How To Draw Supply And Demand Zones
Now we know how to find and locate supply and demand zones on our charts the next thing for us to do is actually draw the zones themselves.
Both single candle supply and demand zones and zones with a base are drawn in the same way.
We’ll begin by drawing a supply zone.
To draw the zones you first need to select the rectangle tool found in the INSERT tab on MT4.
Now find the zone you want to mark and draw the rectangle from the OPEN of the LAST bullish candle before the drop which created the supply zone.
You always draw supply zones from the last BULLISH candle before the drop, if the candle immediately before the drop is bearish, then you need to locate the most recent bullish candle and draw the zone accordingly.
The open of the bullish candle with the arrow above it is where you want to begin drawing your supply zone from.
Once you’ve done this you need to drag the rectangle up to the most recent high before the drop, in the image above the high is found at the top of a bearish pin bar.
Drawing Demand Zones
Demand zones differ from supply zones in that we are drawing the zone from the most recent BEARISH candle found immediately before the up move creating the zone.
From here you need to find the most recent low nearest the zone and drag your rectangle to the low, now you have the demand zone drawn on your charts.
In contrast to when we are drawing supply zones the candle your drawing the demand zone off must be bearish. If it happens to be bullish you need to go back and locate the nearest bearish candle before the move up and draw your rectangle from there.
The reason why this is important is due to how the banks place trades, banks do not place trades onto movements which are in the direction of the trade they are placing.
In simple terms, if the current candle is bullish the banks wont be placing buy trades, if its bearish, they wont be placing sell trades.
This happens due to the nature of the orders currently present in the market. If you see a bullish candle it means the majority of the orders coming into the market are buys either from traders closing their trades at a loss or reactive traders placing trades just because they have seen the market move.
It’s the same situation with bearish candles, most of the orders present during the formation of bearish candles will be sell orientated for the same reasons mentioned above .
So the main reason we always draw the zones from the last bullish or bearish candle is due to this being the last place the bank traders are likely to have been active in placing their trades.
I hope this guide has given you a greater understanding of how to locate and draw supply and demand zones. I sometimes forget how difficult things can be for traders who are not adept at new strategies and trading methods, figuring out even the simplest things can be a very challenging experience especially when there are multiple different trading styles and techniques found within one core trading method.
Thanks for reading, please leave any questions you have in the comment section below.