Lesson 3 of 7 · 8 min
Supply and demand zones
Mark a demand or supply zone from the small base before a fast move, compare it with support and resistance, and plan a trade with the stop beyond the zone.
By the end you'll be able to
- Mark a demand or supply zone from the base before a strong move, with a written rule for its edges
- Compare supply and demand zones with ordinary support and resistance
- Plan a trade from a zone, with the stop beyond it and the size from your risk
Free course
Enrol in “Market Structure: Swings, Zones and Liquidity” to start this lesson
Enrolling is free. Your progress, quiz scores and certificate are kept in your account, on every device.
- 7 short lessons with quizzes and interactive tools
- Lesson videos for members
- A certificate when you finish
Price falls for four hours, pauses for two small candles, then rallies 54 pips in three. When it comes back down, those two small candles are where a supply-and-demand trader looks first.
Drop, base, rally
Illustrative EUR/USD H1: a demand zone marked from the base, then the first return.
A demand zone is the price area where a fall paused briefly and then reversed sharply upwards. A supply zone is the mirror image: a short pause before a sharp fall. The idea behind both is that price left so quickly that orders may have been left unfilled there, so price may react when it returns. That is a hypothesis about order flow you cannot see, so judge zones by what you can measure.
Marking rule used in this course:
- Base: the one to three small candles just before the strong move.
- Edges: the lowest low and highest high of the base. Some traders use bodies only, which gives a narrower zone. Choose one.
- Strong move: the departure covers at least three times the base’s height within three candles.
- Fresh: price has not returned since. A common convention is to trade only the first return. Whether first returns really hold more often is something to test.
Zones and support or resistance
Support and resistance come from several turning points at a similar price. A zone comes from one sharp departure. They often overlap: the base of a rally is frequently the last swing low as well, and a zone that also lines up with an old level gives you confluence. Read more in the support and resistance lesson.
Try it
Price is falling back towards the base of the earlier rally. Tap where the demand zone is.
Tap on the chart where you would draw the level.
Anywhere inside the base counts. The rest of the chart shows one return; it is not a forecast for the next one.
Look for the small candles just before the fastest move up, not the lowest point on the screen, and mark the zone from their wicks.
Quick check
Quick check
Question 1 of 4
Which area is a demand zone under this course's rule?
Question 2 of 4
How do supply and demand zones differ from support and resistance?
Question 3 of 4
Zone 1.2650 to 1.2664 on GBP/USD. You buy at 1.2664 with the stop 5 pips below the zone. How many pips are at risk?
Question 4 of 4
Price closes 20 pips below your demand zone. What does the rule say?
Go deeper: Supply and Demand Zones: How to Draw Them Consistently · Support and Resistance in Forex: Find and Trade Key Levels · Where to Place a Stop Loss: A Practical Guide · Price Action Trading: Reading the Market Without Indicators