Trading zone in technical analysis is the extended concept from the horizontal support and resistance. The zone is the great tool to decide your trading entry and exit as well as managing your risk and reward. Especially, when the zone is drawn around the significant peak and trough, the value for the trading zone is precious. When you use Harmonic Pattern or X3 Chart Pattern, the trading zone can be identified using the Pattern Completion Interval. The detailed process is well described in the Book: Guide to Precision Harmonic Pattern Trading (2016). When you use the supply demand analysis, the zone is identified from the base location. Especially, it is even better if the trading zone is non repainting. The non repainting zone become the powerful tool to decide the entry and exit for your trading because they stay in the location always as the reference.
The trading zone is useful if your trading strategy is based on predicting the market direction. In such a case, the trading zone can provide a sensible place for stop loss. Then you can scale up your take profit target according to your anticipated location. Even if your trading strategy is not based on predicting market direction, the trading zone is still useful. For example, let’s say that you never want to predict the market, but you want to react the market so that you will trade in the direction in which the price is pushed by crowd like support and resistance style. In this case, the trading zone acts like the horizontal support resistance. But the managing your reward and risk is much easier than other mean of support and resistance.
I used the word minimum stop loss instead of the stop loss because sometimes, you might need to make your stop loss slightly bigger than the actual zone. The margin for the stop loss will be depending on your reward to risk ratio. How this reward to risk system works is well described in the latest book: Technical Analysis in Forex and Stock Market (2021).
For your information, we also provide the MetaTrader 4 and MetaTrader 5 indicators that provide the non repainting trading zone. You can have a look at these automated scanner, which you can trade with the direction prediction strategy as well as the react to market strategy.
Here is the link to Ace Supply Demand Zone Indicator for MetaTrader 4/MetaTrader 5.