Master institutional-level price zones to trade like the professionals
Supply and demand zones are price areas where institutional traders (banks, hedge funds, big money) place massive orders. These zones act like magnets - price is drawn to them and often bounces or reverses.
↓ Price moves down from supply ↓
↑ Price moves up from demand ↑
Definition: Areas where sellers overpower buyers. Institutions dump large positions, creating strong selling pressure.
What happens: Price rallies up, hits supply, and gets rejected downward as sellers flood the market.
Definition: Areas where buyers overpower sellers. Institutions accumulate large positions, creating strong buying pressure.
What happens: Price falls down, hits demand, and bounces upward as buyers step in aggressively.
Supply and demand zones are NOT the same as support and resistance lines. Zones are areas (ranges of prices), not single levels. They're where big money accumulates or distributes positions over time.
Understanding WHY zones work is critical to trading them successfully. Here's what makes a zone powerful:
When big institutions can't fill all their orders at a price level, they leave "unfilled orders" sitting in the zone. When price returns, these orders activate, creating powerful reversals.
A fresh zone is one that hasn't been tested yet. The first time price touches a fresh zone, the reaction is usually explosive because all those institutional orders are still waiting.
If price left the zone with strong, impulsive movement (big candles, high volume), it means institutions were actively buying/selling. That same energy often repeats when price returns.
Not all zones work. In fact, many fail spectacularly. Here's why zones break down and how to avoid them:
The #1 beginner mistake is trading zones that have already been tested 3-4 times. Each test uses up institutional orders. By the 4th test, there's nothing left - the zone is "exhausted" and price blows through it.
Rule: Fresh zones (0-1 tests) = high probability. Tested zones (3+ tests) = avoid or expect breakouts.
Not all price levels are zones. Follow these rules to find the ones that matter:
Find areas where price made a sharp, explosive move away from a level. This shows institutional activity.
Bullish (Demand): Price was falling → brief consolidation → exploded upward with big green candles
Bearish (Supply): Price was rising → brief consolidation → exploded downward with big red candles
Key: The move should be fast and decisive, not slow and choppy
When the zone was created, volume should spike significantly higher than the average. This confirms institutions were actively trading there.
The zone is the consolidation area right before price exploded, NOT the extreme high/low wicks. Draw a box around the candle bodies where price consolidated briefly before the move.
The strongest zones appear on multiple timeframes. If a zone is visible on both the 1H and 4H charts, it's institutional-grade. Daily chart zones are even stronger.
Here are the professional strategies for trading these zones with high win rates:
The safest approach: Trade from one fresh demand zone to the nearest supply zone, or vice versa.
Buy at demand: Enter at fresh demand zone with confirmation
Sell at supply: Take profit as price approaches the next supply zone above
Reverse at supply: Optionally, enter shorts at supply and ride back down to demand
Why it works: Price tends to swing between zones like a pendulum - this captures the full move
When a demand zone breaks, it often becomes a new supply zone (and vice versa). This is called a "zone flip."
Demand breaks: If price breaks below a demand zone with strong momentum, that zone becomes supply when price returns to it from below
Supply breaks: If price breaks above a supply zone with strong momentum, that zone becomes demand when price pulls back to it
Trade setup: Wait for price to break a zone, then short/long when it retests the flipped zone
Confirmation needed: Look for bearish/bullish rejection at the flipped zone before entering
The highest probability trades occur when a supply/demand zone aligns with other technical factors:
Demand zone at 61.8% Fib retracement = extremely strong support
Zone aligns with 200 EMA = institutional support confirmed
Demand zone at ascending trendline = double confluence
Zone at $100, $150, $200 = psychological levels where big money trades
Never risk more than 1-2% of your account on a single zone trade. Zones can fail, so proper sizing is critical.
Demand zones: Place SL 0.3-0.5% below the zone (below the low)
Supply zones: Place SL 0.3-0.5% above the zone (above the high)
Why buffer: Allows for minor wick violations without getting stopped out on noise
TP1 (50%): Take 50% profit at 1.5:1 R/R - locks in gains
TP2 (30%): Take 30% profit at next minor supply/demand zone
TP3 (20%): Let remaining 20% run to major zone or trailing stop
❌ Trading without confirmation: Don't blindly buy at demand - wait for bullish confirmation candle
❌ Ignoring the trend: Trading demand zones in a strong downtrend = low win rate
❌ Trading every zone you see: Be selective - only trade fresh, high-quality zones
❌ No stop loss: ALWAYS use stops - zones can and do fail
❌ Over-leveraging: Don't risk 10% per trade just because the zone "looks strong"
❌ Drawing zones randomly: Zones must have explosive departure + volume confirmation
❌ Forgetting time decay: For options traders, zones may take days to play out - theta kills
Fresh zones with trend: 65-75% win rate
Fresh zones counter-trend: 45-55% win rate
Tested zones (2-3 tests): 35-45% win rate
Zone flips with confirmation: 60-70% win rate
Key: Trade fresh zones with the trend for best results!