Of every concept measured in this series, this one comes out best — and it is also the one with the least room for judgement in its definition. Those two facts are related.
A supply or demand zone is a small band of quiet price immediately before a decisive move, marking where a large participant was absorbing orders before the price jumped.
A demand zone is a small area of quiet price that was immediately followed by a big move up. A supply zone is the same thing before a big move down.
The logic is about what the quiet part means. A stretch of small candles is a market in balance — buyers and sellers roughly matched. When the very next candle is three times the size and travels in one direction, the balance was not real. Someone large was absorbing everything on offer, and the moment they were done, price jumped.
The quiet area is where that absorbing happened. Drawn as a box and extended forward, it becomes an area to watch — not because the chart is magic, but because unfilled orders from that participant may still be sitting there.
A market stall has been selling apples steadily all morning at the same price. Nothing much happens. Then in five minutes the entire stock disappears and the price doubles.
Looking back, that quiet morning was not quiet at all — one buyer was steadily clearing everything at a price the seller was happy with. If that buyer comes back tomorrow wanting more, the price they were happy to pay is the first place they will look.
Every zone matching that definition in five years of hourly candles, followed forward.
| Instrument | Zones found | Revisited in 48h | Median wait | Of those, held | Of those, broke |
|---|---|---|---|---|---|
| XAUUSD | 1,102 | 82.4% | 2 h | 71% | 26.8% |
| GBPUSD | 1,074 | 82.9% | 2 h | 68.8% | 28.5% |
| EURUSD | 1,106 | 83.7% | 2 h | 66.1% | 30.3% |
| US30 | 745 | 77.3% | 2 h | 66.5% | 29% |
| NAS100 | 778 | 78.1% | 2 h | 64.1% | 30.3% |
What was counted: A base of one to three consecutive hourly candles whose bodies are each under 60% of the median body of the previous twenty, followed immediately by a departure candle whose body is at least 2.5 times that median and at least 55% of its own range. The zone is the high-to-low of the base. Held means price travelled the height of the zone again in the departure direction before an hourly candle closed through the far side.
This is the strongest result in the whole series, and it is worth being clear about why the number deserves trust rather than just enthusiasm.
It means price travelled the height of the zone in the expected direction before closing through the other side. It does not mean a trade taken at the zone made money. Your entry inside a zone that is fifty pips tall could be forty pips from the invalidation, which changes the arithmetic completely.
The zone quality is measured here. The trade quality is yours to establish, and it depends almost entirely on how tall the zone is relative to what you are willing to risk. Check the height against the Stop Loss Reality Checker before assuming a zone is tradeable.
Omar is looking at gold on the hourly and sees a huge green candle at 13:00 — about four times the size of anything around it.
What he marks. He looks at the three candles before it: 10:00, 11:00 and 12:00, all small, all overlapping, spanning 4,395 to 4,402. He boxes that seven-dollar band and extends it right. That is his demand zone.
What he does not do. He does not buy at 4,430 where price now sits. The zone is thirty-five dollars below him; buying here means either a huge stop or a stop nowhere near the level that would prove him wrong.
What happens. Two hours later price drifts back to 4,403 and touches the top of the box. Median wait for gold is about two hours, so this is entirely typical.
How he sizes it. His invalidation is a close below 4,395, so his risk is roughly eight dollars — eighty pips on gold. He checks what that costs at his position size, and if eighty pips of gold is more than he wants to risk, he trades smaller rather than moving the stop inside the zone. A stop inside the zone is not a stop, it is a guess.
The part he accepts. Roughly one time in four the zone simply fails. He is not looking for certainty, he is looking for a situation where being wrong is cheap and obvious.
Seventy-one per cent held is a fact about zones, not about your entries, your stop or your target. Replay gold or GBPUSD, mark zones by the rule above before you know the outcome, and record what a real trade from each one would have produced.
Test zones in the free backtester →A support level is a line drawn where price previously turned. A demand zone is an area drawn where price previously launched. The difference matters more than it sounds.
A level is about memory — traders remember the price. A zone is about origin — it marks where a move started, which implies orders that were never filled. That is also why the zone measures better: the second test of a level holds under half the time, while a fresh zone held around seven times in ten.
The practical rule that follows: use levels to frame the day, and zones to find entries.
Run the drill in the free backtester → Free, no sign-in to begin.
What is a supply and demand zone?
A demand zone is a small area of quiet candles immediately before a big move up; a supply zone is the same before a big move down. The quiet part marks where a large buyer or seller was absorbing orders, and the box is drawn around those quiet candles only.
Do supply and demand zones work?
On this definition, better than anything else measured here. Across 1,102 gold zones, 82.4% were revisited within two days at a median wait of 2 hours, and 71% of those held. All five instruments land close to that. But "the zone held" is not "the trade made money" — that depends on the zone's height against your risk.
What is the difference between a supply zone and resistance?
Resistance is a line where price previously turned. A supply zone is an area where a move previously started. The distinction shows in the data: the second test of a level holds under half the time, while a fresh zone held around seven times in ten.
Should the zone include the big candle?
No. The zone is the quiet base only. Including the departure candle is the most common drawing error — it makes the box much taller, which pushes the stop out to a distance most accounts cannot afford.
How long does a zone stay valid?
Until price closes through the far side of it, at which point the orders that made it are gone. In practice most get tested quickly — the median wait on gold was about two hours, so a zone that is still untouched after two days is unusual.
What timeframe works best?
Hourly or four-hourly, which is what these measurements use. On very low timeframes almost every candle is large relative to its neighbours, so the size test stops filtering and you end up marking everything.
Mark zones by the rule, then work out what stop each one demanded and whether you could afford it. That second number is what turns a measured pattern into something you can actually trade.
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This page focuses on “Supply and Demand Zones”.How to find supply and demand zones by rule rather than by eye, and what happened to 4,805 of them: 82.4% were revisited and 71% of those held. The strongest result in the series.For “Supply and Demand Zones”, a beginner should identify what the learning guide measures, assumes or teaches before acting on its conclusion.Treat this page's account of “Supply and Demand Zones” as a learning reference rather than a prediction, signal or promise of future performance.
For “Supply and Demand Zones”, translate the idea into a definition you could apply the same way on two different charts.While exploring “Supply and Demand Zones”, work through one example slowly and record which inputs or observations determined the result.Keep your “Supply and Demand Zones” record honest: list the limitation or counterexample before using the concept in a trading plan.Before leaving “Supply and Demand Zones”, practise the definition on unseen history and review consistency before judging performance.
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