Supply & Demand

Supply & Demand, explained

Supply and demand zones are areas — not single lines — from which price made a strong, imbalanced departure. A demand zone is where aggressive buying drove price up; a supply zone is where aggressive selling drove it down.

The logic is order-flow based: at those zones, large unfilled orders likely remain, so when price returns it often reacts again. This makes them close cousins of order blocks, just drawn as broader regions. The strong departure is the evidence that one side overwhelmed the other there.

Drawing the zone well is the practical skill. A common method is to mark the small base of consolidation right before the explosive move and extend it forward as a rectangle. The base is where the orders accumulated; the explosive leg out of it is the proof that the zone mattered.

Fresh, untested zones are considered stronger than ones price has already revisited, since each return consumes some of the resting orders that gave the zone its power. A demand zone that has held once and is now being tested a third time is, all else equal, weaker than one being tapped for the first time.

On the desk supply and demand is essentially the same read as order blocks, expressed as regions. We look for a clean base, a displaced departure, and ideally a liquidity sweep into the zone on the return — the same confluence that turns an ordinary level into a tradeable one.

Frequently asked questions

What is the difference between supply/demand and support/resistance?

Support and resistance are horizontal lines based on price reacting repeatedly; supply and demand are zones based on the order flow behind a strong, imbalanced departure. Supply/demand emphasises why price moved, drawn as a region rather than a line.

How do I draw a demand zone?

Mark the small base of consolidation immediately before an explosive up-move and extend it forward as a rectangle. That base is where buying orders accumulated; the strong leg out of it confirms the zone is significant.

Related terms

• Support & Resistance

  Price levels where buying or selling has repeatedly stepped in — floors and ceilings on the chart.

  Read

• Order Block

  The last opposing candle before a strong, displaced move — a zone where institutions absorbed flow.

  Read

• Liquidity

  The pools of resting orders price is drawn toward — typically clustered above highs and below lows.

  Read

• Premium & Discount

  Whether price is expensive or cheap relative to the midpoint of a range — buy in discount, sell in premium.

  Read

Put it into practice