
Page 2
How to Draw Supply and Demand Zones? | Trading FX Hub
If the basing structures have only doji candles, we also ignore them. Look how price ignored the zone and continued moving up.
When the base has candles with long tails, it simply means that the level is a reaction to a previous supply or demand zone. In this example, we have long
tailed candles that are reacting to the previous demand zone below.
The tails show that market participants went all the way down to look for unfilled orders. They kept going back and forth until they got enough strength to
push prices higher.
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How to Draw Supply and Demand Zones? | Trading FX Hub
Also, a base structure that has stair step candles is a low probability zone. The stair step structure is formed by:
one candle closing below the close of the previous candle for a supply zone,
one candle closing above the close of the previous candle for a demand zone.
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How to Draw Supply and Demand Zones? | Trading FX Hub
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How to Draw Supply and Demand Zones? | Trading FX Hub
3.3. Gaps
Gaps are very strong price action structures. When it comes to drawing supply and demand zones that have gaps, it is important to know where we need
to place our distal and proximal lines.
As a rule of thumb, we always draw our zones at the origin of the gap and not after it. Here’s how we place our lines with a gap structure:
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How to Draw Supply and Demand Zones? | Trading FX Hub
Examples
In the following examples, we’ll cover all the three methods of drawing supply and demand zones on the charts.
Example 1
On the next chart, price rallied up, paused for a little time creating a base structure with one candle, then price dropped creating a rally-base-drop
structure.
In this example, the distal line is placed at the highest wick of the basing structure, and the proximal line at the lowest body of the basing candles.
Example 2
On this example we have a drop-base-drop structure. The same rule applies here. We place the distal line at the highest wick of the basing structure and
the proximal line either at the lowest body or at the lowest wick of the basing candles.
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How to Draw Supply and Demand Zones? | Trading FX Hub
Example 3
In this example we have four candles in the base with long wicks. To draw the supply zone, we place the distal line at the highest wick of the basing
structure.
For the proximal line, we could either place it at the lowest body or at the lowest wick of the basing candles as shown on the charts below.
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How to Draw Supply and Demand Zones? | Trading FX Hub
Example 4
On the chart below, the price created a drop-base-rally structure with a one base candle. To draw the demand zone, we placed the distal line at the lowest
wick of the basing candle and the proximal line at the highest body of the basing structure.
Example 5
On the chart below, we have a rally-base-rally structure with two candles at the base. To draw the demand zone, we place the distal line at the lowest
wick of the basing structure.
For the proximal line, we either place it at the highest body or at the highest wick of the basing candles.
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How to Draw Supply and Demand Zones? | Trading FX Hub
Example 6
On this example we have a drop-base-rally structure. We place the distal line at the lowest wick of the basing structure and the proximal line is placed at
the lowest body of the basing candles.
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How to Draw Supply and Demand Zones? | Trading FX Hub
Conclusion
It takes time and a trained eye to identify and draw supply and demand zones like a professional. It seems easy but in reality it requires time and patience
to master these two steps as they are considered the most important in trading supply and demand.
You must spend as much time as you need in front of your charts to train so that it becomes second nature to you.
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How to Draw Supply and Demand Zones? | Trading FX Hub
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