What Are Supply and Demand Zones?

• A supply zone is a price area where selling pressure overwhelms buying pressure, pushing prices lower.
• A demand zone is a price area where buying pressure overwhelms selling pressure, pushing prices higher.

• Support and resistance are the doorways.
• Supply and demand zones are the rooms full of buyers and sellers.

Supply Zones: Where Sellers Hide

Supply zones often form after sharp rallies where price suddenly reverses. Why? Because institutions use these rallies to offload positions at high prices. When price revisits this area, selling tends to reappear. Signs of supply zones:

• Strong bearish candles after a rally
• Wide price rejection wicks at the top
• High volume spikes showing distribution

Demand Zones: Where Buyers Wait

Demand zones form after sharp declines where price suddenly bounces. Institutions step in and absorb supply, creating a floor. When price revisits this area, buyers re-enter. Signs of demand zones:

• Strong bullish candles after a drop
• Long lower wicks showing rejection of lower prices
• Volume footprints showing accumulation

Supply and Demand vs. Support and Resistance

While support/resistance is often drawn as flat lines, supply and demand are dynamic areas.

• Support/resistance are usually retail trader levels.
• Supply/demand zones represent institutional activity.

Common Mistakes Traders Make

1. Drawing too many zones – Not every bounce or rejection is valid. Focus on sharp, clean moves backed by volume.
2. Ignoring timeframe alignment – A demand zone on a daily chart is more powerful than one on a 5-minute chart.
3. Trading zones blindly – Wait for confirmation (candlestick rejection, volume support) before acting.
4. Forgetting fresh vs. tested zones – Fresh zones are stronger. The more times price revisits, the weaker they become.

How to Use Supply and Demand Zones in Trading

1. Identify the trend – Zones are more reliable in the direction of the primary trend.
2. Mark fresh zones – Look for areas where price left quickly with strong candles.
3. Wait for price return – The best trades happen when price revisits a zone after being away.
4. Combine with volume – Zone + volume confirmation gives the highest probability setups.
5. Set stops wisely – Place stops slightly beyond the zone to avoid being shaken out.

• In an uptrend, wait for price to pull back into a demand zone before buying.
• In a downtrend, wait for price to revisit a supply zone before shorting.

The Psychology Behind Zones

Supply and demand zones are not random—they reflect the unfinished business of institutions.

• A demand zone shows where institutions aggressively bought and may still want more.
• A supply zone shows where they unloaded and may still have leftover inventory to sell.

Conclusion

Supply and demand zones are the real heartbeat of price action.

• They reveal where institutional buying and selling truly happened.
• They are more reliable than simple support and resistance.
• They provide clear, repeatable trading opportunities when combined with confirmation.