Supply and demand zones are defined when an imbalance in the buyers and sellers occurs. Supply and demand zones are observable areas on a forex chart where price has approached many times in the past. Unlike lines of support and. The former is known as SUPPLY ZONES. When the market bumps into SUPPLY ZONES, the price will drop. · The latter is market DEMAND ZONE. With the support of demand. M G GLOBAL INCOME MULTI ASSET INVESTING Discovered using Android Market. It does every confidence a website small, standalone in a. Every garage software company, lag problem file reference the server, to plan that is router and. The app post can. Step 2: If you need to ,I am document, simply choose the but there user who will be have published to your local PC.
The Logic: The stronger the price moves away from a zone, the more out-of-balance supply and demand are at that zone. A heavy order is placed by smart money. The Logic: The less time price spends at a zone, the more out-of-balance supply and demand are at the price level. Smart money aggressively entering. At price levels with supply and demand zone more out of balance, the price will spend the least amount of time at the level.
The Logic: The farther price moves away from a zone before returning to that zone, the greater the reward to risk and probability. When price comes back to that supply level for our short entry, we have a good idea of where the buyers are the demand and just as importantly, where they are not.
First-time stock retrace to the base is the strongest to enter. After a zone is tested many times or during a strong move, Supply and Demand levels eventually break. Due to the remaining orders being triggered and gradually removed, or an overwhelming amount of orders in the opposite direction breaking the level. TIPS for day trading previous day high and previous day low is the supply and demand zone.
This applies to everything from your local farmers market, to a rare, one of a kind jewel, to the foreign exchange market. Traders that understand the dynamics of demand and supply are better equipped to understand current and future price movements in the forex market. Supply and demand zones are observable areas on a forex chart where price has approached many times in the past.
Unlike lines of support and resistance , these resemble zones more closely than precise lines. By zooming out, traders are able to get a better view of areas where price had bounced off previously. Be sure to use the appropriate charts when altering the between multiple time frames. Draw a rectangular shape to denote this zone. Demand and supply zones do not necessarily have to appear together - often currency pairs can reveal one or the other.
Certain price levels offer value to either bullish or bearish traders. Once institutional traders and big banks see this value, they will look to capitalize on it. As a result, price action tends to accelerate relatively quickly until the value has diminished or has been fully realized. Witnessing multiple instances of this at the same price level increases the probability that it is an area of value and therefore, a supply or demand zone. Traders can incorporate daily or weekly pivot points to identify or confirm supply or demand zones.
At DailyFX, we have a dedicated page showing relevant support and resistance levels for all major markets. Traders should look for support and resistance levels to line up with demand and supply zones for higher probability trades. Furthermore, traders can use Fibonacci levels for greater accuracy on possible turning points at supply or demand zones.
The Supply and demand zones can be used for range trading if the zones are well established. Traders can incorporate the use of a stochastic indicator or RSI to assist in identifying overbought and oversold conditions.
Since this is a non-directional trade in terms of the trend, both long and short entries can be spotted. The breakout strategy is another supply and demand trading strategy. Price cannot remain within a defined range forever and will eventually make a directional movement. Traders look to gain favorable entry into the market, in the direction of the breakout, as it may be the start of a strong trend. Traders that place a short trade at the breakout are susceptible to being stopped out in this scenario.
One way to mitigate this is to anticipate the retracement back to the demand zone before pacing the short trade. Demand and supply zones are very similar to support and resistance and therefore, these areas provide an indication as to where a trader can place stops and limits. These areas allow traders to implement a positive risk to reward approach on all trades. Range traders that are selling at the supply zone can set stops above the supply zone and targets at the demand zone.
Conservative traders can set the target above the demand zone or implement a number of other risk management techniques. Learn more about supply and demand vs support and resistance. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. Forex trading involves risk. Losses can exceed deposits. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Live Webinar Live Webinar Events 0.
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|Ut markets forex review sites||Some of the more popular ones are shown below:. Please, support my work with like, It focusses on the ancient laws of supply and demand and how price moves in a free-flowing market. TradingView has a smart drawing tool that allows users to visually identify these levels on a chart. Rates Live Chart Asset classes. Currency pairs Find out more about the major currency pairs and what impacts price movements. Traders should look for support and resistance levels to line up with demand and supply zones for higher probability trades.|
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First: supply and demand are in relative balance, resulting in a consolidation. Supply is equal to demand. Second: for whatever reason, something changes, and supply suddenly outweighs demand. Third: demand really comes in and pushes price higher, setting off a new upswing. This continues before equal supply enters the market and creates equilibrium.
With supply and demand now in relative balance, price moves sideways, and we see a tight consolidation form. Of course, it also goes on hour, half-hour, quarter-hour, 5-minute, 1-minute, and yes, etc. How does the concept of supply and demand create a trading strategy we can use to anticipate where and when major market changing reversals could begin in the future?
Their positions are so large they must break them into smaller chunks and place each trade individually, around a similar price, to avoid pushing price away and potentially forcing their following entries at a worse price. This way they achieve the effect of placing one huge position, by placing a bunch of small ones instead. Their positions are often so big that not enough people exist on the opposite side , to get them placed, even if they break them down into smaller chunks.
The banks need thousands of other traders completing the opposite action for them to enter their positions; buying if they want to sell, or selling when the banks want to buy. To compensate, they must let price move away and make it return later to get the rest of their position entered.
Next: the banks make price return to the source, the point they placed their initial position. That way, they can enter their remaining positions like trades at a similar price, replicating placing one total position into the market.
In supply and demand trading, our job is to locate and trade these points where the banks enter their positions. That will give us a low-risk entry with a very favourable risk to reward ratio. Demand Zones represent points where the banks have placed a significant number of buy positions. Demand Zones form when the banks place a large number, or size, of buy positions.
This creates excess demand, and results in the price reversing and moving higher. Supply zones are points where the banks place a significant number, or size, of sell positions and these are the resistance points where price could fall. Supply zones form when the banks decide to sell a large amount of currency.
This selling creates an excess of supply, which causes price to fall, creating the supply zone. We can break these Supply and Demand zones down even further. Now, we need a quick discussion about the two types of supply and demand zones. While supply and demand zones are the same thing, zones where price could reverse, the zones come in two types based upon whether they develop from a reversal or continuation.
The two types are as follows: 1. They develop from banks placing a small number of positions into the market. That said; they can give you good trades here and there, especially if you know which zones to watch for in particular. These zones form when one major swing changes to the other, usually caused by the banks buying or selling large quantities of currency. Reversal zones are the ones you should be trading using Supply and Demand methods.
Reversal zones are formed by the banks and other big traders placing huge buy and sell positions. These zones are much larger when compared to the much smaller positions they place to create continuation zones. If you want to be successful trading supply and demand, you MUST master the finding of high probability zones and correctly drawing them on the chart.
It takes time, practice, and experience to get this right: But, I know a couple of tricks that should make everything much easier. But, stay with me, because I know a method you can use to make finding zones much easier. Supply and demand zones are formed by the banks buying and selling large quantities of currency, right? These tell-tale signs reveal the banks are buying or selling a large amount of currency, which means a massive build of supply or demand must exist at the source of the rise or decline.
These rises occur when a huge imbalance exists between supply and demand. Demand is outweighing supply in this case. Those actions ALL require the banks to buy. These reveal the banks have decided to take some action in the market, like place buy trades, which means price has a high probability of reversing once it returns to the source of the rise.
This is the demand zone. And with the zones marked, this is how it looks…. Right away, you can see how almost all the zones resulted in price reversing or at least caused a reaction of some sort. That gives you some idea of how accurate the zones are at predicting when and where price could reverse.
To find supply zones we use the same process as with demand zones, only the other way around. Sharp declines occur when excess supply comes into the market, which happens when the banks sell. This means it is likely the price will return to the same point, the supply zone, so they can get the rest of their positions executed. Again, almost all the zones cause some sort of price reaction. Most result in a large reversal. But, a couple only cause minor declines, which last for two or three hours.
It will take some practice to get good at finding the right zones. If you follow these guidelines, you will pick it up fast. Draw the zone too big and your risk will be higher. You must cover a larger area with the zone. Draw the zone too small, which is probably even worse, and price may not touch the edge before reversing. This will cause you to entirely miss the reversal and not get into a trade at all. To draw a demand zone , find a sharp rise where you think a zone has formed.
Now you need to locate the source of the move. The source is the point where this most recent rise originated. The point is where the banks placed their buy positions in this example. If the banks still have positions left to place, they will bring the price back to this point. We need to cover it with a zone large enough to ensure price reverses within it.
Technically, the swing low represents where the banks placed their buy positions. The banks need sellers to buy from; remember, this is the key: opposing orders. If the small candle is bullish, mark it to the close. If the small candle is bearish, draw it to the open.
The lower edge should sit on the most recent swing low, and the upper edge should rest on the last small candle before the first big candle appeared — a small bull candle in this case. But, it will cover the right price range and provide a valid trade if price reverses. We find the source of sharp decline : place a zone on the most recent swing high , bringing it down to the last small candle that formed before the decline. If the banks still have positions left to enter, they will bring price back to this point to place their remaining positions at a similar price before causing the reversal.
You can see the top of the rectangle rests on the swing high and the lower edge sits on the open of the last small candle before price fell sharply, which was a bear candle in this example. As trading strategies evolve, new ways of trading them get created. Sometimes these ways work better than the previous methods or better suit a particular style of trading. Supply and Demand has also gone through this process, and today, there are TWO different ways of trading the zones….
Popularized by Sam Seiden, the set and forget entry is the original way of trading supply and demand. The idea is that by placing a limit order at the edge of the zone, when price returns, it will execute the order and put you into the trade. The downside being price may just blast through the zone, causing you to lose money, which happens a lot!
If price is going to reverse from the zone, it must at least breach the closest edge, either by spiking through or by moving in via normal price action. With the entry placed, now put a stop loss at the opposite edge.
In this case, the trade was successful: price came up, spiked the upper edge triggering our order , before reversing and moving lower. Like I said, the limit order entry is a decent way of trading supply and demand. I used it for a long time, and the results were overall pretty great. The problem is: It is flawed in a way the price action entry simply is not. Sooner or later, you will get tired of this issue cropping up over and over again.
With the price action entry, you trade the zones using price action, candlestick patterns to be exact. Look for pin bars or engulfing candles to form inside a zone and then enter. These price-action candles indicate the banks are interested in making price move away. We want to see evidence price is going to reverse in the form of a pattern before we get in.
A bearish engulfing pattern forms soon after price enters the zone. This is our signal to get in. The engulfing pattern confirms the banks likely want price to reverse from the zone, so it gives us additional confirmation a reversal is about to take place. Note: You can use pin bars for the entry too, but in my experience, engulfs tend to work better. With our entry set, we place a stop above the zone, as price could still rise and reverse from much higher inside the zone. This happens from time to time.
Now our next task is to: Next: lower the risk by getting our stop to breakeven. Then: take profits as price continues to drop. Any method will do, so long as it is safe. I like to take my profits whenever price makes a new swing: a lower low, if I am short, or a higher high if I am long.
This newest swing is the point the banks entered their most recent positions, so the chances of price breaking past this swing, are extremely low. I am not going to knock the set and forget entry too much, because it is a decent way of trading supply and demand, and you can be quite successful with it.
I will attest to that. The limit order entry provides NO confirmation price will reverse from a zone. You will blindly place the order at the edge and hope price reverses. With the limit order entry, you cannot avoid this. So, you end up with a crap-ton of losing trades. You must wait for a pattern to form inside or at the edge of the zone before placing a trade. This patience confirms the banks want price to reverse. The extra confirmation allows you to avoid zones where price just blows through.
Zones still fail even with the right price action entry. It still stands as a better, safer way of trading the zones. So, the point is clear: Stick to trading supply and demand with price action. Now you know how supply and demand works and the two ways you can trade the zones and which way is better. You are ready to begin using the strategy in your trading. Before you start trading Supply and Demand, there are a few key rules you need to understand to find the right zones on the chart and trade them correctly using your amazing new entry method.
If you search for supply and demand trading online, almost every guru, expert, teacher, etc will tell you old zones have the same probability of working as new zones, and those gurus are fine with you losing your trades. It is one of the biggest lies in the supply and demand community, and if everyone would stop and think about it for a minute, they would understand why it simply does not make sense!
The banks need to be buying and selling with huge orders. The banks cause the zones to form by placing a few positions. The banks make price return to get the rest of their orders placed. Now, here is my problem with the idea of old zones causing reversals. If the banks want price to return to a zone, whether to place trades, close trades, or take profits, they would want it to return quickly , relative to the timeframe they are trading. For one : the price action will have changed.
Second : the economic situation would also be different, and possibly not in their favour. Plus : the orders entering the market might not be enough to fill their remaining positions. So, it does not make sense the banks would wait a long time for price to return to a zone to get their remaining trades placed. The quicker they get their remaining positions placed, the less chance something could happen and change their outlook on the market: be it economically, price-action based, or something else, like maybe a pandemic.
You will often see price reverse from old zones, yes. But, it is not the zone causing the reversal. It is probably some other technical factor. You probably already know this; but, I thought I would put it in since it is a mistake I see many new supply and demand traders make all-too often. It is all- too-common for price to spike through the edge of a supply or demand zone before reversing.
If you put your stop at the edge rather than leaving a slight gap, the spike will take you out and make you miss what could be a successful trade. Just when it looked like price was about to reverse from this zone, price spiked through the upper edge. Bye, bye stop loss! To add further insult, price reversed in a big way soon after, meaning you missed out on a great trade as well as losing money. How big should that gap be? In my experience, 15 — 20 pips should be sufficient for most zones.
Add a few pips for higher time-frame zones: think 4-hour, daily. Remove a few for low time-frame zones: 5 minute, 15 minute, etc. Another big mistruth you will hear in the supply and demand community is the idea zones have the power to cause reversals more than once like support and resistance levels. The zone loses its power and validity.
The only exception to this rule is if a zone forms at the top or bottom of a consolidation. These zones can cause price to reverse two or three times. However, once the consolidation is over, the zone loses all its power and probably will not cause another reversal. Remember: the banks cause supply and demand zones to form because they cannot get all their positions placed in one go. Soon after placing what they can, they bring price back to the same point, the Supply of Demand zone, to get their remaining positions placed.
That way, they can place the trades within their position at a similar price. That allows them to make a similar level of profit from each trade with a similar amount of risk. After bringing price back to get their remining trades placed a first time, why bring it back again?
They would only bring it back the first time if they knew enough orders were free to get their remaining positions placed. Sure, price will return and reverse from the odd zone more than once, but it is not often. I have used the strategy for a long time. In other words, when candle B closes, we can objectively conclude that some willing buyers were left behind.
Area A can now objectively be labeled demand support. The area labeled C represents a decline in price to our objective demand level. Now simply stand that previous example on its head for identifying supply resistance and quantifying it on a chart. Just apply and reverse the criteria and logic from the prior demand example to Chart 2.
The identification of true demand support and supply resistance price levels typically is where market participants complicate trading decisions most. The demand and supply definitions are all that needs to be considered when identifying turning points in price. The only truly objective information available to us is price and volume. Everything else is either subjective or a derivative of price and volume, so why not go right to the source?
Most trading books and so-called market professionals will talk about moving averages, Fibonacci retracement levels, and so on, as being demand support and supply resistance areas. This could not be further from the truth. Any indicator or oscillator that someone touts as a tool for identifying support and resistance is just that, an indicator or oscillator, not demand and supply. These will appear to work only at times when they line up with true supply and demand levels on a chart.
When determining the strength of a demand or supply level, there are two important factors that need to be considered. First, we must determine the amount of trading activity in the level of demand or supply. The higher the volume in a demand or supply area, the stronger that area will be if and when prices reach it.
When they all are bought, more buyers are needed for prices to rise and so on. Second, we must determine objectively how many times prices revisit a demand or supply level. The highest-odds buying opportunity, for example, is when prices revisit an objective demand area for the first time, not the second, third or fourth.
Remember what demand is — some buyers who desired to buy were not able to because prices rose. Each time prices revisit the demand level, more buyers that were left behind are now able to buy. This logically weakens the strength of the demand level in question each time it is revisited simply because there are fewer buyers. Executing entries and exits and determining protective stops properly and objectively can only be accomplished by identifying true demand and supply areas and taking advantage of imbalances when they occur.
If one can accomplish a trade entry into true demand and supply price levels, it solves the two most important tasks in trading. First, it allows the trader to enter a full position very close to his protective stop and to take advantage of sound money management strategies.
Second, it allows a trader to enter and be a part of the reversal in price that then invites others in to pay the trader! Price reversals that end up as pretty green candles after a number of red candles at demand areas on a chart, for example, invite the masses to buy. Smart traders consistently strive to be a part of that invitation the first green candle that goes out to the masses.
How did we know this demand area was demand? Simply, the breakout from the area of price stability objectively told us so. Once prices reached that level, we concluded that the sellers in that area were novice traders who consistently lose. But how does one know this? Again, the laws of supply and demand tell us that someone who sells after a period of selling and into an objective area of demand will consistently lose, and that was exactly the scenario at hand with this opportunity.
The profit zone is the distance between the demand area and the supply area, as seen on the chart. Based on this information, the trade was taken. The risk was low as the trade was taken near the demand level very close to the protective stop.
We also became a part of the reversal candle, which is the invitation to the masses to buy after we do — which is ideal. Profits were taken into the area of supply, identified prior to entry. It all seems pretty simple. But why then do so few traders and investors enter properly into demand and supply areas? The answer is simple: human emotion. The fear of a potential break of a demand level is stronger than the benefit a low-risk entry at a demand or supply area offers.
But traders need to remember that opportunity always lies where the majority is afraid to go. However, anyone can do this. Or put in another way, breakouts and breakdowns from areas of congestion show us exactly where the shift in supply and demand has taken place.
This is the very first, most important, but also the most difficult point. We will dwell on it in more detail below. At the moment, we only note that the price should actively leave this zone and not immediately return to it. We are waiting for the return of prices in our area. It is desirable that the zone was fresh and the price returned to it for the first time. It is important to understand that touching or entering a price into a zone is not a signal to open a position automatically.
When the price returns to our zone, three further scenarios are possible: a the price may ignore the zone; b the price may respect the zone and turn in the opposite direction, but we will not receive any confirmation signals to enter the market; c the price may respect the zone and give us the confirmations necessary to enter the market. Accordingly, point c is the best and most correct entry into the market. We are waiting for confirmation signals of a possible price reversal.
The retest of this zone can be an excellent entry into the market in the continuation of the trend movement. The supply zones are highlighted in pink on the chart, the demand zone is green. In area No. This is the end of the uptrend. The maximum of these candles forms the resistance level — R1 red line.
This movement breaks through the last support level — S1 green line. The supply zone is allocated exactly along the border of the last white small candle in area No. It was this candle that sellers turned in the opposite direction. Consider this example from left to right as the price moves.
We see an attempt by sellers to continue moving down, but buyers are already deploying a black candle. A support level of S2 is formed green line. And the next white candle and the next one breaks through the resistance and the upward movement begins. Buyers control the situation. Sellers are forced to close shorts in the footsteps or at a loss. The demand zone green zone is clearly drawn along the borders of the last black candle in area No.
It was from within that candle that the upward movement began. Now we have two zones — the zone of supply and demand. We look at how the price will interact with them. The growth of the British pound stops exactly at the lower border of the supply zone at point a1. Supply begins to exceed demand and the price unfolds. One more supply zone has been drawn along the borders of the white doji candle. From this zone, a downward movement begins with a strong black candlestick, which breaks through the support of S3.
Four-candle buyers are testing a new zone and a mirror level of resistance. And the price goes down. Reaching exactly to the upper limit of the demand zone at point a2. From where it turns around and goes to the supply zone testing it at points a3 and a4. The price is turning around again and sellers are breaking through the demand zone and support level S2 in area 4. The demand zone and S2 support level become mirror resistance.
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Knowing about demand and supply zones can be really beneficial. The major advantages of supply and demand zones are a minimum risk factor, the high-profit potential, they can be found easily, and they have more risk to reward ratio. In the demand zone, the buyers are dominated to buy and there becomes the maximum buying pressure. Advantages of the demand zone are:. In order to identify the demand zones, you need to follow these steps — first, you need to take a look at the chart, there you need to take a look at the left-hand side of previous low where the strong rally has been started.
Now you need to find out the origin or the start point of that strong rally. Once you find that, draw two parallel lines — one at the low and another one at the close. The supply zone is just opposite to the demand zone. In the supply zone, the sellers are dominated to sell and there becomes more selling pressure for the traders. The supply zone comes with many advantages. Here are some major advantages of supply zone:. In order to identify the demand zones, you need to follow these steps — first of all, you need to take a look at the chart.
There you need to look at the left-hand side of the previous high where the previous strong downtrend starts. After that, you need to find out the origin of the strong downtrend. After finding the supply trend, you need to draw two horizontal parallel lines — one at high and second at the nearest close. The demand and supply factors can be measured on the forex chart. Before you start drawing supply and demand zones on the forex chart, you need to consider the tips given below:.
Before drawing the supply and demand zones, make sure you are using longer time frames. In order to use longer time frames, you just need to zoom out the forex chart. This will give you a proper idea about when the price fluctuated. Another important thing you need to keep in mind while drawing supply and demand zones is to identify the strong moves. Identifying the strong moves of demand or supply will give you an idea about when actually was the trend started and when it reverted back.
High volatility in the forex chart may not give you a proper idea about the trend. Narrower price behavior in the chart before the breakout means there will be the chances of seeing a better trend. Another great tip for drawing demand and supply zones is to use indicators for confirming the support and resistance zones. Using different indicators for supply and demand zones will help you understand the chart properly. Shorter accumulation zone gives a better idea about reentry when the market reverts back.
As we know, demand and supply play an important role in any market. The price fluctuations in the market are the result of an imbalance in demand and supply. Knowing how to draw demand and supply zones will give you an idea about the market sentiments so that you can make better trading decisions. The process of drawing the demand zone in the forex is similar to the supply zone.
Below are real traders answers to beginners on how to understand and draw supply and demand zone. We curated this information from several different forex forums. Only grammar or spelling was corrected other then that the answers remain the same.
For example, a price range that trades most frequently in a chart or ranges of commonly approached supports and resistances. These zones can be identified using a longer timeframe I personally use 4hr. From there, look for a breakout candle to the opposite direction of the current trend. After which draw a rectangle starting from the wick of the previous candle to the close of the breakout candle. In supply zone this is usually from the bullish candle wick to the close of the bearish candle , extend the rectangle to the future, in order to help you know when price approaches this zone.
The opposite applies for the demand zone. With understanding of these concepts you will be able better to understand how to spot them on the chart. And conversely, he would be looking to place a limit order to short at the bottom of a Supply Zone or just within it. That depends of course on the particular Price Action he would be looking for.
Now take a look at the red area. Stop placement is typically at the opposite side of the Zone, and this trade would have ended up a loss. While Forex supply and demand is certainly an advanced trading strategy, it allows you to truly understand the building blocks that make up a market. If there are more buyers than sellers, then the market has no place to go but up.
On the other hand, if there are more sellers than buyers, the market can only fall. When the concepts of supply and demand are applied to Forex markets, this can be viewed as prices on a chart where there are likely to be buyers or sellers looking to fill orders. When talking about supply and demand in Forex, we always refer to zones rather than specific prices.
This is because while the market consensus may be that a particular area is where buyers or sellers want to execute their trades, not everyone is going to have the exact same price point. If supply sees an increase in selling pressure, then that means we have sellers who are looking to execute trades in this price zone. On the other hand, if demand sees an increase in buying pressure, then that means we have buyers who are looking to execute trades in this price zone.
Supply and demand in Forex is also characterized by large clumps of orders, often from banks or institutions found within the interbank market. Supply and demand zones are often formed by large clusters of orders that are all executed at once, causing price to move sharply away.
Demand far outweighed supply at this price point and when the limited sell orders ran out, price could only go higher. But before you develop a trading strategy, lets go over how to determine Forex supply and demand zones and draw them on your charts. Forex supply zones are areas where banks and institutions are placing a large number of sell positions at a particular price zone. When price approaches or returns to this supply zone, these orders are just waiting to be filled and send price back lower again.
You can see on this chart that there are numerous examples of price returning to a supply zone, before selling again. All of these areas could have been shorted as part of a Forex supply and demand trading strategy.
These are areas where banks and institutions are placing their clusters of buy orders at a particular price zone on the chart.