Supply and demand zones are areas on a price chart where price changes its movement due to the activity of buyers and sellers.
The demand zone is the area where the price stops after falling and starts to rise. There are many buyers here who are ready to buy the asset, which causes the growth.
The supply zone is the area where the price stops after rising and starts falling. Here are the sellers who start selling actively, which pushes the price down.
These zones work because big players cannot fill their big orders right away, so the price often returns to these zones so they can complete their trades.
How to find supply and demand zones?
1. Order Block Method
This method is based on the fact that large players leave “traces” on the chart in the form of large orders.
How to search:
Find the last candle of the opposite color before a strong price move.
For example, before a sharp rise, look for a bearish candle (red).
Note this candle and its range - this is the area where the big players started to open their positions.
Why it works:
Large participants cannot execute the entire volume of trades at once, so when the price returns to this zone, it often bounces back again.
2. FVG (Fair Value Gap) method
FVG is the gap between prices that occurs due to a sharp market movement.
How to search:
Find a candle that leaves a gap between the previous and next candle (opening and closing prices do not intersect).
This gap is a potential area of supply or demand because the market has not had time to balance there.
How to trade:
The price often returns to the FVG zone to “close the gap”, after which it continues moving in the same direction.
3. Wyckoff Method (Accumulation and Distribution)
The method studies how large players accumulate or distribute positions.
Accumulation:
This is a period when the price moves in a narrow range before a sharp rise.
This is a demand zone where large buyers are gaining ground.
Distribution:
This is the period when the price moves in a narrow range before falling.
This is the supply zone where large sellers close their positions.
How to use:
If you see a sideways market, look for a breakout of the level:
Up is a confirmation of the demand zone.
Down is a confirmation of the supply zone.
4. Market Profile Analysis
Market profile helps you understand where the price has been trading most often by showing the balance of supply and demand.
Key points:
The Value Area shows where market participants agree on current prices.
Areas where price has traded little indicate imbalance.
How to use:
If the price returns to the zone of high activity, this is a signal for a possible reversal.
If it leaves the zone, it means that a new zone of demand or supply has formed.
5. Footprint analysis
Footprint charts show the volume of trades at each price within the candle.
What to look for:
- Find levels with large trading volumes - these may be areas where large players actively entered the market.
Why this is useful:
Large volumes often coincide with areas of supply or demand as this is where significant trading occurs.
6. Non-standard charts (Renko, tick charts)
These charts simplify analysis by removing unnecessary market noise.
Renko charts:
They are built on the basis of price changes, not time.
They help to see more clearly the levels where the price turned around.
Tick charts:
Shows price movement based on the number of transactions.
Helps to find areas of activity of major participants.
7. Liquidity analysis
Liquidity is the areas where market participants' stop orders are concentrated.
How to search:
Find areas where price has reversed sharply or "taken out stops".
Such levels often coincide with supply and demand zones.
How to use:
When price reaches such zones, it may reverse again as large players gather liquidity for their orders.
How to mark supply and demand zones?
1. Find the zone:
Look for strong price reversals in the past.
Check if there is high activity (volume) in this area.
2. Mark the range:
Use rectangles to highlight a range of areas.
The upper limit is the candle's maximum (for supply) or minimum (for demand).
The lower boundary is the body of the candle or the nearest important price.
How to trade using supply and demand zones?
1. Wait for the price to return to the zone:
Take your time, wait until the price approaches the demand or supply zone.
2. Look for confirmation:
Confirmation may be:
Candlestick pattern (pin bar, engulfing).
Increase in volume.
Divergence of indicators.
3. Entering a trade:
Buy in the demand zone (if the price starts to rise).
Sell in the supply zone (if the price starts to fall).
4. Stop loss:
Place outside the zone. For example, slightly below the demand zone or slightly above the supply zone.
5. Take profit:
Target levels: the nearest resistance (for purchases) or support (for sales) levels.
Supply and demand zones are key trading tools. They help you understand where the big players are making trades and how the market might react in the future. To successfully use these zones, you need to practice, analyze charts, and combine them with other analysis methods.
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