Engulfing Detector (Supply and Demand)

The Engulfing Detector (Supply and Demand) indicator identifies bullish and bearish engulfing candlestick patterns and projects horizontal levels to highlight potential supply and demand zones. This tool helps traders visualize market imbalances and track whether these zones remain fresh or have been tested by price action.

Usage

The Engulfing Detector is primarily used to identify areas of institutional interest. When an engulfing pattern occurs, the script draws horizontal lines based on the range of the engulfed candle.

• Supply Zones: Formed by bearish engulfing patterns. These are marked with red lines. If price returns to this level and breaches the opening price of the engulfed candle, the zone is considered "tested" and turns grey.
• Demand Zones: Formed by bullish engulfing patterns. These are marked with green lines. If price retraces into the zone and breaches the opening price of the engulfed candle, the lines turn grey to indicate mitigation.
• Zone Invalidation: If price completely exceeds the extreme high (for supply) or extreme low (for demand) of the engulfing formation, the lines are removed from the chart as the zone is considered violated.

Details

The script monitors price action for specific candlestick relationships. A bullish engulfing is identified when the current candle closes above the open of the previous bearish candle. A bearish engulfing is identified when the current candle closes below the open of the previous bullish candle.

Once a pattern is detected, the indicator anchors lines to the previous candle's open and the swing high/low of the formation. These lines are extended to the right until they are either mitigated (changing color to grey) or fully breached (being deleted). The script includes a management system to limit the number of active lines, ensuring chart clarity and performance efficiency.

Settings

• Max Engulfings: Controls the maximum number of historical engulfing zones displayed on the chart simultaneously.
• Bullish Color: Sets the color for fresh demand zones (default is green).
• Bearish Color: Sets the color for fresh supply zones (default is red).
• Mitigated Color: Sets the color for zones that have been tested/touched by price action (default is grey).

FAQ

How do I use the Engulfing Detector (Supply and Demand)?

The indicator highlights potential reversal or continuation areas. Look for price to react at the projected green (demand) or red (supply) lines.

What does it mean when the lines turn grey?

Grey lines indicate that the price has returned to the zone and "tested" the initial engulfing level. This suggests that some of the liquidity in that area may have been filled.

How can I access Engulfing Detector (Supply and Demand)?

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