Supply & Demand Zones (Volume-Based)

The Supply & Demand Zones (Volume-Based) indicator is a visual analysis tool designed to highlight historical price areas where significant market activity has occurred, helping traders observe potential support and resistance zones.

Usage

The Usage section describes how the script can be used to identify key market structures. This tool is primarily used as a contextual overlay for identifying areas of interest:

• Demand Zones: These are highlighted when price shows a strong bullish reaction following a bearish candle. They appear as green boxes on the chart and indicate areas where buyers have historically stepped in.
• Supply Zones: These are highlighted when price shows a strong bearish reaction following a bullish candle. They appear as red boxes and indicate areas where sellers have previously dominated.
• Volume Context: Each zone displays a percentage label representing the normalized relative volume strength at the time of formation. Higher percentages (and more opaque colors) indicate zones formed during periods of higher relative volume.
• Zone Invalidation: The indicator automatically removes boxes once price structurally breaks through them (e.g., price closes below a demand zone or above a supply zone), ensuring the chart remains clean and relevant to current market conditions.

Details

The indicator identifies zones by comparing the current candle's body size and price action against the previous candle. A zone is marked when a "reversal" structure is detected, such as an engulfing pattern or a significant expansion in the opposite direction.

The relative volume calculation uses a 20-period Simple Moving Average (SMA) to determine if the volume during zone formation was "High," "Medium," or "Low" relative to recent activity. This categorization determines the visual intensity (opacity) of the zone on the chart.

Settings

The settings are divided into core logic and volume threshold parameters:

• Max Zones: Determines the maximum number of active supply and demand zones displayed on the chart simultaneously.
• Regular Trading Session: Defines the session time used to filter high-volume activity, ensuring volume strength calculations are relevant to active trading hours.
• High Volume Threshold: Sets the multiplier for relative volume to classify a zone as high activity (default is 1.5x average volume).
• Medium Volume Threshold: Sets the multiplier for relative volume to classify a zone as medium activity (default is 1.1x average volume).

FAQ

How do I interpret the percentage on the zones?

The percentage represents normalized relative volume strength at the time the zone was created. It is not a win rate or a probability of the zone holding; it simply provides context on the amount of market activity present when the zone formed.

Why do some zones disappear?

Zones are invalidated and removed from the chart once the price moves through them. This ensures that only currently relevant areas of supply and demand are visible for your analysis.

How can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.