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Supply and demand zones are not a recent concept in trading, but have their roots in the classical economic principles of supply and demand, which were theorised as early as the 18th century. However, the practical application of these concepts in financial markets only took on a more structured dimension with the advent of technical trading in the 20th century, when price charts and volume analysis began to reveal areas of strong buying or selling pressure.
These areas represent crucial points on the chart, where the concentration of orders from institutional investors creates imbalances between supply and demand, generating potential price reversals or accelerations. Historically, traders and analysts have tried to identify these levels by observing impulsive movements and previous areas of consolidation, but identification often remained subjective, relying on the experience of the individual trader.
Today, with more structured methodologies and rules based on the observation of price blocks that anticipate strong movements, it is possible to reduce discretion in defining zones. This approach not only improves consistency in analysis, but also allows strategies to be backtested effectively, assessing their historical validity and optimising them, both manually and with automated tools.
In this article, we will explore how to identify supply and demand zones in a clear and replicable manner, focusing on the price blocks that define their structure. Understanding these historical and structural levels gives traders a concrete advantage, transforming chart analysis from a subjective art into a methodical and strategic process.
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