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How to Draw Demand and Supply Zone is the most difficult part of the demand and supply analysis. Normally, the Demand and Supply Zone are dynamic i.e. technical analysts should be flexible while drawing the Demand and Supply Zone.
A technical analyst can see a particular zone as a demand zone but the other technical analyst can see that zone as a supply zone. The basic objective to draw Demand and Supply Zone is to find out the zones where big players are active i.e. the narrow range in which they are buying and the narrow range in which they are selling. Normally the volume and the delivery % are high in the demand and supply zone.
There can be N no of Demand and Supply Zones for a particular stock or index. You can draw these zones on any time frame but in my personal opinion, these zones are more reliable in the daily time frame. The volume play a very important role to decide whether the zone is a demand zone or supply zone.
In a demand zone, the green candles are volume supported and red candles are not volume supported. Whereas in the supply zone, the red candles are volume supported and green candles are not.
For F&O stocks, the conclusion of the Demand and Supply Zone should be confirmed with the derivatives data. Also, the divergence due to positive and negative skew should be confirmed with the help of the futures and options data.
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