Demand and supply zones

Nov 25

Demand and supply zones are key price areas where buying or selling pressure has historically caused reversals or significant price movement in the market. This indicator seamlessly incorporates all essential factors for determining the strength and reliability of demand and supply zones, ensuring that the most powerful zones are plotted on the chart. It categorizes these zones into four distinct types and automatically visualizes them for enhanced trading insights

• Drop-Base-Rally
• Rally-Base-Rally
• Rally-Base-Drop
• Drop-Base-Drop

The indicator enhances the accuracy of the zones by identifying momentum candles. These candles signify strong market activity and help confirm the validity of demand and supply zones. To qualify as a momentum candle, the following conditions must be met:

The price must close higher (bullish) for Demand Zone or lower (bearish) than it opened for supply zone.
Body-to-Range Ratio: The body of the candle must constitute a substantial portion of its total range, indicating a strong directional movement in the candle.
Strength Threshold: The total range of the candle (from high to low) must exceed a certain threshold (sensitivity/Legout Multiplier) and can be defined by the user, indicating that the price moved significantly in one direction. Higher the threshold, more powerful the zone is
Highest Volume: The candle must have the highest volume within the defined lookback period ensuring that the candle is backed by strong market participation.

• Length of SMA for Volume: The indicator calculates the Simple Moving Average (SMA) of the volume over a user-defined period (default 20 EMA). This gives a baseline average volume.
  
• Volume Multiplier for High Volume Detection: The multiplier (default 2) is applied to the moving average volume to detect when current volume significantly exceeds that average, signaling strong market participation.
  
  
• Identifying the Highest Volume in a Period: The indicator also tracks the highest volume over a user-defined lookback period (default 20). This helps in identifying the most significant volume candle within this timeframe.
  (All the above can be customized in the Settings section)
  

How are Zones Plotted?

Demand Zone:
Top: Highest body of the base candles—close of a green base candle/open of a red base candle.
Bottom: Lowest low of all the base candles in the zone.
Supply Zone:
Top: Highest high of all the base candles in the zone.
Bottom: Lowest body of the base candles—open of a green base candle/close of a red base candle.

The indicator identifies the strongest zones by plotting up to three base candles as Lower the Base candles, the stronger the zones are.
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Key Features
Zone Identification:
1. Zone Sensitivity: Adjustable settings for leg out length to define the strength of price movement out of a zone.
2. Forming Zones: Option to display forming zones (unclosed candles), providing early signals for potential trading opportunities (prefer this to be Off to avoid any false Signals)
3. Wick and Candle Logic: Uses a mix of candle body and wick patterns (e.g., long bullish/bearish candles, indecision candles, wick-to-body ratio) to determine zone placement.
4. High Volume Zone Detection: Incorporates volume metrics to help validate significant supply and demand zones, adding an extra layer of confirmation.

Timeframes:
1. Zones can be plotted on any timeframe we select (e.g., if we select the 4 hr timeframe , all the 4hr zones are plotted on chart). The higher the timeframe, the more powerful the zone is.

Cosmetic Features:
1. Customizable Zone Colours: Customizable colours for demand and supply zones, including background and border settings.
2. Zone Information Display: Option to show detailed zone information, such as high/low values and timeframe, within the plotted area.
3. Text Alignment: Full control over text alignment within the zone for better chart readability.
4. Zone Extension: Extends zones visually across the chart, allowing traders to track them as price action evolves.

Benefits:
• Automated Zone Plotting: Automatically identifies and plots demand and supply zones for clear, actionable insights.
• Real-Time Updates: Zones are recalculated as new price data comes in, keeping traders informed with the latest information.
• Versatile Use: Suitable for stocks, indices, forex, and commodities, making it a powerful tool across different markets.
• Custom Alerts: Set alerts based on or entry into a zone, ensuring traders don’t miss crucial moments.
• Multi-Timeframe Visualization: Supports zones across all timeframes, from intraday to long-term analysis.
• This indicator is suitable for both Intraday and Swing traders as it facilitates all timeframes.

This indicator is designed to provide traders with real-time, reliable insights into potential price turning points, significantly improving decision-making and trading strategies. By focusing on candles with the highest volume and significant price movement, the indicator ensures that only strong momentum candles are considered, reinforcing the validity of the plotted zones. This method effectively combines volume and price action to provide traders with more reliable signals.