Supply and demand zones are areas where price previously moved sharply, revealing where significant buying or selling waits. They're a refined, area-based evolution of support and resistance.
Identifying zones
A demand zone is the base from which price rallied strongly; a supply zone is the base from which it dropped sharply. The sharp departure suggests unfilled orders remain there, so price returning to the zone may react again.
Fresh vs tested zones
A 'fresh' zone (untouched since formation) is generally considered stronger than one price has already revisited several times, since each test consumes some of the resting orders. Quality matters more than quantity — one clean zone beats many marginal ones.
Trading zones with discipline
Wait for price to reach the zone and show a reaction (rejection, structure shift) before entering — don't assume the zone holds. Place stops beyond the zone, where its premise is invalidated. Zones improve where you look; your risk rules still decide how much you risk.
Key takeaways
- Demand/supply zones are the bases of sharp moves where orders may remain.
- Fresh, untested zones are generally stronger than repeatedly-tested ones.
- Wait for a reaction at the zone; stop beyond it; risk rules still apply.