Supply and Demand Zones | How to Find The Best Trades

Supply and demand zones are one of the most critical components of technical analysis in forex trading.

Understanding these zones can help traders identify the best trade opportunities and maximize their profits.

In this article, you will learn the basics of supply and demand zones and how they can be used to make informed trading decisions.

By the end of this article, you will have a comprehensive understanding of how to identify the most lucrative supply and demand zones in any market.

If you want to learn how to identify the best trade opportunities in forex, then you better keep reading!

Supply and Demand Trading – Best Strategy?

Supply and demand zones are an essential aspect of forex trading, providing traders with insight into areas of the market that could be impactful, much like support and resistance levels.

By understanding and identifying these zones, traders can make informed decisions and develop a winning trading strategy.

Knowing where to look for supply and demand zones can give traders a major advantage in the market and help them spot potential trade opportunities before they become widely recognized.

It’s important for every trader to understand the concept of supply and demand zones, as it can be a valuable tool in developing a successful and profitable trading strategy.

With the right knowledge and approach, traders can unlock the full potential of supply and demand zones and maximize their profits in the forex market.

What are supply and demand zones in forex?

So, supply and demand zones are areas of the market where there is a lot of liquidity at a particular price. Supply or demand zones, also known as accumulation and distribution zones, are insanely powerful price indicators. The reasoning behind this is down to liquidity. These are important to watch and take notice of because this is usually where everyone’s stop losses gather.

This is the magic of trading supply and demand.

You see, large institutions, hedge funds and banks need huge amounts of liquidity to process their trades – and they can’t just trade off the spot markets.

So, they need to look for liquidity zones in the market.

By understanding this, you will improve your odds as a forex trader because you will be trading with smart money by following the supply and demand areas to profit from.

These provide tremendous opportunities for swing trading too.

Supply and demand forex zones are really obvious areas where there have been huge volumes of orders taken.

The evidence in the market is a candlestick a bundle of wicks followed by a sharp market move

How To Trade Supply And Demand Zones - Supply Zone

As you can see in the above image, we are able to find a supply zone easily with the accumulation of wicks in one area and bringing the price back down whenever it touches the area.

What this means in terms of the market is that this is an indicator that there are large amounts of selling orders in that area.

This is golden information because we know that the only participants that would hang out at these levels are smart money.

The supply zone gives us a reference point in the past to find current trading opportunities in the present.

We know that in the past there was a huge selling order flow, so at this supply zone, we are looking for any orders that were not executed to be executed when the market re-attempts at these levels.

Now based on the supply or demand zone will give us the intentions of future trade.

For example, supply zones are areas to sell from and demand zones are areas to buy from.

Let’s show you how the market can react to the supply zones.

How To Trade Supply And Demand Zones - Supply Zone - Success Example

As you can see the market retraced back to the supply zone and immediately reversed again.

This is because the previous sell orders in the market were still available in the supply zone.

This would have been the perfect place to short the GBPUSD.

The opposite of this is true for the demand zone.

This is primarily when we see buy orders about to enter the market.

We use the opposite set-up, so we look for a cluster of large wicks combined with a sharp movement upwards.

How To Trade Supply And Demand Zones - Demand Zone - Success - Example

Just like the supply zone, the large wicks tell us that there is liquidity there.

We want to be on the right side of these moves as this is smart money buying.

From this demand zone, you can see the price retraced towards it several times providing strong entry levels.

Any point would have been a great entry point.

Remember: for supply and demand zones to work, the price has to retrace back to the zone.

You don’t trade off the first time you see the zone.

Are supply and demand zones the same as support and resistance?

So, are supply and demand zones the same as support and resistance? Supply and demand zones and support and resistance levels are two closely related concepts in forex trading, but they are not the same thing. While both are used to help traders understand the behaviour of the market, they provide different types of information and can be used in different ways.

Support and resistance are based on closed pricing and show areas of the market that struggled to penetrate over time. This is very easy to spot.

Even easier are supply and demand trading zones.

These areas tend to be where the market consolidates for a short period and then continues upwards or downwards.

This is the area orders are accumulated.

Here is an example to help:

How To Trade Supply And Demand Zones - Accumulation Zones - Example

In the above image, you can see the blue squares which highlight supply levels.

These areas show where the price halted for a bit before moving. These are key areas to focus on.

By understanding supply and demand we can literally see what the professionals are doing.

There are a couple of methods for doing this, but we suggest mastering both.

Plus combining these strategies below with candlestick patterns or chart patterns can lead to some explosive gains!

How to Identify Strong Supply and Demand Zones

Firstly, this is one of the biggest crimes we’ve seen on the Internet with articles teaching you this.

So many poor examples on the internet, there is no wonder why people still can’t understand them.

To draw the supply and demand zones accurate is SO easy!

Step 1: To draw a supply zone you must first identify a market that has a cluster of high wicks and a sudden, sharp drop.

How To Trade Supply And Demand Zones - Supply Zone - Identify Step 1

Step 2: Identify the highest close and the highest wick then draw using the rectangle tool to cover them.

To draw from the highest wick to the highest close body in a downward direction then drag the rectangle all the way to the final bar before the steep drop.

How To Trade Supply And Demand Zones - Supply Zone - Mark Step 2

Step 3: Keep an eye on the future price movements to see if it retraces back to this supply level because in theory there should be more sell orders waiting to get executed.

As price draws closer to the supply zone, highlight the rectangle and expand the zone over the retracing price to see how it reacts.

If it is a true supply zone, then the price will be rejected strongly.

How To Trade Supply And Demand Zones - Supply Zone - Wait - Step 3

Step 4: Place your trade

How To Trade Supply And Demand Zones - Supply Zone - Execute - Step 4

That is it, that is exactly how to draw supply levels accurately.

You will need to practise finding these in the markets, sometimes they are easy to spot – others can be difficult and hidden. The more you practice, the better you will become at spotting them.

Now let’s identify the demand zones.

Step 1: Find an area where there is a cluster of low wicks combined with a rapid move outwards.

How To Trade Supply And Demand Zones - Demand Zone - Identify - Example

Step 2: Draw from the lowest wick to the highest close and cover as many candlestick wicks going to the right.

How To Trade Supply And Demand Zones - Demand Zone - Mark - Example

Step 3: As price unfolds continually drag the rectangle across the chart until price retraces to the zone and reacts.

How To Trade Supply And Demand Zones - Demand Zone - Wait - Example

Step 4: Place the trade as per execution rules. Profit.

How To Trade Supply And Demand Zones - Demand Zone - Execute - Example

Now, when you start to recognise all of these areas in the market you will start to see how one another interacts with each other.

They can add validation and create confluence in a trade, which generates a stronger signal to enter the market.

Combining both methods together:

How To Trade Supply And Demand Zones - Supply & Accumulation Zone - Example

As you can see in the example above combining both techniques together can give you a highly accurate opportunity to trade.

For example, the above demonstrates that by gathering intelligence from previous technical analysis (supply zone) you would have been able to avoid the fake long breakouts from the accumulation zone.

Getting the gist of it?

Go look for these areas on a chart, take your notes and have a look.

Supply and Demand Zones Indicator – Find Trades Easily

The supply and demand zones indicator is a powerful tool that makes it easier for traders to find trades in the forex market.

By providing a visual representation of areas of high demand and low supply, the indicator helps traders identify potential trade opportunities with greater ease and accuracy.

This can be especially useful for traders who are new to the market or those who are looking to streamline their analysis process.

The supply and demand zones indicator takes the guesswork out of identifying trades, making it a valuable tool for any trader looking to increase their profits.

Here are two indicators you can use on some popular platforms:

TradingView: You can view a list of supply and demand zone indicators available on TradingView here

MT4: You can view a list of indicators here

If you are looking for a technical indicator that can plot these zones, then check out this supply and demand trading indicator review.


By reading this article, you have gained a comprehensive understanding of what supply and demand zones are and how they can be used to identify the best trade opportunities in the forex market.

By understanding the basics of these zones and how they can be applied to your trading strategy, you can make more informed decisions and potentially increase your profits.

To further your knowledge on this topic and others related to “supply and demand trading,” be sure to check out Alphaex Capital.

With a wealth of resources and expert insights, Alphaex Capital is the ideal place to continue your education and grow as a trader.

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About the author

Seasoned forex trader John Henry teaches new traders key concepts like divergence, mean reversion, and price action for free, sharing over a decade of market experience and analysis expertise in a clear, practical style.