Proximal and Distal Line Plotting For Supply and Demand Zones

16 ก.พ. 2023

Proximal and Distal lines are important components of any Supply and Demand zone. One needs to plot two horizontal lines to mark Supply and Demand Zones. To know How to draw these lines, you need to understand Supply and Demand Zone formations.

Proximity means nearest to the current price, while distal means farthest from the current price.

What is the need to draw Proximal and Distal lines on a zone?
As a Supply and Demand trader, one needs to know which price point to enter and where to exit.

The proximal line is used to define the entry point into a trade, and the Distal line defines the Stopping Point. We place our stop losses slightly beyond the distal lines of the zones.



Have a look at the above image

Supply zones are located above the current market price and Demand zones are located below the current market price.

In the illustration above, CMP is Rs.1668.3
The green-shaded zone below CMP is the Demand zone. It has two horizontal lines one at Rs.1607.65 which is nearer to the current price, and it forms the proximal line, whereas the other horizontal line is at Rs.1588.75 which is far away as compared to Rs.1607.65, so it constitutes the distal line of the demand zone

The pink-shaded zone above CMP is the Supply zone. It has two horizontal lines one at Rs.1688 which is nearer to the current price, and it forms the proximal line, whereas the other horizontal line is at Rs.1702.4 which is far away as compared to Rs.1688, so it constitutes the distal line of Supply zone.

How to Draw Proximal and Distal Lines for a Demand Zone

A Demand zone is a designated area on a chart where Demand exceeds Supply, and there is a high likelihood of having pending Institutional Buy Orders. We look to enter long trades when the price retraces back to the demand zone, in doing so we also participate along with the Institutions which increases the probability of the trade working in our favour. So it's important to correctly identify the Proximal line and Distal line of a Demand Zone. Let u see how to mark the Proximal and Distal line of a Demand Zone

Proximal Line Marking For A Demand Zone

Irrespective of whether it’s a DBR or RBR Demand zone, the proximal line marking method remains the same. There are multiple ways to mark proximal lines, I will discuss the one that I follow and is widely used. While marking the proximal line we look at only the Base Candles, Proximal line is plotted at the Highest Wick of the base candles.



Distal Line Marking For A Demand Zone

There is a slight variation while marking distal lines, depending upon whether it’s a DBR or RBR Demand Zone

Distal Line For DBR Demand Zone

We need to consider all three components, Leg In, Base Candles & Leg Out. The distal line is plotted at the lowest point of the entire formation.



Distal Line For RBR Demand Zone

We need to ignore the Leg In and focus only on the Base candles and the Leg Out. The distal line is plotted at the lowest point of either the Base candles or the Leg Out, whichever is lower.



How to Draw Proximal and Distal Lines for a Supply Zone

A Supply zone is a designated area on a chart where Supply exceeds Demand, and there is a high likelihood of having pending Institutional Sell Orders. We look to enter Short trades when the price retraces back to the supply zone, in doing so we also participate along with the Institutions which increases the probability of the trade working on our favour. So it's important to correctly identify the Proximal line and Distal line of a Supply Zone. Let u see how to mark the Proximal and Distal lines of a Supply Zone

Proximal Line Marking For A Supply Zone

Irrespective of whether it’s an RBD or DBD Supply zone, the proximal line marking method remains the same. There are multiple ways to mark proximal lines, I will discuss the one that I follow and is widely used. While marking the proximal line we look at only the Base Candles, Proximal line is plotted at the Lowest Wick of the base candles.



Distal Line Marking For A Supply Zone

There is a slight variation while marking distal lines, depending upon whether it’s an RBD or DBD Supply Zone

Distal Line For RBD Supply Zone

We need to consider all three components, Leg In, Base Candles & Leg Out. Distal line is plotted at the highest point of the entire formation.



Distal Line For DBD Supply Zone

We need to ignore the Leg In, focus only on the Base candles and the Leg Out. Distal line is plotted at the Highest point of either the Base candles or the Leg Out, whichever is Higher.



Conclusion

In conclusion, the Proximal and Distal lines are critical components of the Supply and Demand Trading Strategy. Knowing how to properly place them is essential for the correct identification of zones. Supply and Demand Zone formations when combined with other factors like Trend, Location, and Quality attributes of the zone form a very sound rule-based Price Action Trading Strategy.