Supply and Demand Patterns

Two Types of Supply and Demand Patterns

There are two types of supply and demand patterns: Reversal and Continuation Patterns.

In this chapter, you will learn how to identify and draw supply and demand zones properly using the proximal and distal lines.

Reversal & Continuation Patterns

Reversal Patterns

These reversal patterns are chart patterns that are formed at the extreme of the curve: at reversal points where the trend changes direction. Normally, they are reactions to previous supply and demand levels: peaks and troughs or continuation patterns.

These reversal patterns are strong and price tends to respect them.

We have two structures:

Drop-Base-Rally: in this structure, price moves down, creates a base, and then rallies to the upside.

Rally-Base-Drop: in this structure, price moves up, creates a base, and then drops to the downside.

Continuation Patterns

These continuation patterns (CPs) are found inside the trend. The best continuation patterns to trade are those formed at the beginning of a reversal.

These continuation patterns are:

Drop-Base-Drop: price drops down, pauses for a moment creating a base, and then continues moving down.

Rally-Base-Rally: price rallies, pauses for a moment creating a base, and then continues moving up.