Have you ever wondered why the price suddenly halts at a certain point and reverses violently? The answer lies in a simple yet profound economic principle: the balance between Supply and Demand. In this guide, we dive deep into market mechanics to reveal how to spot zones where major banks are "waiting" to activate their trades.

Introduction: The Economics Behind the Chart

In every passing second, there is a constant struggle between buyers and sellers. When demand exceeds supply, price rises. When supply exceeds demand, price falls. But as professional traders, we don't care about the "move" itself, but the "zone" that caused this massive imbalance.

Section 1: Defining Supply and Demand Zones

A Supply/Demand zone is not just a traditional "Support and Resistance" level. It is a price area where major market actors showed a strong desire to buy or sell, leaving gaps or explosive moves behind.

1. Demand Zones

These are areas where institutional buy orders were so massive that sellers couldn't satisfy them at those levels, forcing the price to rise rapidly. When price returns to these zones, we often find remaining Limit Orders waiting to be filled.

2. Supply Zones

Working on the same logic but reversed. These are the strongholds of sellers where massive sell orders are concentrated, marked by "Extended Range Candles" (ERC) exiting the area.

Section 2: Types of Supply and Demand Formations

To understand these zones, we must learn to read their formation patterns. There are two main types for each zone:

Continuation Patterns

  • Drop-Base-Drop (DBD): A supply zone in a downtrend.
  • Rally-Base-Rally (RBR): A demand zone in an uptrend.

Reversal Patterns

  • Drop-Base-Rally (DBR): The start of a new uptrend.
  • Rally-Base-Drop (RBD): The start of a new downtrend.

Section 3: Evaluating Zone Strength (The Scorecard)

Not all zones are created equal. At AURA, we rely on three golden criteria to evaluate any zone:

  1. Strength of Departure: How fast did the price leave the zone? The faster the move and longer the candles, the stronger the zone.
  2. Time at Base: The rule is: the less time price spent in the zone before exploding, the greater the imbalance. "Congested zones" are not always the best.
  3. Freshness: The best trades are at the "First Touch" of the zone. The more a zone is touched, the more remaining orders are consumed, weakening it.

Conclusion: Ready to See the Market Clearly?

Mastering Supply and Demand is a journey to change your mindset. You will stop chasing green and red candles and start seeing the "ranges" that control the game. With AURA Analytics, we provide automated tools that draw these zones for you with extreme precision.