Trading price action is not difficult but it requires enough time to master how it works in the financial market. Some traders using pure price action and other combines with indicators. I think most traders have been heard the word demand zone on their trading carrier and others call it the area of support. To trade demand zone require skill and experience on how to sport it on the chart.
What is this zone?
The demand zone is the broad area of support. This could also be defined as an area where traders are buying a lot of contracts or a level that has a high concentration of buyers. Demand levels are broader than a support line and they are very similar to support zones.
As you can see in the chart above is an example of a bitcoin/USD demand zone that was formed in a monthly timeframe.
Types of demand zone.
There are different types of demand zone but are always categorised based on pattern formation. Following are the two most popular demand zone type which are;
1. The Rally Base Rally(RBR) pattern
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Above is an example of demand zone pattern formation which shows a Rally Base Rally pattern which means a short move up followed by a short ranging and then a continue to move up. Always base area is considered to be the demand zone and many buying limits order is located that's why when price return at that area there is a high probability that the market goes up.
Look at a real chart example below:
This is the BITCOIN/USD weekly chart. As you can see the market made a strong Rally base rally and when the price return to test this zone, the price will be rejected as you can see in the chart because many buyers locate their limit orders. And this is how a rally base rally pattern is created.
2. Drop base rally (DBR) pattern.
Above is an example of the type demand zone with the formation of down base rally pattern which means a short move down followed by a short ranging and then a price continues to move up.
Look at a real chart example below:
As you can see in the chart above, this is a clear demand zone that is composed of a down base rally. When the market retraces to test this zone, the price will be rejected as you can see in the chart. Long candle tails represent rejection from this level because the buyers that bought from this zone still have quantities as limit orders.
Final words
To trade this zone effective you should add other tools like Fibonacci retirement to get a strong setup. And when drawing demand zones, you will deal with different basing candles, such as pin bars candles, inside bars, or engulfing bars and you should be able to draw your lines by using the highest and lowest point of this candlestick pattern.
