Trade institutional order imbalances where price reversal probability is highest.
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Overview
Supply and Demand Zone trading is one of the most robust forms of technical analysis because it is rooted in basic economics: price moves when there is an imbalance between buyers and sellers. A Demand Zone is a price area where buying orders overwhelmed selling orders so intensely that price left rapidly β these unfilled buy orders are theorized to remain in the market, creating a high-probability bounce area when price returns.
Supply Zones are the inverse: areas where massive selling pressure overwhelmed buyers, causing a sharp drop. The visual signature of a strong zone is a "basing" candle (or candles) followed by an explosive directional move. The stronger and faster the original move away from the zone, the more significant the unfilled orders, and the higher the probability of a reaction when price revisits.
The strategy's edge comes from its asymmetric risk/reward: entries are placed at the near edge of the zone with stops just beyond the far edge, targeting at least 2:1 or 3:1 reward. A zone is considered "used up" and weakened after multiple retests, as the original orders are progressively filled.
Supply and Demand analysis closely overlaps with Smart Money Concepts β both look for areas of institutional activity. The key difference is that S&D purists focus on the visual imbalance pattern, while SMC practitioners incorporate additional concepts like order blocks, liquidity, and market structure.
Strategy Code
This is a TradingView Pine Script strategy example for this page concept. Paste it into the TradingView Pine Editor, add it to your chart, and run it in the Strategy Tester.
//@version=6
strategy("Supply & Demand Zones", overlay=true)
emaFast = ta.ema(close, 20)
emaSlow = ta.ema(close, 50)
bullStructure = close > emaFast and emaFast > emaSlowThis is a thinkorswim ThinkScript strategy example for this page concept. Open thinkorswim, create a custom strategy, paste the script, and apply it to your chart.
def fast = ExpAverage(close, 20);
def slow = ExpAverage(close, 50);
def liquidityGrab = low < Lowest(low, 10)[1] and close > open;
def buySignal = close > fast and fast > slow and liquidityGrab;
def sellSignal = close < fast;Join thousands of traders who use auto-Trading to execute this strategy automatically, 24/7.
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