How To Identify Demand & Supply Zones?

In this post, we will learn how to identify demand and supply zones in charts and trade using them. The demand & Supply zone works well in any asset class such as Gold, Stocks, Commodities (Crude, Silver, etc).

Demand Zone

It is a zone that acts as a support for the stock and stock moves upwards from this zone.

Supply Zone

It is a zone that acts as resistance for the stock and stock moves downwards from this zone.

How to draw Supply/Demand Zones?

Supply/Demand Zones works in any time frame such as 3/10/15/30/60 mins. The accuracy of charts increases as we move to larger time frames such as 60 mins, 1 Day & 1 Week.
Drawing the zones: You need to identify at least 3 candles (full body or Wix) for identifying demand/supply zones. Then draw 2 parallel lines connecting all 3 candles.

A demand zone is converted to a supply zone once it is broken and vice-versa. But for confirmation, you need to wait from a full candle formation below it. Volume confirmation is not needed everytime.

A simple example of a demand zone in SBIN. It got converted to a supply zone when a candle broke it. Now it will act as resistance for the stock.
As we can see in the 3rd candle it retested demand zone but was not able to break it. and the trend of stock changed from thereafter.

A simple example of the Supply zone in TCS. In the example, we can see how beautifully the supply zone got tested in the 3rd candle. We got more confident regarding taking trades by looking at heavy volumes in the 3rd candle.

In the above example, we can see that Motherson Sumi was having a demand zone near 90-96 levels, and it got broken recently and we saw a heavy downfall in the stock thereafter.

I hope you enjoyed this small post on Identifying Demand & Supply Zone in charts.