Strategies School / Price Action
Supply and Demand Zones
Intermediate ยท 8 min read
Find the base before an explosive move and trade the return to that zone.
What it is
A demand zone is a small consolidation (a base) that price left with a strong, fast move up. Unfilled buy orders may remain, so price often reacts when it returns. A supply zone is the opposite.
Zones are stronger when the move away is explosive, the zone has not been revisited, and it sits at a higher timeframe level.
Each revisit weakens a zone, so the first return is the best.
How to spot it
- Find a strong impulsive move away from a tight base of a few candles.
- Draw the zone from the base high to the base low.
- Extend the zone to the right and wait for the first return.
- Skip zones that have been tested several times.
Trade plan
- Entry: On the first return to the zone, with a reaction candle or a CHoCH on a lower timeframe.
- Stop loss: Just beyond the zone.
- Target: The next opposing zone or at least 2R.
Common mistakes
- Wrong: Drawing zones around every consolidation. Right: Only those with an explosive departure.
- Wrong: Trading zones that were already tested several times. Right: First return only.
Pro tip: Zones aligned with the higher timeframe trend and with a break of structure are the most dependable.
Quiz
- A demand zone is usually: Answer: A base before a strong move up. It is the tight base that price left explosively.
- Which return is best? Answer: The first return. Each test weakens the zone.
- A good zone has: Answer: An explosive departure. A strong move away shows interest.
Educational content, not financial advice. Diagrams are illustrations, not real market data.