Supply and demand: zones of interest

What you are marking

Look for a place where price sat quietly and then left fast. The quiet part is the base; the fast part is the impulse. The zone is the base.

The drawing convention is specific enough to be repeatable, which is the main thing to demand of any convention:

• A demand zone — take the last down candle before the move up, and draw from the top of its body to the bottom of its wick.
• A supply zone — the mirror image: the last up candle before the move down, from the bottom of its body to the top of its wick.
• Extend it to the right, and leave it there. It is fresh until price returns to it for the first time.

Why would price come back?

Two explanations circulate. They are not equally checkable, and it is worth being clear about which one you are relying on.

The usual one

Large participants could not fill everything they wanted before price ran away, so unfilled orders remain there and price returns to complete them. Plausible, and you cannot verify a word of it — nobody publishes what is left unfilled in whose book.

The one you can check

The zone is obvious. Everyone who draws zones drew that one, from the same candle, using the same rule. So orders are resting there now, placed by people you can see the effect of when price arrives.

The second explanation is enough. It is the same mechanism as every other level in this stage, it requires no story about anybody's intentions, and it makes a prediction you can test: if the zone matters, arriving there will produce visible activity. Reading that activity is the next stage of this path.

The vocabulary

Three terms you will meet, all describing shapes rather than causes:

• Order block — the last opposite candle before a structural break. The same object this article has been describing, named from a different tradition.
• Breaker block — a zone that failed and is now watched from the other side, on the argument that people trapped there will act when price returns.
• Liquidity pool — the area above obvious highs or below obvious lows where stop orders collect. Not a zone in this sense at all: it is fuel, and the article on chart patterns explained what happens when it ignites.

The problem with the rectangle

Now the honest part, and it is the same criticism the regression channel earned in an earlier stage.

You drew it. You chose the candle, you chose the width, and you did it after seeing what happened next. A zone wide enough is never wrong.

A twenty-point rectangle on an instrument that moves a few hundred points a day will be touched, respected and broken several times in a week — and you will remember the times it held. This is not a flaw in the concept. It is a flaw in how the concept is usually taught, without a rule for the width.

Three habits fix it, and they cost nothing:

1. Fix the drawing rule in advance — body to wick of the last opposite candle — and never widen a zone to include a price that just missed it.
2. Mark it before price returns, not while you are looking for a reason to trade.
3. Give it a life. A zone that has been tested three times is not the zone you drew: whatever was resting there has been consumed, and the level is now just a place where things used to happen.

Where to draw them

The hierarchy from the playbook matches the layers from stage 2: mark zones on the higher timeframe, refine on the lower. A zone from the daily chart describes a wide area of interest; the hourly chart inside it identifies the specific base; the five-minute chart is where you watch what actually happens.

A zone marked on the five-minute chart alone is a zone about the last two hours, which is fine as long as you know that is what it is.

That is stage 6

The map is now complete: the levels everybody can see, what happens when several coincide, the four shapes a session takes, and the areas price left in a hurry.

Every one of them answers where. Not one answers what happens there, and each article has said so in its own way. That question is the whole of the next stage, and it is the one this site was built for.