Supply & Demand Zones

Supply and demand zones are areas on the chart where institutional orders created sharp price moves. They're more powerful than traditional support/resistance.

Supply vs Demand

Demand Zone (Bullish)

• A base or consolidation area before a strong rally
• Represents unfilled buy orders
• Price tends to bounce when it returns

Supply Zone (Bearish)

• A base or consolidation area before a strong drop
• Represents unfilled sell orders
• Price tends to reject when it returns

How to Draw Zones

Demand Zone

1. Find a sharp, impulsive move upward
2. Identify the last consolidation or base before the move
3. Draw a zone from the low of the base to the open of the first impulse candle

Supply Zone

1. Find a sharp, impulsive move downward
2. Identify the last consolidation or base before the move
3. Draw a zone from the high of the base to the open of the first impulse candle

Quality Filters

Not all zones are tradeable. Grade them:

Strong Zones

• Strong imbalance (long-bodied candles leaving the zone)
• Break of structure following the move
• Zone is fresh (untested)
• Formed on higher timeframe (4H, Daily)

Weak Zones

• Small, choppy move away
• No break of structure
• Already tested 2+ times (each touch weakens the zone)
• Formed on very low timeframes with no HTF alignment

Fresh vs Tested

• Fresh zone: Price hasn't returned since the zone formed. Highest probability.
• Tested zone (first touch): Moderate probability. Watch for strong reaction.
• Multiple tests: Zone is weakening. Unfilled orders are being consumed.

Trading the Zones

1. Identify a fresh zone on 4H or Daily
2. Wait for price to pull back into the zone
3. Drop to 15m/5m for a precision entry
4. Look for: rejection wick, engulfing candle, or BOS
5. Stop loss: Just below demand / just above supply
6. Target: The opposing zone or next liquidity level

Supply & Demand vs Support & Resistance

| S&D Zones | S&R Levels | |-----------|------------| | An area (range) | A single line | | Based on institutional order flow | Based on historical price pivots | | Fresh zones have unfilled orders | Levels can be arbitrary | | Gets weaker with each test | Often "strengthens" with tests |

Key Takeaway

Supply and demand zones give you a window into institutional positioning. Trade fresh zones with confirmation and you'll find yourself on the right side of moves consistently.