For example,
Round numbers: Most traders tend to buy/sell at round numbers like 1.2500 instead of 1.2576. That’s why massive buying or selling occurs at the round numbers, which will make them support or resistance levels from where the price will bounce.
Fibonacci numbers: Like round numbers, it's a natural factor that most traders tend to buy/sell from the Fibonacci golden numbers like 1.618 Fibonacci level. It is a natural number. That’s why prices will also mostly bounce from these key levels, as many orders are being triggered at these levels.
In the same way, many other factors like daily high/low, weekly high/low and swing levels also act as support and resistance levels.
We can identify the supply and demand zones in the form of:
- Rally base rally
- Drop base drop
- Drop base rally
- Rally base drop
The second most important factor is that the supply or demand zone becomes invalid after order filing. The price will increase or decrease once the order is filled out. However, the round numbers for support and resistance remain valid always. They are even valid after the breakout. The support becomes resistance after the breakout, and resistance becomes support after the breakout.
In live trading, we can also combine support and resistance with the supply-demand zones because a supply zone that will form at the resistance zone will have a higher winning ratio. In the same way, a demand zone that will form at the support will have a higher winning ratio.
I hope you will come to know the difference between support/resistance and supply/demand zone.