Supply & Demand Course Progress
6 of 15 LessonsFresh vs. Used Zones, Strong vs. Weak
Lesson 6: Learn how to distinguish between high-probability and low-probability zones
Understanding Zone Quality for Better Trading Decisions
Welcome to Lesson 6 of our supply and demand trading course. In our previous lessons, you've learned how to identify, draw, and enter trades based on supply and demand zones. However, not all zones are created equal. In this crucial lesson, we'll explore the characteristics that distinguish high-probability trade setups from low-probability ones by understanding the difference between fresh vs. used and strong vs. weak zones.
TLDR Summary
- Fresh zones (untested) are significantly more reliable than used zones (previously tested)
- Strong zones have powerful departures and clean structure; weak zones have sluggish departures or messy price action
- The more times a zone is tested, the weaker it becomes
- Higher timeframe zones are stronger than lower timeframe zones
- The strongest setups combine fresh zones with strong structural characteristics
Fresh vs. Used Zones: Why It Matters
One of the most crucial distinctions in supply and demand trading is understanding the difference between fresh and used zones:
Fresh Zones
- Definition: Zones that have not been revisited by price since their formation
- Why they work: Contain unf Filled orders and represent genuine institutional interest levels
- Reaction: Typically produce stronger, more reliable price reactions
- Win rate: Generally have much higher probability of success
Used Zones
- Definition: Zones that have been revisited by price one or more times
- Why they're weaker: Orders have been partially or fully filled, reducing imbalance
- Reaction: Produce increasingly diminished reactions with each test
- Win rate: Significantly lower probability of success with each subsequent test
Figure 1: Comparison of price reactions at fresh vs. used zones. Note how the reaction becomes weaker with each subsequent test.
Understanding the impact of zone usage is critical because the market has memory. When a zone is first formed, it represents an area where a significant order imbalance occurred. However, once price returns to this level, some of those orders get filled, reducing the imbalance. With each subsequent test, the zone becomes incrementally weaker.
The Life Cycle of a Supply or Demand Zone
Every supply and demand zone goes through a predictable life cycle:
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1
Formation (Birth)
The zone is created by an institutional order imbalance, resulting in a strong price move away from the level. At this point, the zone is fresh and at its strongest potential.
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2
First Test
When price returns to the zone for the first time, it typically still produces a strong reaction, though slightly less powerful than its initial departure. The zone is now considered "used" but still valuable.
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3
Second Test
The second test usually produces a moderate reaction. The zone still has some strength but is considerably weaker than when fresh. Trading this test requires more confirmation signals.
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4
Third Test and Beyond (Death)
By the third test, most zones have lost the majority of their effectiveness. The reaction is typically weak or non-existent. Eventually, price will break through the zone completely, signaling its death.
Figure 2: The life cycle of a typical supply zone, showing diminishing reactions with each test until final breach.
Strong vs. Weak Zones: Structural Characteristics
Beyond freshness, zones also vary in their structural strength. Here are the key characteristics that determine whether a zone is strong or weak:
Characteristics of Strong Zones
- Powerful departure: A strong, impulsive price move away from the zone (preferably 3x or more of the zone's height)
- Clean structure: Minimal price action within the zone itself, with few or no wicks or overlap
- Narrow width: The more compact the zone, the more precise the level of institutional interest
- Higher timeframe: Zones on higher timeframes represent larger institutional orders
- Market context: Aligned with the dominant trend or at key structural levels
Characteristics of Weak Zones
- Sluggish departure: A slow, choppy, or hesitant move away from the zone
- Messy structure: Excessive price action, wicks, or overlapping candles within the zone
- Wide zones: Excessively large zones that lack precision
- Lower timeframe: Zones identified on very low timeframes that aren't confirmed on higher timeframes
- Counter to context: Going against the dominant trend without compelling evidence
Figure 3: Comparison of strong demand zone. Notice the clean structure and departure compared to messy structure and sluggish departure seen in weak zones.
The Power of Momentum Departure
Perhaps the single most important factor in determining zone strength is the momentum with which price departs from the zone. This powerful exit reflects the degree of order imbalance at that level:
Figure 4: Illustration of a strong momentum departure from a supply zone, indicating significant institutional selling pressure.
Combining Freshness and Strength for Optimal Setups
The highest probability trading setups occur when you combine the concepts of fresh zones and strong zones. A fresh zone with strong structural characteristics (powerful departure, clean structure, narrow width, higher timeframe alignment, and favorable market context) is the ideal setup for a high-probability trade.
Practical Application: Identifying High-Probability Zones
To apply these concepts in your trading, follow this checklist when evaluating a supply or demand zone:
- Is the zone fresh? Check if the price has revisited the zone since its formation.
- How strong is the departure? Look for a strong, impulsive move away from the zone (ideally 3x the zone’s height).
- Is the structure clean? Ensure minimal price action, wicks, or overlap within the zone.
- Is the zone narrow? Compact zones indicate precise institutional interest.
- Does it align with a higher timeframe? Confirm the zone’s significance on a higher timeframe chart.
- Is it in line with market context? Ensure the zone aligns with the dominant trend or key structural levels.
Interactive Quiz: Test Your Knowledge
Quiz: Fresh vs. Used, Strong vs. Weak Zones
1. What is the primary difference between a fresh and a used zone?
2. Which characteristic is NOT typical of a strong zone?
3. After how many tests does a zone typically lose most of its effectiveness?
Conclusion
Mastering the concepts of fresh vs. used and strong vs. weak zones is essential for improving your trading accuracy and profitability. By focusing on fresh zones with strong structural characteristics, you can significantly increase your win rate and avoid low-probability setups. Use the checklist provided to evaluate zones systematically, and always confirm zones across multiple timeframes for added confluence.
In the next lesson, we'll explore advanced entry techniques to refine your trade timing and maximize your risk-to-reward ratio. Stay tuned!