Who Is In Control? How Supply and Demand Reveal Market Direction

Market structure tells you the trend. Higher highs and higher lows mean bullish. Lower lows and lower highs mean bearish. But structure alone doesn't tell you why the trend continues — or when it's about to change.

Supply and demand adds the missing layer. When you combine structural analysis with an understanding of which side — buyers or sellers — is actually winning, you get a far clearer picture of market direction.

The concept is simple: which zones are holding, and which zones are failing?

The Three Control States

At any given moment, the market is in one of three states:

1. Demand In Control (Bullish)

What you see:

• Market structure: higher highs and higher lows
• Supply zones are failing (price breaks through them)
• Demand zones are holding (price bounces from them)

What it means: Buyers are stronger than sellers. Every time sellers establish a supply zone at the highs, buyers push through it — forming a new higher high. Every time price pulls back to a demand zone at the lows, buyers defend it — forming a new higher low.

The cycle:

1. Impulsive phase pushes price up → new higher high → supply zone forms
2. Pullback phase pulls price down → demand zone is tested
3. Demand holds → new higher low forms
4. Next impulsive phase breaks through the previous supply zone
5. Supply fails → new higher high → repeat

This is a trend where demand is consistently overpowering supply.

2. Supply In Control (Bearish)

What you see:

• Market structure: lower lows and lower highs
• Demand zones are failing (price breaks through them)
• Supply zones are holding (price rejects from them)

What it means: Sellers are stronger than buyers. Every time buyers establish a demand zone at the lows, sellers push through it — forming a new lower low. Every time price pulls back to a supply zone at the highs, sellers defend it — forming a new lower high.

The cycle:

1. Impulsive phase pushes price down → new lower low → demand zone forms
2. Pullback phase pulls price up → supply zone is tested
3. Supply holds → new lower high forms
4. Next impulsive phase breaks through the previous demand zone
5. Demand fails → new lower low → repeat

This is a trend where supply is consistently overpowering demand.

3. Neither In Control (Ranging)

What you see:

• No clear market structure (mixed highs and lows)
• Supply zones fail, then demand zones fail, then supply fails again
• No consistent pattern of one side dominating

What it means: Buyers and sellers are roughly equal. Neither side can maintain control. Price moves sideways, bouncing between supply and demand zones without a clear directional bias.

The warning signs:

• Alternating breaks: supply fails → demand fails → supply fails
• No trending sequence of HH/HL or LL/LH
• Zones get created and broken in both directions without follow-through
• Volume often decreases during ranging periods

What to do: Stay out. When neither side has control, the market is chopping and any directional trade has low probability. Wait for one side to take definitive control before trading.

How to Identify Who's In Control

Follow this checklist:

Step 1: Map your market structure. Identify whether you're seeing HH/HL (bullish), LL/LH (bearish), or mixed (ranging).

Step 2: Overlay supply and demand zones. Mark where supply zones form (at highs) and where demand zones form (at lows).

Step 3: Track which zones fail and which hold.

• If supply consistently fails while demand holds → demand is in control
• If demand consistently fails while supply holds → supply is in control
• If both sides fail intermittently → neither is in control

Step 4: Combine with structural ranges. Your structural range gives you the continuation and invalidation points. Supply and demand tell you why those points matter — a continuation point breaks because the zone behind it failed.

The Power of Combining Structure + Order Flow

Market structure alone tells you:

• The trend direction
• Where the continuation and invalidation points are

Adding supply and demand tells you:

• Why the trend continues (one side's zones keep failing)
• When a reversal might happen (the dominant side's zone starts to crack)
• Where the smart money is positioned (the zones that keep holding)

This combination is far more powerful than either concept alone.

When Control Changes

A change in control doesn't happen suddenly. It follows a sequence:

1. The dominant side's zone fails for the first time — a demand zone in a bullish trend gets broken, or a supply zone in a bearish trend gets broken
2. A change of character forms — the invalidation point of the structural range is broken
3. The new side's zone holds — this is the "first level of respect" (covered in detail in our order flow shifts guide)
4. A new structural range confirms the reversal

The key: a single zone failure doesn't mean control has changed. You need the full sequence — zone failure, structural break, first level of respect — before concluding that the balance of power has shifted.

Common Mistakes

Calling a reversal after one zone fails A single demand zone failing in a bullish trend could just be a deeper pullback. Wait for the full sequence: zone failure → CHoCH → first level of respect → trend confirmation.

Ignoring ranging conditions When neither side is in control, the worst thing you can do is force a directional bias. Ranging markets eat directional traders alive. Recognize the ranging condition and wait.

Not updating your zone analysis As new zones form and old ones get tested, your control assessment must update. What was true 20 candles ago may not be true now. Always use the most recent zones for your analysis.

Key Takeaway

The market is always telling you who's in control — you just need to know how to listen. When supply zones fail and demand zones hold, demand is in control and the trend is bullish. When demand zones fail and supply zones hold, supply is in control and the trend is bearish. When both sides fail alternately, nobody's in control and you should sit on your hands.

Combine this with market structure, and you'll always know the trend direction, the reason behind it, and the early signs that it's about to change.

Deep dive into order flow with our Order Flow module or learn the structural foundation in Market Structure.