Supply and demand zones: finding the footprints of big orders
Supply and demand zones are areas price left with force, likely leaving unfilled orders behind. Learn to find and grade these zones.
Contents
Support and resistance is a line; a supply or demand zone is an area, and it explains why it exists: large orders that have not been fully filled.
The logic behind zones
Banks and funds cannot fill huge orders at one price. Part of the order executes, price moves sharply, and the rest is left. When price returns to that area, the remaining orders become active again.
How zones form
A zone is made of a base (a few small, tight candles) and a strong move away from it:
| Pattern | Type |
|---|---|
| Rally-base-rally (RBR) | Continuation demand |
| Drop-base-rally (DBR) | Reversal demand |
| Drop-base-drop (DBD) | Continuation supply |
| Rally-base-drop (RBD) | Reversal supply |
Drawing the zone
Draw around the base: for demand, from the lowest wick of the base to the top of the bodies; for supply, the reverse.
What makes a good zone?
- A strong departure: long, fast candles after the base.
- A short base: the fewer base candles, the better.
- Freshness: an untested zone is stronger; each test uses up some of the orders.
- Trend alignment: demand in uptrends, supply in downtrends.
- Good risk-reward: the distance to the next resistance or supply should be at least twice the stop.
Entry and stop
- Entry: at the zone's edge with a limit order, or after a confirming candle inside the zone.
- Stop: a few pips beyond the zone.
- Target: the next opposing zone or the 161.8% Fibonacci level.
The link to order blocks
In smart money terms, the last opposite candle before a strong move is called an order block; in practice it is a more precisely defined supply or demand zone.
The strongest setups form when a fresh demand zone overlaps the 50% to 61.8% Fibonacci area.
📘 This article summarises ideas from our book "Fibonacci Chart Strategy", with 22 chapters and 137 real before-and-after examples. To get the book, message us on Telegram @fibonacci_chart.
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Trading financial markets involves risk. This article is educational and is not investment advice.
Forex and CFD trading carries a high level of risk due to leverage and you may lose more than your initial capital. Content on this site is educational and not investment advice.
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