MTF Supply & Demand Zones: Zones Configuration
There are 5 settings to configure that will affect how the MTF Supply & Demand Zones are detected. Below we’ve outlined how each setting and feature works.
Settings
Detection Method
There are two detection methods you can choose from for identifying Supply & Demand Zones. Both methods aim to identify key areas where price is likely to react, but they do so using different approaches. Traders can choose the method that aligns with their trading style and time horizon.
Momentum Method:
The Momentum Detection Method identifies supply and demand zones by analyzing the strength and direction of price movements over a specified period. It looks for a sequence of strong bullish or bearish candles to determine potential zones. The method is sensitive to the ‘Sensitivity’ setting, which adjusts the threshold for what constitutes a "strong" candle.
Using the momentum method is ideal for traders looking to capitalize on immediate price reactions and momentum shifts.
Regression Method:
The Regression Method uses statistical regression to identify supply and demand zones by analyzing price consolidation patterns. It fits a regression line to price data and identifies zones where price deviates significantly from the trend. This method is more mathematical and less reliant on individual candle patterns. It focuses on the overall price structure and identifies zones based on statistical deviations from the trend.
This method is particularly useful for traders who focus on longer-term price trends and prefer a more statistical approach to pinpoint zones.
Sensitivity
The Sensitivity setting allows traders to adjust how aggressively the script identifies supply and demand zones when using the Momentum Detection Method. This setting directly impacts the threshold for detecting zones when using the momentum detection method.
High Sensitivity: Detects smaller price movements, resulting in more zones being identified. This is ideal for traders who want to capture even minor supply and demand imbalances and prefer a higher frequency of potential trading opportunities.
Medium Sensitivity: Balances between detecting significant price movements and avoiding excessive noise. This setting is suitable for most traders who want a moderate number of zones without being overwhelmed.
Low Sensitivity: Focuses on larger, more significant price movements, resulting in fewer zones being identified. This is ideal for traders who prioritize quality over quantity and prefer to focus on the most impactful supply and demand areas.
Lowest Sensitivity: Detects only the strongest and most pronounced price movements, identifying the most significant zones. This setting is best for traders who want to focus on high-probability, high-impact zones and avoid minor fluctuations.
Zone Invalidation
The Zone Invalidation setting determines how supply and demand zones are invalidated.
Wick: A zone is invalidated if a candle’s wick goes below a demand zone or above a supply zone.
Close: A zone is invalidated if a candle closes below a demand zone or above a supply zone.
Zone Visibility Range
The Zone Visibility Range setting controls how far from the current price supply and demand zones are displayed on the chart. It helps traders focus on relevant zones while avoiding clutter from distant or less impactful areas.
Low Values: Reduces the range, displaying only zones closer to the current price. This is ideal for traders who prefer to focus on immediate trading opportunities and avoid distractions from distant zones.
High Values: Increases the range, showing more zones farther away from the current price. This is useful for traders who want to see potential future zones or plan trades in advance.
Minimum Zone Width
The Minimum Zone Width setting defines the smallest size a supply or demand zone must have to be displayed on the chart. It uses the Average True Range (ATR) as a reference to ensure zones are proportionate to current market volatility.
Low Value: Allows smaller zones to be displayed, capturing more potential trading opportunities. This is useful for traders who want to identify even minor supply and demand imbalances.
High Value: Filters out smaller zones, showing only larger, more significant areas of supply or demand. This is ideal for traders who want to focus on high-impact zones and avoid minor fluctuations.
Minimum Zone Length
The Minimum Zone Length setting determines the minimum number of bars a supply or demand zone must span to be displayed on the chart. This setting helps filter out short-lived or insignificant zones, ensuring only meaningful areas of supply or demand are highlighted.
Low Value: Allows shorter zones to be displayed, capturing more potential trading opportunities, including those that may form quickly. This is useful for traders who want to identify even minor or temporary imbalances.
High Value: Requires zones to span more bars, showing only larger and more sustained areas of supply or demand. This is ideal for traders who want to focus on high-quality, longer-lasting zones.
Combine Zones
The Combine Zones setting merges overlapping or nearby supply and demand zones. By enabling this setting, traders can reduce clutter on the chart.
Historical Zones
The Historical Zones setting displays supply and demand zones that have been invalidated.