POI Selection: How to Choose High-Probability Supply and Demand Zones

A supply zone is the last bullish candle before a sudden move lower. A demand zone is the last bearish candle before a sudden move higher. Simple definitions — but based on them alone, supply and demand zones appear everywhere on a price chart.

The question isn't whether zones exist. It's which ones are worth trading.

The POI Selection Problem

If every impulsive move creates a supply or demand zone, you'll find dozens on any timeframe. Most of them will fail. The difference between consistent traders and struggling ones isn't pattern recognition — it's zone selection.

To choose the best Points of Interest (POIs), you need to add conditions beyond the basic definition. Each condition adds strength. The more conditions a zone meets, the higher its probability.

There are four primary POI selection criteria.

1. Extreme POI

The extreme POI is the supply or demand zone that forms at the base of a structural range — the furthest point price can reach within the current structure.

For bullish structure: The extreme demand zone sits at the very bottom of the structural range. This is the lowest possible price to buy relative to the current structure — the optimal entry point.

For bearish structure: The extreme supply zone sits at the very top of the structural range. This is the highest possible price to sell relative to the current structure.

Why it matters: Trading from the extreme gives you the best risk-to-reward ratio. You're entering at the edge of the range rather than somewhere in the middle. If the structural range holds, you're positioned at the optimal price.

2. Liquidity POI

A liquidity POI is a supply or demand zone that sweeps structural liquidity as it forms. This creates a higher-volume area to trade from.

How it works in a bullish context:

1. A structural liquidity point exists (a swing low with stops clustered below)
2. Price breaks through that low, triggering the resting orders
3. Price then reverses and trades higher, breaking the previous high
4. The demand zone formed at the sweep point carries additional volume from the triggered orders

How it works in a bearish context:

1. A swing high exists with stops clustered above
2. Price breaks above that high, triggering the resting orders
3. Price then reverses and trades lower
4. The supply zone formed at the sweep carries the additional volume

Why it matters: A zone that sweeps liquidity has absorbed additional orders during its formation. More orders mean more fuel for the subsequent move. A liquidity POI is inherently stronger than a zone that formed without sweeping anything.

A zone can be both an extreme POI and a liquidity POI simultaneously — and often is. When the extreme of a structural range also sweeps liquidity, you get a high-probability setup.

3. Supply and Demand Chains

A supply or demand chain occurs when a zone forms after price interacts with a previous zone of the same type. Orders are being transferred — or "stacked" — from the old zone to the new one.

Demand chain example:

1. Price creates a demand zone and breaks higher
2. Price returns to that demand zone and reacts
3. A new demand zone forms from the reaction
4. Price breaks higher again
5. Each successive demand zone carries the order flow from the previous one

The chain represents momentum continuation. Each new zone in the chain inherits orders from the previous one, making it progressively stronger.

Supply chain example: The same concept in reverse. Supply zones form in succession as price trends lower, each inheriting selling pressure from the previous zone.

The Chain Warning: 3-5 or More

There's an important caveat. When you see three to five or more demand chains in succession without price showing a genuine bullish impulse — no real volume entering the market — the likelihood increases that all those demand zones will be taken out as internal range liquidity.

At that point, the chaining isn't order execution from large institutional money. It's profit-taking. The zones look like demand, but they lack the conviction of real buying pressure.

The same applies to supply chains: five or more supply zones in succession without genuine bearish volume suggests the market is distributing rather than executing, and those zones are likely to fail as IRL.

4. Supply and Demand Zone Flips

A zone flip occurs when a supply or demand zone forms after interacting with the opposite zone type. This is the transfer of orders from one zone to the next — what creates transactional order flow.

Supply-to-demand flip:

1. Price creates a supply zone in a bearish market
2. Price trades into the supply zone
3. You get the initial reaction, the extreme of the reaction leg, then the failure of supply
4. The failure creates a new demand zone
5. This demand zone carries the transferred orders from the failed supply

Demand-to-supply flip:

1. Price creates a demand zone in a bullish market
2. Price trades into the demand zone and reacts
3. Initial reaction, extreme of the reaction leg, then failure
4. The failure creates a new supply zone

Zone flips are powerful because they represent a confirmed transfer of control. The orders that were defending one zone have been absorbed, and new orders are now defending the opposite direction.

Combining Confluences

Each of these four criteria adds strength individually. But the real power comes from combining them. A zone that meets multiple criteria is significantly more probable than one that meets only one.

Example of a high-confluence demand zone:

• It's at the extreme of the structural range (extreme POI)
• It swept structural liquidity as it formed (liquidity POI)
• It's part of a demand chain (orders transferred from previous demand)
• It formed from a supply-to-demand zone flip (confirmed order transfer)

That's four confluences stacked on a single zone. This represents the highest-probability setup you can identify through POI selection alone.

The principle is simple: POI selection criteria increase the overall strength of a zone as individual confluences are stacked. If one confluence is strong, a combination of them all makes the POI significantly stronger.

Practical Application

When scanning for trade opportunities:

1. Identify the structural range — where are the extremes?
2. Check for liquidity — did the zone sweep anything as it formed?
3. Look for chains — is this zone part of a succession of same-type zones?
4. Check for flips — did this zone form from a failed opposite zone?
5. Count confluences — more criteria met = higher probability
6. Watch the chain count — 3-5+ zones without momentum = potential IRL wipeout

This process filters the dozens of visible zones down to the few that actually deserve your capital.

Key Takeaway

Not every supply and demand zone is worth trading. The four POI selection criteria — Extreme, Liquidity, Chain, and Zone Flip — transform basic zone identification into a probability framework. Stack them together, trade in the right market direction, and select the right POIs. That combination is what produces consistently high-quality trades.

Learn more about supply and demand zones or explore zone flip mechanics in the Glossary.