Supply and Demand Zones

A zone is drawn from the base that preceded an impulsive move, the small consolidation or the candle bodies just before price departed sharply. The impulsive departure is the evidence that orders in that area were strong enough to overwhelm the other side. Using a zone rather than a single line accepts that the exact tick is unknowable and gives the level room to be respected without a precise touch. The width of the zone is itself a judgement: too tight and price never quite reaches it, too wide and it stops being a useful level.

The rationale for a zone reacting is that not all the orders at the origin were filled, so price returning may meet residual interest. This is a plausible interpretation, not a certainty, and two qualifications matter. First, many zones simply break straight through, so a zone is an area to watch, not a wall. Second, a zone that has been tested several times is usually weaker, not stronger, because whatever orders sat there have likely been consumed by the earlier tests. The practical consequence is to give a fresh, untested zone more respect than a worn one, and never to assume any zone holds.

When a demand zone breaks decisively, it can become a supply zone on the retest, and a broken supply zone can become demand, the same area changing role as control changes hands. This flip is the structural cousin of a support-becomes-resistance flip, and it is one of the cleaner ways to use zones: rather than betting that an old zone holds forever, you trade the retest of a broken zone in the new direction, with the zone itself as invalidation. The flip reframes a broken level not as a failure but as information about which side now controls that area.