Supply and Demand Zones

23/06/2021 Yorgwarez

Support and Resistance – I believe you heard those phrases from the very beginning of your trading adventure (education). The problem with them is subjectivity. One trader can set completely different Support/Resistance levels (S/R) than the other – and both can be right. How so? Because each one of us see different things looking into the same chart. And it’s fine.  But subjectivity also makes things more complex and in order to find strong levels, we need often to train drawing levels for long time.

As you may know from the blog, I am in opposition to any subjectiveness in trading. I try to optimize time effort required for trading and making it as objective as possible. One of key concepts in my Intraday trading are Supply & Demand Zones. You could ask – why not simply Support and Resistance? There’s major difference in naming for the purpose – zones are being drawn on chart live, without any manual adjustments or subjective judgement. It is fully automatic, based on bars/candles spread, OHLC properties, volume, trend, volatility and few other factors.

As you can see from image above, we see multiple Demand and Supply Zones. I see they’re more accurate on higher timeframes (starting from M15). In correlation with other Volume Signals (as not each of them are drawing Volume Zones), you can quickly and clearly see background result of battle between Bears and Bulls on market. Identifying zone is half of success – second part is opening position in proper place and manage position. Also sometimes we can observe situations, where inside one zone another one of opposite type is being drawn (e.g. we have Supply Zone and in the middle of it, script identifies Demand Zone) – then we need to wait for another factors that can help us make a decision about most probable direction of trade.

First strategy related to Zones would be play breakout of the zone in the direction of the zone – so simply speaking in case of Demand Zone (green one) we expect breakout of top border of this zone. Another strategy would be breakout of the zone but in opposite direction to type of zone – it’s not self-fulfilling prophecy therefore we don’t predict future – we play what we can see on chart. Simple as that. The difference to first strategy would be wait for a retest of the border of the zone after breakout. We open position in direction of breakout.

As Take Profit level we can aim for another Volume Zone from the past – simply by extending them manually to the right. This is the most safe and accurate strategy, however often also disappointing – especially if price continues move in earlier direction. And what we do in such case? Only calculate lost profit (even if we not lost money). So another alternative strategy would be to move StopLoss tighter or at least move it to Break Even level when first TP level is reached. In topic of initial Stop Loss level – we clearly set this to few ticks/points above opposite border of Volume Zone.

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Intraday Trader, trading mainly on Dax, S&P500 and Gold. Passionate of new technologies and ex-developer. Currently creating software after hours in order to improve Trading and perform automatic analysis on as big scale as possible. Not trying to predict future, however always having plan and possible scenarios to play.

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