On a price chart, demand zones are areas where the buying pressure is high and the prices are likely to increase. Whereas, supply zones are areas with high selling pressure where prices are likely to fall.

Let’s understand demand and supply zones in detail.

Demand Zone

Demand zones are areas on the price chart where there is high buying pressure due to the prices leading to a significant increase. The demand zone is also called the ‘Accumulation zone’. A demand zone is formed when strong buying pressure causes a large and upward movement in the stock prices after a period of consolidation. When the prices return to the demand zone, traders buy at or near the demand zone, expecting the prices to continue to rise. It's better to buy in a demand zone where the prices are already in an uptrend.

Supply Zone

Supply zones are areas on the price chart where there is high selling pressure ahead of a significant fall in prices. The supply zone is also called the ‘Distribution zone’. A supply zone is formed when strong selling pressure causes a sharp downward movement in the stock prices after a period of consolidation. Traders aim to sell at or near the supply zone to book a profit and expect the prices to move downward. Selling from a supply zone is more reliable in a downtrend.