Supply and Demand Chains: How Orders Stack for Stronger Zones

When price trends in one direction, it doesn't move in a straight line. It creates pullbacks — and each pullback forms a new supply or demand zone. When these zones form in succession, each one carrying orders from the previous, you get a supply or demand chain.

Chains are one of the most reliable POI selection criteria because they represent confirmed order flow continuation. But they come with an important warning.

What Is a Supply/Demand Chain?

A chain occurs when a supply or demand zone forms after price interacts with a previous zone of the same type. The orders from the old zone are effectively transferred to the new one.

Think of it as a relay race. Each zone hands off its order flow to the next zone in the chain. The receiving zone becomes stronger because it inherits orders from its predecessor.

Demand Chain

In a bullish trend with higher highs and higher lows:

1. Price creates a demand zone and breaks higher
2. Price pulls back to that demand zone and reacts
3. The reaction creates a new demand zone
4. Price breaks higher again from the new zone
5. This succession — demand to demand to demand — is the chain

Each new demand zone in the chain carries the buying pressure from the previous one. You're following the momentum, following the order flow.

Supply Chain

In a bearish trend with lower lows and lower highs:

1. Price creates a supply zone and breaks lower
2. Price pulls back to that supply zone and reacts
3. The reaction creates a new supply zone
4. Price breaks lower again
5. The succession of supply zones forms the chain

The same principle applies: each new supply zone inherits selling pressure from its predecessor, making it stronger.

Chains Come in Different Forms

Chains aren't always textbook. They can take various shapes:

Clean chains: Price touches the previous zone precisely, reacts, and forms a new zone. Each link in the chain is clearly defined.

Extended chains: Multiple zones form in rapid succession with price touching each one. Three, four, or more demand zones create a long chain of transferred order flow.

Overlapping chains: Zones in the chain partially overlap. The transfer of orders is messier but still valid — the order flow is still moving from one zone to the next.

The shape matters less than the principle: orders are being transferred in the direction of the trend, creating progressively stronger zones.

The Chain Warning: When Chains Become Traps

Here's the critical insight that separates experienced traders from everyone else.

When you see three to five or more chains in succession without genuine impulsive volume entering the market, the dynamic changes completely.

Why Long Chains Fail

In a healthy bullish trend with demand chains:

• Each demand zone should be followed by real bullish impulse
• Volume enters the market, breaking highs with conviction
• The chains represent genuine institutional order execution

But when chains form without impulse — price just grinding higher through successive demand zones with no real momentum — it signals something different: profit-taking rather than order execution.

Large money is distributing positions, not accumulating. Each demand zone looks like buying, but it's actually sellers taking profits on the way up. When the profit-taking is complete, all those demand zones become internal range liquidity and get swept.

The Same Applies to Supply Chains

Three to five or more supply chains in succession without bearish volume — without price showing genuine selling pressure breaking lows — likely means accumulation, not distribution. Those supply zones will eventually be taken as IRL.

How to Spot the Difference

Healthy chain (tradeable):

• 1-3 zones in the chain
• Each zone is followed by an impulsive move
• Structure breaks with conviction
• Volume confirms the direction

Exhausted chain (trap):

• 3-5+ zones with no genuine impulse
• Price grinds rather than impulses
• Structure breaks are weak or overlapping
• The chain looks mechanical, not organic

Chains Combined with Other Confluences

Chains become most powerful when combined with other POI selection criteria:

Chain + Extreme: A demand chain that ends at the extreme of a structural range. The chain transfers orders to the optimal price level.

Chain + Liquidity: A chain zone that also sweeps structural liquidity. Order transfer plus liquidity absorption creates a high-volume entry point.

Chain + Zone Flip: A chain zone that forms from a failed opposite zone. Order transfer plus confirmed control shift.

The more confluences present, the stronger the zone. A chain alone is good. A chain combined with two other criteria is significantly better.

Key Takeaway

Supply and demand chains represent order flow continuation — each zone in the chain inherits orders from its predecessor. This makes chained zones stronger than isolated ones. But watch the count: when chains exceed three to five zones without genuine impulsive volume, the chain likely represents profit-taking rather than order execution, and those zones become targets rather than trade entries.

Explore POI selection criteria or learn about internal range liquidity in the Glossary.