How to Confirm Supply and Demand Zones in
Forex Trading Professional Guide Based on the Supply and Demand Methodology
Introduction
Confirming supply and demand zones is a critical process in the methodology of the Supply and Demand School. It allows traders to filter zones and identify those that truly represent areas of institutional liquidity. Before placing trades based on these zones, it’s essential to validate whether they are genuine or not.
This guide presents two key methods used to confirm supply and demand zones effectively.
Method 1: Technical Confirmation Based on Structure Breaks
To confirm a supply or demand zone, three main conditions must be met:
1. The Zone Must Break a Trend Line
• The price must break a valid trend line that aligns with the current supply or demand structure.
• The break must be clear, with a candle opening and closing entirely outside the trend line.
• No part of the candle, including its wicks, should touch the trend line after the break.
• If this condition is met, the trend line is considered broken—fulfilling the first confirmation criterion.
2. Full Candle Closure Outside the Zone
• A candle must form with both its body and wicks entirely outside the drawn supply or demand zone.
• There must be no contact whatsoever with the zone, including the candle wicks.
• This indicates that price has clearly moved away from the zone, validating the second condition.
3. Price Movement Should Be at Least Double the Zone’s Size
• If the zone size is 50 pips, price must move at least 100 pips away from it.
• Greater movement beyond this minimum distance strengthens the zone’s credibility.
• This price reaction confirms the presence of real liquidity and validates the third condition.
Once all three conditions are met, the zone can be considered a confirmed (validated) supply or demand zone suitable for trading.
Method 2: Confirmation Through Previous Zone Breaks
This method relies on price behavior around previously confirmed zones:
1. Price Must Break and Close Beyond a Previous Confirmed Zone
• For supply zones, the price must break above and close fully above a previously confirmed zone.
• For demand zones, the price must break below and close fully below a previously confirmed zone.
• The breakout candle must not touch the zone, no wick contact is allowed.
This shows the strength of the move and marks the beginning of a potential new zone.
2. Price Movement Must Be at Least Double the Size of the New Zone
• Similar to the first method, the new zone is measured in pips.
• If the new zone is 30 pips wide, price must travel at least 60 pips beyond it to confirm strength and validity.
3. Full Candle Closure Outside the New Zone
• A new candle must open and close completely outside the newly drawn zone.
• There must be no overlap or wick contact with the zone.
When these three conditions are met, the new zone is considered confirmed and eligible for trading.
Key Notes on Zone Confirmation
• You only need to apply one of the two methods to confirm a zone. It’s not required to meet both.
• However, if a zone satisfies both methods, this significantly increases the zone’s strength and reliability.
• Confirmed zones are more likely to represent true institutional order flow, providing better trade setups.
Conclusion
By applying either of the two outlined methods, traders can confidently distinguish between valid and unreliable supply and demand zones. This validation process enhances trading accuracy and helps identify high-probability zones on the chart.
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