A demand zone is the last bearish candle (or consecutive bearish candles) before a sharp move up that breaks structure. A supply zone is the last bullish candle (or consecutive bullish candles) before a sharp move down that breaks structure.
These zones mark where buyers or sellers stepped in with enough conviction to shift market direction. When price returns to these areas, there's a high probability they'll react again.
Supply and demand zones are essentially the same thing as order blocks. If you know one, you know the other.
Every chart moves through a repeating sequence. In an uptrend: higher highs and higher lows. In a downtrend: lower highs and lower lows. At the base of each impulse leg in an uptrend sits a demand zone. At the top of each impulse leg in a downtrend sits a supply zone.
A break of structure (BOS) happens when the body of a candle closes beyond a previous swing high or low — confirming that control has shifted. This is what validates a zone. No BOS, no valid zone.
Not every candle before a sharp move is worth trading. A high-probability zone must meet all four criteria:
A zone missing any of these is considered lower probability.
Always work top-down. Mark your zones on the higher time frame first, then drop to the corresponding time frame for entry confirmation only.
Market Structure Shift — On the confirmation time frame, wait for a candle body to close beyond a recent swing in your trade direction. Then look to enter on the retest into the fair value gap or supply/demand area that caused the shift. This is the most reliable entry method.
Engulfing Candle — A bullish engulfing at demand or bearish engulfing at supply is also valid. It's a riskier entry than a market structure shift, but acceptable when zone quality is high.
Order Flow (Optional) — If using footprint charts or bookmap, these zones are your key points of interest. Look for delta shifts and absorption at the zone for confirmation.
Entry: Limit order at the supply or demand zone, or at the lower time frame area that caused the market structure shift.
Stop Loss: Above the supply zone for shorts, below the demand zone for longs. Place it beyond the lower time frame level that triggered your entry.
Take Profit: Target the next high-probability zone on the same time frame. Trade from supply to demand, then demand to supply — playing ping-pong between validated zones.
A supply zone is the last bullish candle (or consecutive bullish candles) before a sharp move down that breaks structure. A demand zone is the last bearish candle before a sharp move up that breaks structure. These zones represent where institutions stepped in with enough conviction to shift price direction.
A high-probability zone must meet four criteria: a liquidity sweep of the previous candle's high or low, a fair value gap (price imbalance) before the zone candle, a break of structure confirmed by a candle body closing beyond a previous swing, and inducement — a buildup of obvious wicks or a small swing just before price taps the zone.
Use top-down analysis. Mark zones on the higher time frame, then drop to the corresponding lower time frame for entry confirmation: 15-minute zones use 1-minute confirmation, 1-hour zones use 5-minute confirmation, and 4-hour zones use 15-minute confirmation.
A fair value gap (FVG) is a three-candle price imbalance where the wicks of the first and third candles don't overlap, leaving a void in price. It signals that the move was so aggressive the market couldn't trade efficiently through that area. FVGs are used to validate zones and as lower time frame entry points.
They are essentially the same concept. Both refer to the last candle (or candles) before a strong impulsive move that breaks structure. The terms are used interchangeably across most trading communities.
