Best Zones to TRADE

Best Zones to TRADE

Price Action Trading Strategy: Supply & Demand Zones
The law of supply and demand governs all market prices. Supply & demand zones put the economic theory into a trading strategy using price charts. Read on to learn more about S&D trading...

Contents: Supply & Demand Zones
What are supply & demand zones?
Wykoff and Market Structure
Types of Supply and Demand patterns
How to draw a supply / demand zone
Identifying strong supply & demand zones
Supply & Demands Zone indicators
An example S/D Zone Trading Strategy
What are supply and demand zones?
Supply and demand zones are a popular analysis technique used in day trading. The zones are the periods of sideways price action that come before explosive price moves, and are typically marked out using a rectangle tool in the stocks, forex or CFD trading platform.

A supply zone forms before a downtrend
A demand zone forms before an uptrend

What are zones in trading?
You can skip ahead to see how to draw the supply and demand zones for day trading strategies BUT we’d recommend a quick background on the investment theory to give you confidence in why this trading strategy works first…

What is a supply zone?
The candlesticks or bars that mark the origin of a strong downtrend are called the supply zone or distribution zone.

What is a demand zone?
The candlesticks or bars that mark the origin of a strong uptrend are called the demand zone or accumulation zone.

Wykoff & Market Structure
Let’s think about the three simplest concepts in trading financial markets

When demand is greater than supply, the price goes up
When demand is equal to supply, the price goes sideways
When supply is greater than demand, the price goes up down

Financial markets move in phases of the above. There are uptrends and downtrends or price ranges.

Richard Wykoff was one of the first market analysts to explain the interaction of these phases, giving them four labels.

Accumulation
Markup
Distribution
Markdown

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