Lesson 8 of 20 · 10 min
Supply and Demand
Step 1
What it is
A demand zone is a small base that price left quickly upward. A supply zone is the same thing downward. The idea is that unfilled orders may remain there.
Nobody outside those firms can see those orders, so treat this as a theory about the chart. It is very close to an order block, with a slightly wider zone.
Traders use it to plan around the place where a strong move began, rather than wherever price happens to be.
Step 2
See it on a chart
A small base, a strong move away and a first return.
Illustrative chart with made-up prices and tick volume, built for teaching. It is not real market data and not a trade idea.
Step 3
The exact rules
What must be true before entry
- A small base of a few candles.
- A strong move away, on higher volume.
- A first return to the zone.
What volume should show
Where to enter
Where the hard stop goes
Where the target goes
What invalidates the idea
- A close through the zone.
- Price has already returned to it before.
When not to take it
- The move away was slow.
- The zone is too wide for 3:1.
- Major news is due soon, or you would be trading outside your planned hours.
- You have just taken a loss and feel the need to win it back.
Step 4
Your turn: plan the trade
Price has returned up to a small base that it left quickly downward. Mark your plan.
This setup is a short. Look at the candles and the volume. Choose a line below, then tap the chart to place it. You can also drag its label or type a price.
Illustrative chart with made-up prices and tick volume, built for teaching. It is not real market data and not a trade idea.
Step 5
The trap: drawing zones everywhere
If you mark every base as a zone, one will always look right afterwards. That feels like skill, but it is hindsight. Mark zones before price returns, and only count those.
Read why journaling mattersStep 6