Drawing Supply And Demand Zones: Easy Guide For Dummies - (2024)

Just wanted to say I went through the course yesterday – it’s fantastic and I really enjoyed it. It was very clear and hugely beneficial. It’s also a real eye opener and completely different to the regular stuff.

As I went through it so quickly, vid after vid, I will probably go through it in full again.
I have a few questions regarding the content that I was hoping you could clarify but will leave that to another day.

My question now is (apologies if you did cover it) but I don’t think you touch upon where you take profits or any strategy based round that. Is this something you would consider doing a video or article on? I have my own system of profit taking in place – I generally take 1/3 of profit at the first resistance / support where my trade could run into trouble.
This level is usually equal to a 1-1 on risk (minimum), then generally move stop to break even and target a bigger profit for the remaining part and try to stay in unless price action dictates otherwise.

I seem to struggle though with my take profits mentally, always questioning if I am doing the correct thing.

Anyway, your thoughts would be much appreciated.

I would appreciate if when you have the time, you could let me have your thoughts on the email below.

In the meanwhile, I just wanted to share with you my chart and see if it seems along the right line as per your course.

I appreciate you have provided a supply / demand indicator, but I would like to draw out the zones myself.

Please see as an example the Usd/cad chart. I tend to plot what I think are the S/D zones based on aggressive price movement. I do this in the higher time frame such as the 4hr and then go down to the 1hr to look for trade opportunities via price action such as engulfing candles / large pin bars.

Does this all look correct as per your course?

My Response:

Alrighty, here are some answers for you…

Chart Zones:

Your zones look mostly on point, but I’ve noticed a couple of things we need to tweak.

First up, make sure your zones are hitting the candle highs and lows. Don’t leave any of the low or high sticking out; the zone should cover it all.

Look at my pic… it’ll give you a better idea.

Believe it or not, price often hits the low or high before bouncing… so even a teensy gap can mess up your entry or mislead you about where the zone ends.

Second issue: your zones aren’t lining up with the most recent major swing highs or lows.

Check out the 4h image… See the far-left zone?

You’ve drawn it down to the swing low, but it should actually be hitting the most recent major swing low—or high for demand zones.

By ‘major,’ I’m talking about swings which set off big price shifts.
In my zone, you can see it’s drawn from the previous swing low.

That’s because that low set off a major reversal.

This is where the banks went in, especially considering how bearish the market was before the turnaround.

The more bearish the market, the more traders were selling, the more the banks could buy.
By the time the next low forms around, the market has swung up, and the banks can’t buy as much; there’s a lot more buyers due to the rise and fewer sellers around.

This makes it a weaker spot for a reversal, ’cause the banks just don’t have as many positions executed here.

So, always draw your zones to the nearest major swing low—that’s where the banks main positions are and where price is most likely to reverse.

Profit Taking:

When it comes to taking profits, I usually cash out once price hits a higher timeframe supply or demand zone or if price shows signs of wanting to reverse. I take small profits as price moves in my favor, and then take a chunk out once price hits a sticky spot.

It’s not rocket science, but it does the trick.

Taking profits can be a real head-scratcher—you never really know when the perfect time to take them is.

Just do your best and don’t beat yourself up if you jump the gun or make a mistake.

PAN.

Hi.

Thanks for tips provided in your articles.

I have also been reading your others articles esp on Supply/Demand Zone, and I would like to seek the following clarifications on the article “How to easily draw supply and remands zones”:

Supply zone (formed with Base) is drawn fr the Open of the last bullish candle to the most recent high before the drop.

In the first EURUSD chart (under the section “Locating Supply Zones”), the zone does not seem to be consistent with the definition. Should it be drawn as indicated in blue dotted line of the following image:

In the e.g. provided for drawing Supply zone (under the section “How to draw Supply and Demand Zones”), should the most recent high be the candle indicated by the blue arrow in the following image (hence the zone should be narrower):

3. For zone formed by single candle, is it correct that they should be from opening of the last bullish candle to its high (for Supply zone) and from opening of the last bearish candle to its low (for Demand zone)?

Kindly advise.

Thanks.

My Response:

About your first question, you’ve got it spot on…

The supply zone you’ve drawn uses the proper technique. The differences with my article’s images are likely because I updated the article a while back… and may have missed updating a few images.

So, yes… it can get a bit confusing.

For your second query, the supply zone should actually originate from the high point I’ve marked on the image.

When I referred to ‘the most recent high,’ I meant ‘the most recent SWING high,’ not just any random high preceding the drop. This applies to demand zones, too, where you’d draw the zones from the most recent swing low instead of the swing high.

Your understanding of single candle zones seems quite accurate…

So, you’re all good to go there—no changes needed.

Keep those questions coming!

PAN.

Hello,

Thanksforallyourhelpinthepast.Ihaveanotherquestionhoweverandhopefullyyoucanclarify.Ihaveincluded a pictureillustrating my query.

Thankyou.

Response:

Let’s revisit the supply in the image you’ve sent.

Ideally, it should be drawn from the bearish candle which follows the large bullish candle, not from the bullish candle itself.

Yep, I know… that one’s on me.

I missed mentioning these kinds of zones which often crop up in the market.
I’ll go back and touch on this in the article.

Here’s a quick tip: Always draw your zones from the candle with the smaller body. All Supply and Demand (SD) zones are made up of two candlesticks.

You want to sketch your zone from the candlestick with the smallest body.

In the image you’ve shared, this was the bearish candle which caused the market to fall out of the zone.

So, this would be your go-to candle for drawing the supply zone.

Need some more help?

Don’t hesitate to ping me.
PAN.

Hi,

IhaveattachedUSDCAD1Hchart.imade comments on thechartit*elf for my analysis.

Ibasically marked demand zone on the bullish candle before the move up, does the size on the most recent candle matter becauseisee on thischartthis candleis so small.

Best regards.

My Response:

Your analysis looks sound to me…

The price rise is likely due to either profit-taking or banks executing trades, thereby creating a demand zone. Upon seeing this, you marked the region as a demand zone, patiently waiting for the price to revisit.

The idea being, there’s a high chance of banks wanting to reap more profits from their trades or place additional ones.

The drop into the demand zone was a deep pullback, which the banks employ to prompt a mass of traders to enter counter to the direction the banks want the price to move.
When sufficient traders have entered, banks step in and execute more buy trades.

This is primarily responsible for the ongoing upward price movement.

Your trade execution was excellent…

Keep up the good work!

Have a great week!

PAN.