Support & Resistance Level and Supply & Demand Zone are very common and popular jargon in technical analysis.
What is the difference between Support & Resistance Level and Supply & Demand Zone?
In my opinion, Support & Resistance Level is the value of price that tested couple times and hard to break. The zone is formed by two adjacent levels where price may oscillate between those two levels.
Imagine the levels as horizontal lines, and the zones are areas between two horizontal lines.
Why are they important?
In a nutshell, they indicate where the price direction may reverse so you can act accordingly.
There are a couple methods to draw the Support & Resistance Level and Supply & Demand Zone, In most case, people will use swing high or low, or pivot points as the level. But there are too many of them, and not all pivot points will become Support & Resistance Level.
Some of the support or resistance level is hard to break, but after the price break through that level, resistance will become support and vice versa, I define it as Critical Level.
If you draw a critical support or resistance level from the current bar and move backward to where it started, you will notice that some levels are formed by the pivot points from hundreds of bars ago. It's impossible to discover the Critical Levels if you don't have enough bars loaded on chart.
The purpose of this indicator is to plot critical support and resistance level automatically on chart.
It will work on all market, Stock, Forex and Futures. It also works on all timeframes.
Inputs:
- The Strength inputs control the intensity of Support & Resistance Level.
- The Alert input is the switch of alert function.
- By enable Enhanced mode, the indicator will be more critical.
- Check Showline input to plot level lines on chart, otherwise, it will plot zones only.
You are able to turn on/off the Supply & Demand Zone plot.
If the Alert is enabled, it will give alert in the following conditions:
- When close price Cross above upper zone
- When close price Cross below upper zone
- When close price Cross above lower zone
- When close price Cross below lower zone
The following two charts show the difference between Enhanced mode 'ON' and 'OFF'.
The following chart is an example of showing both Support & Resistance Level and Supply & Demand Zone.
The following chart is an example of showing Support & Resistance Level only.
In some situations, to achieve a better result, different Strength values should be used for upper and lower levels, for example, in the chart blow, Strength 8 is used the upper level and 5 is used for the lower.
The following chart is an example of using two Critical Level indicators with different Strength inputs, one indicator is to show Support & Resistance Level only, and the another one shows Supply & Demand Zone only.
After the price broke through the Support level and demand zone from lower strength (input 5, the two horizontal lines, shown in light orange color) it became resistance level and supply zone. On the other hand, the Support level and demand zone from higher strength (input 15, the color zone at the bottom) hold steady.
After the breakthrough, resistance will become support and supply zone will become demand zone.
It's a very common phenomenon, just like the chart shown in below.
The chart below is an example of how Critical Level indicator performs in a relatively long period of time.
Sometimes, price may cross over a support level or demand zone couple times until the next level is formed. The following image is a case where price cross above the support level and demand zone the second time, the three subsequent failed breakthrough attempts proved the support level and demand zone became stronger than before.
A critical level is harder to break than a normal support & resistance level.
A good example of support level which was built hundreds of bars ago.
How price reacts to different combinations of critical level.
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