# How to Draw Supply and Demand Zones · DT Academy > How traders find and draw supply and demand zones, and what tends to make a zone more or less useful when price returns to it. [Back to The DT Intensive](https://www.thedtterminal.com/academy/courses/dt-intensive) Day 11Identifying supply and demand Chapters done # Identifying supply and demand Day 11 of 26 · 10 min read · By DT Terminal A supply or demand zone is an area price left quickly, which suggests unfilled orders were waiting there. This lesson shows how traders commonly find these zones, how they are usually drawn, and what tends to make one more or less useful when price comes back to it. Unlock the full lesson in the app Worked examples, the quiz and the interactive tools are in the app. Free account. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand) Chapter 1 of 7 ## What supply and demand zones are Sometimes price pauses in a tight area, then leaves it fast. A **demand zone** is one price rallied away from: buyers outweighed sellers. A **supply zone** is one price dropped away from: sellers outweighed buyers. A move that fast may leave orders unfilled, which can slow or turn price when it comes back. - **The leg in** brings price to the area. - **The base** is the few small candles where it paused; the zone is drawn from these. - **The departure** is the move away. Its speed and size matter most. **A zone is a hypothesis, not a promise.** A chart shows where price reacted before, **never whether orders are still waiting there**. **Go deeper** Price moves when the orders on one side outweigh the other. Most of the time buyers and sellers roughly balance and price drifts. Treat a zone as **a place to watch and to test** in your backtests, not a place price has to turn. This lesson reads candles the way [How to read candlesticks](https://www.thedtterminal.com/academy/how-to-read-candlesticks) taught, and uses trends and breaks of structure from [Market structure](https://www.thedtterminal.com/academy/market-structure). Chapter 2 of 7 ## The four formations A zone is named after the leg in, the base and the leg out. The leg out decides the zone: a rally away leaves demand, a drop away leaves supply. The leg in decides the family: the same direction both sides is a **continuation**, opposite directions a **reversal**. Rally-base-rally demand zone, continuation [Replay in the app](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Dfour-formations%23four-formations) Drop-base-rally demand zone, reversal [Replay in the app](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Dfour-formations%23four-formations) Drop-base-drop supply zone, continuation [Replay in the app](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Dfour-formations%23four-formations) Rally-base-drop supply zone, reversal [Replay in the app](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Dfour-formations%23four-formations) | Formation | Leg in | Leg out | Zone | Type | | --- | --- | --- | --- | --- | | Rally-base-rally | Rally | Rally | Demand | Continuation | | Drop-base-rally | Drop | Rally | Demand | Reversal | | Drop-base-drop | Drop | Drop | Supply | Continuation | | Rally-base-drop | Rally | Drop | Supply | Reversal | Traders often shorten them to RBR, DBR, DBD and RBD. A base is **one to a few candles with small bodies** compared with the candles either side. **Go deeper** What counts as a base is a judgement, but the common picture is the same: small bodies, often smaller than half of their own range. A base that runs for many candles is **closer to a range than a zone**, and many traders skip it. Chapter 3 of 7 ## Drawing a zone from the base A zone is two horizontal lines drawn from the base and extended right until price comes back. - The **proximal line** is the edge price reaches first on the way back: the top of the base for demand, the bottom for supply. - The **distal line** is the far edge: the lowest wick in the base for demand, the highest wick for supply. A close beyond it is the usual sign the zone has failed. Set the proximal line on the base's **bodies** for a tighter zone, or its **wicks** for a wider one. **Pick one and draw every zone the same way.** Interactive tool ### Zone drawer This interactive tool runs in the app, with your own numbers. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Ddrawing-a-zone%23drawing-a-zone) Free account DT Terminal Charts EURUSD · H1 Demand zone Sample candles, not a record of a real day. The two green lines are the zone's proximal and distal edges. **This chart in numbers, and drawing it in the backtester** Neither way of setting the proximal line is correct, but **mixing them** means the results of your backtests will not mean anything. Switch between them in the zone drawer. The chart is an illustrative `EURUSD` H1 drop-base-rally. Drawn on the bodies, the proximal line sits at 1.08413 and the distal line at 1.08297, a zone 11.6 pips tall. The rally left it at 88.9 pips, about 7.7 times its height. When price came back, the first test traded down to 1.08319, 9.4 pips inside the proximal line and 2.2 pips above the distal line, and no candle closed below the zone. In the backtester you can draw the same thing with the Rectangle tool, from the first base candle to the right edge of the chart, or with two Horizontal lines on the proximal and distal prices. Drawing it the moment the departure finishes, before you play on, is what keeps the practice honest. Chapter 4 of 7 ## Measuring a zone: height and departure Two numbers describe a zone before price returns: its **height**, proximal minus distal, and its **departure**, how far price left it. Departure divided by height is the **departure multiple**. Worked example ### Example 01: A drop-base-rally demand zone on EURUSD H1 The worked example, with every number walked through, is in the app. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Dmeasuring-a-zone%23measuring-a-zone) Free account **The wick version, and the first test** Price dropped three candles from 1.0921 into the base, then rallied three candles. Drawn on the wicks instead, the proximal line moves up to 1.0866 and the zone is 19 pips tall. Four candles after the rally peaked, price came back. The first candle into the zone traded down to 1.0857, 5 pips inside the proximal line and 10 pips above the distal line, and closed back above the zone. Over the next two candles price rose to 1.0909, 52 pips off the test low. Chapter 5 of 7 ## What makes a zone stronger Traders grade zones on things **visible before price comes back**. - **A fast, large departure.** Few long candles, little overlap, several times the zone's height. Example 01 left at 3.7 times. - **Little time at the base.** One to a few candles. The usual reasoning: the longer price sits there, the more waiting orders it has already filled. - **Fresh.** Price has not been back since the departure. On the same reasoning, it still has whatever orders were left. | Factor | Usually stronger | Usually weaker | | --- | --- | --- | | Departure | Fast and large: a few long candles, several times the zone’s height | Slow, overlapping candles that drift away | | Time at the base | One to a few candles | A long, wide base | | Tests | Fresh: price has not been back | Tested once or more | | Higher timeframe | Demand in an uptrend, supply in a downtrend | Against the higher-timeframe trend | Supply and demand ### Four formations, strong to broken - Demand zone - Supply zone - Fair value gap Demand Supply Rally-base-rally continuation Drop-base-rally reversal Rally-base-drop reversal Drop-base-drop continuation Fast and fresh few long candles out, not tested yet Price rallies into a three candle base, then rallies away fast, in a few long candles that leave a fair value gap. The demand zone has not been tested. Price drops into a three candle base, then rallies away fast, in a few long candles that leave a fair value gap. The demand zone has not been tested. Price rallies into a three candle base, then drops away fast, in a few long candles that leave a fair value gap. The supply zone has not been tested. Price drops into a three candle base, then drops away fast, in a few long candles that leave a fair value gap. The supply zone has not been tested. Slow departure overlapping candles drift away Price rallies into a three candle base, then rallies away slowly, in overlapping candles with no gap. A weaker demand zone. Price drops into a three candle base, then rallies away slowly, in overlapping candles with no gap. A weaker demand zone. Price rallies into a three candle base, then drops away slowly, in overlapping candles with no gap. A weaker supply zone. Price drops into a three candle base, then drops away slowly, in overlapping candles with no gap. A weaker supply zone. Tested once price came back and turned Broken a close beyond the distal line **Read across, then down.** The leg out decides the zone: a rally away leaves demand, a drop away leaves supply. Down the side, a fast departure leaves a gap and a fresh zone; a slow drift, a test and a close beyond the distal line each count against it. Schematic candles, not market data. Each zone runs from the base bodies (proximal) to the base's far wick (distal). **Go deeper** A departure that leaves a gap between candles often leaves a fair value gap too, which [Identifying fair value gaps](https://www.thedtterminal.com/academy/fair-value-gaps) covers. Chapter 6 of 7 ## Zones and the higher timeframe A demand zone at a higher low in an uptrend, or supply at a lower high in a downtrend, **sits with the bigger trend**. Traders watch most closely the zones **whose departure broke structure**. Uptrend demand at the higher low [Replay in the app](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Dhigher-timeframe%23higher-timeframe) Downtrend supply at the lower high [Replay in the app](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Dhigher-timeframe%23higher-timeframe) **The higher timeframe outranks the lower one.** A strong M15 zone can still sit in the path of an H4 trend going the other way. Worked example ### Example 02: A demand zone against the higher-timeframe trend The worked example, with every number walked through, is in the app. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Dhigher-timeframe%23higher-timeframe) Free account **Go deeper** The diagrams use the same trends as the Market structure lesson. In each, the move out of the zone broke the last swing (a break of structure), so the base it left sits with the trend. When the higher and lower timeframes disagree, many traders **give the larger structure more weight**. In the example, the H4 downtrend made a lower high at 1.2795 and a lower low at 1.2650, and the M15 zone was a drop-base-rally. When price came back, the first test reached 1.2716 and bounced only 14 pips to 1.2730, about 30% of the departure. The next drop closed at 1.2702, 8 pips below the distal line, and the zone was gone. Rules for the rulebook might be: a fresh zone only, a base of one to three candles, a departure of at least the multiple you choose, and the higher timeframe trending your way. Turn the checklist into a rulebook Write your zone rules as a strategy in the Trading Lab, under Before the trade. The Rulebook panel on Add Trade then records which rules each zone trade met. Chapter 7 of 7 ## What weakens a zone Each return to a zone is thought to use up some of the orders left there. **The first test meets the most**; by the third, little may be left. A zone over time each visit uses some of it up The bars show the idea, not a measurement: **nobody can see the orders left in a zone**. A broken zone is sometimes watched from the other side, as the paragraph below says. - **A test** is one visit to the proximal line, however long it stays. - **A break** is a close beyond the distal line; a wick through that closes back inside is a test. - **A smaller bounce each time** warns that the zone is weakening. Worked example ### Example 03: A supply zone on XAUUSD that holds once and breaks on the second test The worked example, with every number walked through, is in the app. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Dtests-and-breaks%23tests-and-breaks) Free account Test your zone rules in the backtester Replay `EURUSD` on H1. Mark each zone as its departure ends and record what price does at tests one and two. **Go deeper** That is why many traders give a zone the most weight on its first test and **treat it as spent after one or two**. In the backtester, note each zone's height, its departure multiple, whether it is fresh and which way H4 is trending, before you see what comes next. In the example, price rallied into a two candle base and dropped away. The first test pushed $2.60 into the zone and turned, and price fell $18.50. On the second visit there was no turn: two candles in, the second closed at 3,346.70, above the distal line at 3,343.90. A broken zone is not always finished with. Traders often watch a broken supply zone as possible demand when price returns to it from above, and the reverse for broken demand. Treat that the same way as any zone: **something to test, not a certainty**. Quick review ## Check yourself Quick review · 0 of 0 Quiz ### Check yourself: 1 question Answer each question and see why it is right, in the app. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fsupply-and-demand%3Fsection%3Dcheck%23check) Free account [All lessons in The DT Intensive](https://www.thedtterminal.com/academy/courses/dt-intensive) [Previous](https://www.thedtterminal.com/academy/market-structure) ## Market structure Day 10 · 8 min read [Next in Learn to trade](https://www.thedtterminal.com/academy/fair-value-gaps) ## Identifying fair value gaps Day 12 · 9 min read ## Try it on your own account Connect a broker and DT Terminal verifies every trade against it. Free to start. [Start free](https://www.thedtterminal.com/login?signup=true&from=academy&entry=closing_card&redirect=%2Fjournal%2Facademy) [Back to DT Academy](https://www.thedtterminal.com/academy) DT Academy is education, not financial advice. Nothing here is a recommendation to buy or sell any instrument. Trading carries a high risk of losing money, and past results, examples and backtests do not guarantee future results. [Risk disclosure](https://www.thedtterminal.com/risk-disclosure) --- Risk disclosure: Futures, forex and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one's financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. [Read the full risk disclosure](https://www.thedtterminal.com/legal/risk-disclosure). This is the Markdown version of https://www.thedtterminal.com/academy/supply-and-demand. [Home](https://www.thedtterminal.com/) · [Verification](https://www.thedtterminal.com/verification) · [Pricing](https://www.thedtterminal.com/pricing) · [Supported brokers](https://www.thedtterminal.com/supported-brokers) · [Rankings](https://www.thedtterminal.com/rankings) · [About](https://www.thedtterminal.com/about) · [llms.txt](https://www.thedtterminal.com/llms.txt)