How to Map Supply and Demand Zones: 3 Methods Every Trader Needs

Every price movement in the market comes down to one thing: the battle between buyers and sellers. When buyers overwhelm sellers, price moves up. When sellers overwhelm buyers, price moves down.

Supply and demand zones mark the exact locations where this battle tipped decisively in one direction. These are the footprints of large orders entering the market — and when price returns to these zones, the same forces often reappear.

The question is: how do you find these zones consistently?

What Creates a Supply or Demand Zone?

A supply or demand zone forms when there's a volume imbalance — one side suddenly overpowers the other, causing a sharp, directional move.

Demand zone (buying pressure): Price drops sharply, then reverses with strong momentum to the upside. The pivot point where selling stopped and aggressive buying began is the demand zone.

Supply zone (selling pressure): Price rises sharply, then reverses with strong momentum to the downside. The pivot point where buying stopped and aggressive selling began is the supply zone.

The key ingredient is always the same: a sharp move in one direction followed by a sharp, impulsive move in the opposite direction. The pivot between those two moves is your zone.

Why Supply and Demand Zones Work

Large institutions — banks, hedge funds, pension funds — can't fill their entire positions at once. There simply isn't enough liquidity in the market to absorb a massive order in one go.

So they break it up. They execute a portion of their order, price moves away, and when price returns to their initial entry level, they execute the remainder.

We're not trading like institutions. We're tracking the footprints of large order flow and positioning ourselves to benefit when those orders re-enter the market at the same price levels.

Method 1: Candle Bodies (The Standard)

This is the most reliable and most commonly used method.

For Demand Zones:

1. Find a sharp move down followed by a sharp, impulsive move up
2. Identify the last sell candle (bearish candle) before the impulsive move up
3. Draw the zone from the high to the low of that candle (using the wicks — the two extreme points)

For Supply Zones:

1. Find a sharp move up followed by a sharp, impulsive move down
2. Identify the last buy candle (bullish candle) before the impulsive move down
3. Draw the zone from the high to the low of that candle

Why It Works:

The last candle before the impulsive move represents the final moment where the losing side had control. After that candle, the winning side took over with conviction. This candle marks the exact price level where the imbalance occurred.

When to Use:

Always. This is your default method. When in doubt, use full candle bodies.

Method 2: Wick Refinement

Markets aren't always clean. Sometimes the pivot candle is very large — with a significant wick that represents a battle between buyers and sellers within that single candle.

How It Works:

Instead of using the entire candle, you refine the zone to just the wick portion.

For a demand zone with a large wick:

• The candle drops significantly (creating the wick) and then closes much higher
• The wick represents where buyers stepped in aggressively
• You can draw your demand zone using just the wick area instead of the full candle

For a supply zone with a large wick:

• The candle spikes up (creating the wick) and then closes much lower
• The wick represents where sellers stepped in aggressively
• You can refine your supply zone to just the wick area

The Fractal Perspective:

If you drop to a lower timeframe and look inside a large wick, you'll typically see the same pattern: a sharp move in one direction followed by a sharp move in the opposite direction. The wick refinement is essentially doing on the higher timeframe what you'd see on the lower timeframe.

When to Use:

When the pivot candle has a very large wick relative to its body. The larger the wick, the more useful this refinement becomes. It gives you a tighter, more precise zone.

Method 3: Pivot Wicks (Between Candles)

This method identifies zones created by the gap between two consecutive candles — specifically, between the close of one candle and the open of the next.

How It Works:

Demand zone (bullish pivot wick):

• A bullish candle closes, but its wick extends below the close
• The next candle opens, trades down briefly, then continues upward
• The zone is the area between the first candle's wick low and the second candle's open

Supply zone (bearish pivot wick):

• A bearish candle closes, but its wick extends above the close
• The next candle opens, trades up briefly, then continues downward
• The zone is the area between the first candle's wick high and the second candle's open

The Concept:

Conceptually, this is the same as the other methods. You still have a sharp move in one direction, a brief counter-move (the pivot), and then an impulsive continuation. The difference is that the pivot happens across the boundary between two candles rather than within a single candle.

When to Use:

In continuation scenarios, where you see impulsive moves with brief pauses between candles. These are often smaller zones and work best for refined entries on lower timeframes.

Choosing the Right Method

| Method | Zone Size | Best For | Reliability | |--------|-----------|----------|-------------| | Candle Bodies | Broadest | Default mapping, all scenarios | Highest | | Wick Refinement | Medium | Large-wick pivot candles | High (tighter entries) | | Pivot Wicks | Tightest | Continuation moves, LTF entries | Moderate (needs confluence) |

Rule of thumb: Start with candle bodies. Refine to wicks when the candle is large. Use pivot wicks for continuation setups.

Extreme vs Decisional Zones

Not all supply and demand zones are equal. The location of the zone within the structural range matters enormously.

Extreme Zones

Zones at the very edge of a structural range — the highest supply zone or the lowest demand zone. These offer the best price for entry and represent the strongest institutional interest.

Decisional Zones

Zones that form in the middle of a structural range, between two impulsive moves. These are weaker and require additional confluence to trade effectively.

Best practice: Always prioritize extreme zones over decisional zones. Extreme zones give you the best risk-to-reward and the highest probability of a reaction.

Drawing Rules

1. Use the full candle range (high to low, including wicks) when drawing from candle bodies
2. Identify the last opposite candle before the impulsive move — not any candle in the move
3. The impulsive move away must be clear — large-bodied candles with momentum
4. Don't draw zones where there's no clear imbalance — both sides need to show a clear shift in control
5. Best zones are at structural extremes — the edge of a structural range, not the middle

Key Takeaway

Supply and demand zones mark where the balance of power shifted between buyers and sellers. The sharper the pivot and the more impulsive the move away, the stronger the zone.

Three methods, one concept: find the pivot between opposing forces, and mark it. Start with candle bodies for reliability, refine with wicks for precision, and use pivot wicks for continuation trades.

Learn how supply and demand connects to trend analysis in our Market Structure module or explore the Glossary for quick reference.