Demand zone and supply zone are two concepts that can help traders identify key areas where buyers and sellers are likely to act in the crypto market. By understanding these zones, traders can buy low and sell high, or vice versa, depending on the market trend.

What are demand zone and supply zone?

demand zone is the price area or zone where buyers are more dominant and want to buy an asset at a considerable price, thereby preventing the price from going lower. Supply zone is the price area or zone where sellers are more dominant and want to sell an asset at a considerable price, thereby preventing the price from going higher.

These zones are similar to support and resistance levels, but they are not exact lines, but rather areas where price tends to bounce or reverse. Demand zones are also known as accumulation zones, where large buyers accumulate their positions. Supply zones are also known as distribution zones, where large sellers distribute their positions.

How to find demand zone and supply zone?

One way to find demand zone and supply zone is to look for periods of sideways price action that come before explosive price moves. These are usually marked by rectangles on the chart. For example, shows how to identify supply and demand zones on a chart:

As you can see, the supply zone (red rectangle) forms before a strong downtrend, while the demand zone (green rectangle) forms before a strong uptrend. These zones act as barriers that prevent price from going further in the opposite direction.

Another way to find demand zone and supply zone is to use technical indicators such as pivot points, which show core resistance and support levels that are similar to supply and demand zones. Pivot points are calculated based on the previous day’s high, low and close prices. They can be used to identify potential reversal points or breakout points in the market.

How to trade demand zone and supply zone?

One possible strategy to trade demand zone and supply zone is to place limit orders at these zones and wait for price to reach them. For example, if you want to buy Bitcoin, you can place a buy limit order at the demand zone and wait for price to drop to that level. If you want to sell Bitcoin, you can place a sell limit order at the supply zone and wait for price to rise to that level.

This strategy assumes that the market will respect these zones and bounce or reverse from them. However, this is not always the case. Sometimes, price can break through these zones and continue in the same direction. Therefore, it is important to use stop-loss orders and risk management techniques to protect your capital in case of a false breakout or a trend change.

Another possible strategy to trade demand zone and supply zone is to use them as confirmation signals for other indicators or patterns. For example, if you see a bullish candlestick pattern or a bullish divergence on an oscillator near a demand zone, you can take it as a sign that buyers are gaining strength and enter a long position. Conversely, if you see a bearish candlestick pattern or a bearish divergence on an oscillator near a supply zone, you can take it as a sign that sellers are gaining strength and enter a short position.

This strategy assumes that the market will follow the signals of other indicators or patterns and move in their direction. However, this is not always the case. Sometimes, price can ignore these signals and move against them. Therefore, it is important to use stop-loss orders and risk management techniques to protect your capital in case of a false signal or a trend change.

Conclusion

Demand zone and supply zone are useful concepts that can help traders identify key areas where buyers and sellers are likely to act in the crypto market. By understanding these zones, traders can buy low and sell high, or vice versa, depending on the market trend.

However, these zones are not foolproof and they can be broken or ignored by price. Therefore, traders should always use stop-loss orders and risk management techniques to protect their capital in case of unexpected market movements.