Okay, let’s cut the crap:
Drawing supply and demand zones shouldn’t feel like you’re deciphering ancient hieroglyphics.
It’s literally just drawing boxes on a chart!
But a shocking number of traders – from newbies to even many “SD experts” – screw this up, sending their whole supply and demand strategy down the drain.
That’s where I come in!
In this post, I’ll explain the right way to draw supply and demand zones, starting right from the source of your rally or decline and extending to the most recent swing low (for demand zones) or swing high (for supply zones). I’ll also explain how to identify the base to help you cover the right area when drawing zones.
Sound good?
Why Traders Draw Confusing Supply & Demand Zones (Hint: It’s Not Your Fault!)
Here’s the truth: Many so-called supply and demand “experts” draw confusing zones using ideas and concepts which don’t hold up.
It’s a bummer, but it’s true.
Just consider the following example:
Ever draw demand zones like this? (hopefully not!)
Clear base, steep rise… all signs of a solid zone.
What happens next?
Ooopsie – bye, bye stop loss!
See the problem now?
Using candle bodies ignores where smart money buying (demand) intially overcame selling (supply), creating the recent swing lows or highs.
Remember: Demand zones develop when a surge of buying interest overcomes selling pressure at the lows of candles. Buyers step in to push price back up, leaving behind lower wicks, sometimes forming pin bars or long lower shadow candlesticks.
Candle bodies simply show the distance price moved that day; nothing to do with smart money buying, which always comes in around highs or lows (peak buying/selling).
The Foolproof Guide to Drawing Supply and Demand Zones
Drawing accurate zones is one of the biggest challenges traders face. But what if there was a foolproof way to get it right every time?
Read on…
1) Identify The Base: The Birthplace of Supply/Demand Zones
Every supply and demand zone has a starting point, a foundation called the “base.”
It’s the small pause or consolidation seen right before the steep rally or decline. It might be just a few bullish or bearish candlesticks or a slightly longer sideways movement. Think of the base as a staging ground, where the smart money prepare and execute buy postions, setting the stage for the reversal pinpointing the supply or demand zone.
To draw zones correctly, you must include the base.
How to Find the Base: Look for a minor consolidation or pause in price action immediately before the beginning of a steep rise or decline.
See that little cluster of price action right before the market took off?
That’s what we call the “base.”
It’s where the smart money stepped in and started buying, creating the demand that fueled the rally. Buying also requires sellers, remember. The lows and wicks you see underneath the base? That’s sellers getting taken out, allowing the smart money to accumulate buy positions (demand) at cheaper prices.
We’ve talked about how most supply and demand zones are born from a base formed by a small price action build up – kind of like a mini-battle between buyers and sellers. But sometimes, you’ll see zones spring from a few candlesticks.
This creates a slightly different zone structure, so let’s take a closer look.
The base itself is just one – three candlesticks, and it’s the opposite color of the candles that make up the rally away from the zone.
In an uptrend, you might see a single red candlestick at the low, followed by a strong upward move.
In a downtrend, look for a single green candlestick at the high, followed by a sharp decline.
For these zones: Use the swing low candlestick for the base.
2) Drawing Supply & Demand Zones: A Clear/Concise Guide
Phew, you’ve found the base!
That’s the trickiest part, believe it or not. But don’t get too comfy just yet… You still need to draw the supply or demand zone itself.
You’ll hear all sorts of “expert” advice on how to draw supply and demand zones. Some say you should draw them from candle bodies, others have their own fancy methods. There’s only one way to draw zones that truly captures where supply or demand enters the market.
Let’s go through some examples…
A surge of buying created this upswing, sending prices higher. So, a demand zone definitely lurks at the source of the rally (the base).
But how do you pinpoint the exact boundaries of the zone?
- Find the Low Point: Locate the most recent swing low near underneath the base.
- Spot the Calm Before the Storm: Identify the last small candlestick before price took off.
- Draw the Zone: Place your rectangle tool on the swing low and drag to encompass the small candlestick.
Pro Tip: Ever heard of Proximal and Distal lines? These terms are commonly used to refer to the edges of supply and demand zones: the distal line is the furthest edge, while the proximal line is the closest edge.
See? Not so complicated after all!
Your zone now covers the entire base, from the most recent swing low (distal line) all the way up to the little candlestick that marked the start of the rally (proximal line). If price returns to this area, keep your eyes peeled for potential long (buy) entries inside the zone!
But about drawing supply zones?
No worries, those are easy too!
- Find the High Point: Locate the most recent swing high above the base.
- Calm Before the Storm: Identify the last small candlestick before price plunged.
- Draw the Supply Zone: Place your rectangle tool on the swing high and drag down to the small candlestick.
Your zone now covers the entire base area, encompassing the consolidation highs down to the source of the decline, where price finally overwhelmed demand.
“But what about those zones with a single candle base?”
In this case, the single candle itself is the breakaway point.
- For demand zones: Mark the zone from the candle’s open up to the most recent major swing high.
- For supply zones: Mark the zone from the candle’s open down to the most recent major swing low.
Other than that, the drawing process is exactly the same.
3) Almost Ready: Check And Refine Your SD Zones!
Now, let’s check and refine your zones.
The whole point of identifying supply and demand zones is to capture where smart money buying or selling (aka demand or supply) entered the market. Your zones should encompass any minor highs or lows within the base or nearby; peak buyers or sellers exist here, making them hotspots where smart money disguised their buying or selling.
Tweaking the Distal Line: The distal line (furthest away from current price) might need a little adjustment too. Make sure it’s sitting right on top of the most recent swing high or swing low. This ensures your zone captures the full range of the smart money’s supply/demand activity.
Check the Proximal Line: The edge of the supply or demand zone closest to the current price (the proximal line) is critical for entry and stop loss placement. Ensure it drawn from the beginning of the steep rally or decline that created the base.
And there you have it!
The zone just sits horizontally, right next to the current price action. You’ll be able to spot when price jumps in and if any entry signals show up.
Easy, right?
Drawing SD Zones: Your Questions Answered (With Examples!)
Struggling to drawing supply and demand zones? This FAQ tackles the most common questions from our readers, providing multiple examples and practical tips to improve your understanding of how to draw supply and demand zones correctly.
Hi.
Thanks for tips provided in your articles.
I have also been reading your others articles esp on Supply/Demand Zone, and I would like to seek the following clarifications on the article “How to easily draw supply and remands zones”:
Supply zone (formed with Base) is drawn fr the Open of the last bullish candle to the most recent high before the drop.
In the first EURUSD chart (under the section “Locating Supply Zones”), the zone does not seem to be consistent with the definition. Should it be drawn as indicated in blue dotted line of the following image: 
In the e.g. provided for drawing Supply zone (under the section “How to draw Supply and Demand Zones”), should the most recent high be the candle indicated by the blue arrow in the following image (hence the zone should be narrower):
3. For zone formed by single candle, is it correct that they should be from opening of the last bullish candle to its high (for Supply zone) and from opening of the last bearish candle to its low (for Demand zone)?
Kindly advise.
Thanks.
My Response:
About your first question, you’ve got it spot on…
The supply zone you’ve drawn uses the proper technique. The differences with my article’s images are likely because I updated the article a while back… and may have missed updating a few images.
So, yes… it can get a bit confusing.
For your second query, the supply zone should actually originate from the high point I’ve marked on the image.
When I referred to ‘the most recent high,’ I meant ‘the most recent SWING high,’ not just any random high preceding the drop. This applies to demand zones, too, where you’d draw the zones from the most recent swing low instead of the swing high.
Your understanding of single candle zones seems quite accurate…
So, you’re all good to go there—no changes needed.
Keep those questions coming!
PAN.
Hello,
Thanks for all your help in the past. I have another question however and hopefully you can clarify. I have included a picture illustrating my query.
Thank you.
Response:
Let’s revisit the supply in the image you’ve sent.
Ideally, it should be drawn from the bearish candle which follows the large bullish candle, not from the bullish candle itself.
Yep, I know… that one’s on me.
I missed mentioning these kinds of zones which often crop up in the market.
I’ll go back and touch on this in the article.
Here’s a quick tip: Always draw your zones from the candle with the smaller body. All Supply and Demand (SD) zones are made up of two candlesticks.
You want to sketch your zone from the candlestick with the smallest body.
In the image you’ve shared, this was the bearish candle which caused the market to fall out of the zone.
So, this would be your go-to candle for drawing the supply zone.
Need some more help?
Don’t hesitate to ping me.
PAN.
Hi,
I have attached USDCAD 1H chart. i made comments on the chart itself for my analysis. 
I basically marked demand zone on the bullish candle before the move up, does the size on the most recent candle matter because i see on this chart this candle is so small.
Best regards.
My Response:
Your analysis looks sound to me…
The price rise is likely due to either profit-taking or banks executing trades, thereby creating a demand zone. Upon seeing this, you marked the region as a demand zone, patiently waiting for the price to revisit.
The idea being, there’s a high chance of banks wanting to reap more profits from their trades or place additional ones.
The drop into the demand zone was a deep pullback, which the banks employ to prompt a mass of traders to enter counter to the direction the banks want the price to move.
When sufficient traders have entered, banks step in and execute more buy trades.
This is primarily responsible for the ongoing upward price movement.
Your trade execution was excellent…
Keep up the good work!
Have a great week!
PAN.
Q: Are RBR/DBD Zones Drawn Differently To DBR/RBD Zones?
A: Draw all supply/demand zones the same.
The only difference between RBR/DBD zones and DBR/RBD zones is location. Drawing and trading both types of zone follows the same rules/guidelines. RBR/DBD zones may sometimes form with a less clear base, but you still draw the zone in the same way.
Q: What Time Frame Should You Use To Draw Supply And Demand Zones.
A: Draw supply and demand zones on whatever timeframe you used to find and enter trading opportunities. Zones form on any and all timeframes, so get out there and find those zones!
The Bottom Line
Getting the hang of drawing supply and demand zones might take some time, but you know what they say—practice makes perfect.
Just keep at it, and don’t be afraid to go back and fix those wonky zones you drew before.
Give ’em a makeover with the tips I shared, and you’ll be a pro in no time!
Grab Your FREE E-Book:
5 Pro Rules For Trading Supply And Demand
- Master the core principles of supply & demand.
- Advanced techniques for trading SD zones.
- Exclusive new lessons/books/tools every week!
Sign Up Now To Download Your FREE Guide:
🛡️ Spam-Free Promise: No spam, ever. We'll only send you relevant updates and content. Unsubscribe at any time.
Hi there, I have 2 questions:
1) when the base consists of multiple small / medium sized candles – which candle should be taken as the small base candle from which we draw to the swing high / low? The last one before the price breakout? the second last one? The smallest one in the consolidation area? The resolution of pictures above is pretty low so it’s not that clear.
2) Let’s say I’m trading of 5-15 min timeframe chart. I have found that in this case the zone should be drawn using 1D candles chart. But how many days should I take into consideration? Only the last day or two? Or a week?
What should the settings on the chart be to draw the supply and demand zones?
Thank you