Don’t Make This Mistake Drawing Supply And Demand Zones

Ever drawn a supply or demand zone, only to watch price come back, tease a reversal, and then turn without any clear entry signal?

It’s happened to all of us, hasn’t it?

It’s tempting to chalk it up to bad luck or some mysterious market force at play.

And sometimes, that might be true.

But in most cases, it’s because of a tiny mistake traders sometimes make when drawing the supply or demand zone in the first place.

Ready to learn what that mistake is and how to fix it?

Keep reading…

Don’t Forget: Use SupdemV2 (SD zone indicator) to help identify and draw accurate zones.

The Zone That Got Away: The Frustrating Reality of Missed SD Trades

Take a look at the supply zone below…

Looks fine, right?

The supply starts from the close of the last small candle before the steep decline, the upper boundary (distal line) sits on the highest swing high above the base, and the decline itself clear had some money behind it … What happens when price returns?

Price attempts to revisit the supply zone but reverses just before hitting the lower boundary (proximal line), providing no entry, no reversal, and worst of all:

A missed trade that would’ve been profitable.

What’s the crack?

You might think it’s just bad luck, or some inexplicable market force at play.

But, in this case, that’s not it…

The real reason price didn’t reverse at the supply zone is simple: it was incomplete. It didn’t include the fresh swing highs created just after price reversed – points smart money likely piled on more sell trades to boost short-term profits and ride the downtrend even further. This results in drawing zones too small, missing key points where additional smart money buying or selling entered the market.

This supply zone wasn’t a one-and-done deal: 5 smaller highs within indicate smart money selling came into the market on five seperate occasions.

Let’s break it down:

Highs 1 & 2: These put the brakes on the previous upswing and started the initial drop.
Highs 3 & 4: A few days later, price tried to fight back. SM stepped in shut down the comeback by selling.
High 5: The last batch of selling triggered the major decline that reversed the uptrend and formed the supply zone.

What does this mean?

Always include any nearby highs or lows within your supply and demand zones, especially those created just after the initial reversal. These represent further potential entry points for the smart money.

How To Draw Supply/Demand Zones To Include Smart Money Buying Or Selling (Nearby Highs & Lows)

Want to draw zones that truly captures where the smart money were trading? You need to identify and include nearby highs and lows.

Here’s a quick guide:

1) Scout the Surroundings: Take a closer look around your supply or demand zone. Are there any nearby highs or lows that stand out? Remember, someone had to step in and trade against the prevailing sentiment to create the highs or lows points. (I wonder who?)

See the swing lows above the demand zone? (black arrows)

This is smart money buying – who else could suddenly reverse price and push it higher? Since SM might decide to trigger another reversal around these new lows instead of around the original zone, you should adjust your demand zone to include them.

2) Bigger Is Better: Just extend your zones proximal line (the edge closest to current price) to the highest low or lowest high you believe smart money entered the market:

For Demand Zones: Extend your proximal line to the end of the highest low you believe smart money entered the market and contributed further buying (demand) to the rally.

For Supply Zones: Place your proximal line on the tip of the lowest high where you believe smart money selling (supply) continued the decline.

The highs and lows in these examples might not look exactly the same for every zone you find.

But if you follow these rules and extend your zone to include nearby highs or lows, you’ll be drawing accurate supply and demand zones most of the time. Even if your zone isn’t 100% perfect, it’ll still cover more smart money’s footprints (highs and lows) than if you’d ignored the extra swing points anyway.

The Bottom Line

Revisit some old supply and demand zones on your charts. This time, redraw them to include any nearby highs and lows where the smart money might have been active.

Redrawing old zones will help you:

• Get a better feel for how to draw zones accurately and consistently.
• See how many potential trades you might have missed because your zones weren’t quite right.
• Realize why it’s important to include points where smart money entered additional trades when marking zones.

Remember, practice makes perfect!