Combining Close Zones
Have you ever entered a trade from a supply or demand zone, only to watch price spike straight through the zone without showing the reversal you expected?
Or perhaps you’ve had an even more frustrating experience: two supply or demand zones sitting close together, only for price to break through both—leaving you with two losing trades instead of one.
If you’ve experienced this, you’re not alone.
Stacked or closely positioned zones can create a difficult situation. On the one hand, each zone may look like a valid trading opportunity. But when they’re close enough together, treating them as completely separate zones can sometimes create unnecessary risk.
Price may reverse somewhere between the two zones, leaving you wondering which zone actually mattered. Alternatively, price may continue through the first zone, trigger your trade, and then move into the second zone—potentially resulting in another entry and another loss if price continues moving against you.
The solution?
Combine Close Zones into One Larger Zone
Instead of treating multiple closely formed zones as separate trading opportunities, you can combine them into a single, unified zone.
This creates one broader area of interest that accounts for the entire cluster rather than forcing you to predict exactly which individual zone will produce the reaction.
By merging closely positioned zones, you can:
- Reduce unnecessary entries when multiple zones are stacked together.
- Avoid doubling your losses when price breaks through one zone and reaches the next.
- Reduce the chances of being caught by reversals between zones.
- Simplify your charts by removing overlapping or closely positioned areas.
- Create a clearer area of interest for your entry confirmation.
- Manage your overall risk more effectively by treating the cluster as one setup.
The key, however, is knowing which zones should be combined and which should remain separate.
You don’t want to merge every zone that happens to be relatively close together. The distance between the zones, the resulting risk, and the quality of the combined area all need to be considered.
When done correctly, combining zones can turn several potentially confusing areas into one clear, actionable zone.
And that’s exactly what we’re going to look at next.
Sound good? Let’s jump in.
Why Combine Nearby Supply/Demand Zones?
Take a look at this AUD/CHF chart:
Here, we see three RBR demand zones stacked almost ontop one another — a common occurrence in supply and demand trading. Most traders will mark and trade these zones individually:
- Trade 1: Enter when price touches the first (higher) zone.
- Trade 2: Enter again if price breaks the first zone and touches the second (lower) zone.
- Trade 3: Enter the lowest RBR zone if price breaches the upper two demand zones.
This seems logical, but there are two key problems with this approach:
Price Reverses Between the Zones: Sometimes, price spikes past the first zone without reaching the second, instead reversing inside the small gap found in-between the zone.
You lose the first trade and completely miss the reversal because you failed to enter the second zone before price broke through it on the downside.
Not ideal!
Double Losses When Both Zones Fail: If price breaks both zones, you lose on two trades. Instead of managing one controlled loss, you’re stuck with double the damage.
Notice Title
Key Point: Many traders might blame themselves for the failure of the zones above, but the issue isn’t on you. The real problem lies in the method of using multiple stacked zones without considering how they interact. When price tests both zones and fails, it’s a natural consequence of having too many conflicting zones instead of combining them.
The Solution: Combine the Zones
Rather than trading each zone individually, and taking on double the risk plus the spread, merge them into one larger supply or demand zone
Here’s what happens when you combine zones:
Eliminates Missed Reversals: By consolidating two smaller zones, you naturally fill the gap between them, creating a unified area where price is more likely to reverse. You effectively capture price movements that would otherwise slip through the cracks.
You’ll never miss a trade simply because price reversed between two separate zones.
Reduces Overall Risk: While the combined zone is larger in size, your overall risk remains nearly unchanged. Merging zones also helps you avoid doubling up on potential losses, allowing you to maintain similar risk management and position size while boosting the chances of price reversing from your zones.
How to Combine Zones: A Quick Guide
Step 1: Identify Close Zones
Look for zones that are stacked on top of each other, with little to no gap between them.
Example:
These two DBD supply zones, almost touching but not quite, are perfect candidates for merging into a singular supply zone.
Step 2: Draw the Combined Zone
Mark the upper boundary of the top zone. Now, extend the zone down to the lower boundary of the bottom zone stacked underneath (edge of the base).
This creates a single, larger zone that encompasses both smaller zones.
What to Avoid:
- Wide Gaps Between Zones: If the zones are far apart, combining them increases risk unnecessarily. Example: Two zones with a 500-point gap would result in a massive combined zone.
- Rule of Thumb: If the gap between zones makes the total risk significantly higher than trading the zones individually, don’t combine them.
Example: Combining Zones
Stacked Zones Example
Here’s a set of stacked demand zones on Usd/Jpy:
Bingo! We’ve identified two potential demand zones, and they’re very close in proximity.
- Middle Demand Zone: 449 points (49 Pips)
- Lower Demand Zone: 343 points (34 Pips)
Because the two zones are so close together, we can effectively re-draw them as one combined zone. Merging these two demand zones strengthens the likelihood of price reacting in this range, as both areas share similar characteristics and price history.
By combining them, we create a single demand zone with a total size of ~830 points, (83 pips) keeping the risk much smaller and manageable than trading each individual zone.
Wide Gap Example
Now, let’s look at two zones that are too far apart:
- Upper Demand Zone: 709 points
- Lower Demand Zone: 449 points
- Gap Between Zones: 830 points
In this scenario, merging the zones would create a massive zone over 1,500 points wide! The risk skyrockets, making it more sensible to trade these zones individually rather than combining them.
Pro Tips for Combining Zones
Pro Tips for Combining Zones
Combining supply and demand zones can be a powerful way to simplify your chart, reduce unnecessary zone clutter, and create cleaner areas of interest. However, not every zone should automatically be combined. The quality of the setup depends on how closely the zones are positioned, how the risk changes after combining them, and how you manage your entry once the new zone has been formed.
Here are a few important tips to keep in mind:
1) Focus on Close Zones
The closer the zones are to one another, the more logical it is to consider combining them. Ideally, the zones should be stacked with very little space between them.
When multiple zones sit tightly together, treating them as one larger area can make the chart much easier to read and reduce the temptation to overanalyse every individual zone. It can also help create a more reliable area of interest because you’re accounting for the entire cluster rather than focusing on just one zone.
On the other hand, if there is a significant amount of space between two zones, combining them can unnecessarily widen your entry area and increase your exposure. In these situations, it is often better to keep the zones separate and allow price to interact with each one independently.
A simple rule: the closer and more naturally stacked the zones are, the more suitable they are for combining.
2) Use Risk as a Guide
Risk management should always be the deciding factor when combining zones.
Before treating multiple zones as one, calculate how the combined setup affects your stop-loss distance, position size, and overall monetary risk. A larger combined zone will often require a wider stop, which can significantly change the risk profile of the trade.
For example, if combining two zones creates a much wider area and forces you to increase your stop-loss substantially, the setup may no longer offer the same risk-to-reward characteristics as trading the zones individually.
If the combined risk becomes significantly greater than the risk of trading either zone separately, consider keeping them separate instead.
You can also compensate for a wider zone by reducing your position size. The objective isn’t simply to create fewer zones on your chart—it is to simplify your analysis without compromising your risk management.
Remember:
Combining zones should simplify your trading, not increase your risk unnecessarily.
3) Refine Your Entries
Once you’ve combined the zones, don’t treat the entire area as an automatic entry.
Instead, use your normal entry criteria to determine where and when you actually want to enter the trade. Look for the same confirmation signals you would normally use, such as pin bars, engulfing candles, or LRCs (Last Reliable Candles), within the newly formed zone.
This is particularly useful because a larger zone gives you an area of interest, but your entry trigger can help you identify the more precise point within that area where you want to take the trade.
Think of it as a two-step process:
Zone = Location
Entry signal = Confirmation
Combining zones should therefore give you a cleaner area to work from, while your entry model remains responsible for determining whether you actually take the trade.
4) Don’t Combine Zones Just to Make the Chart Look Cleaner
One of the biggest mistakes is combining zones simply because you want fewer zones on your chart.
The purpose of combining zones is to improve your decision-making—not just the appearance of your chart.
If two zones are technically different, have meaningful space between them, or produce very different risk profiles, there may be little benefit in forcing them together. Sometimes keeping zones separate provides more useful information about where price may react.
Only combine zones when doing so makes sense from both a price-action and risk-management perspective.
5) Reassess the Zone After Combining
After creating a larger combined zone, take a moment to reassess it as a whole.
Ask yourself:
- Does the new zone still represent a logical area of supply or demand?
- Has the zone become unnecessarily wide?
- Does the combined zone still offer an acceptable risk-to-reward opportunity?
- Where would the invalidation point logically sit?
- Is there a clear entry signal within the zone?
- Would trading the zones separately provide better risk control?
This extra step prevents you from blindly combining zones and helps ensure that the new zone still fits your overall trading plan.
Final Thoughts
Combining supply and demand zones is a straightforward technique that can make your charts cleaner, simplify zone identification, and potentially improve consistency when trading S&D zones.
However, the goal isn’t to combine as many zones as possible. The key is to identify clusters of closely positioned zones where treating them as one area makes logical sense.
I’ve used this approach extensively across multiple timeframes, and it has been one of the primary factors in helping me simplify my zone identification process while also becoming more conscious of risk. Rather than having multiple overlapping zones competing for attention, I can focus on the broader area and then use my normal entry criteria to find the most precise opportunity within it.
Ultimately, combine zones for clarity, manage the risk carefully, and let your entry model determine when to execute.
Combining supply and demand zones is a straightforward technique that can improve your consistency when trading S&D zones. I’ve used this approach extensively across multiple timeframes, and its been one of the primary factors behind both cutting risk and boosting profitability by simplifying the zone identification process.
Now, let’s move on to the next video…