What is the Support or demand zone in share market trading?
Definition of Support or Demand Zones
A support zone or demand zone is an area on a price chart where buying interest is strong enough to push prices higher. Supports are formed when a stock breaks above resistance and holds above that level: the old resistance then becomes support. Support levels are also formed when a stock spends a lot of time at one level and then breaks upward.
How to Work Support or Demand Zones ?
In the above chart, you can see the market was in a downtrend and reached a support level and bounced back from the bottom and again reached the resistance level and went down from the top and the same happened to bounce back from the bottom level. It’s a support or demand zone.
How to Identify Support or Demand Zones?
Strong price rejection from the zone or level.
Increased trading volume in the area.
Quick price movements out of the zone.
Tools and Indicators, you can use
There are several ways to spot Support or demand zones:
Price action analysis and candlestick pattern.
Volume indicators and RSI indicators.
Support and resistance levels.
Note: Always confirm a demand zone with multiple indicators for better accuracy.
An important factor in Trading
Risk Management
Demand zones can help you manage stop-loss levels. It's like knowing where the safety nets are in a circus act!
What should be Entry and Stop-loss points?
You have to enter after confirmation by price action pattern (Bullish candlestick pattern) above the candlestick pattern price and stop loss should be below the support or demand zone.
Common mistakes you have to avoid
1. Relying solely on demand zones for trading decisions.
2. Ignoring the broader market context.
3. Not adapting to changing market conditions or any event.
Remember, no trading tool is perfect. It's always good to use demand zones as part of a broader strategy.
Practical tips for using Support or Demand Zones
1. Start by practicing on historical charts
2. Combine with other technical analysis tools
3. Keep an eye on market news and events
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