ICT & SMC Core Module

Lesson 06: Supply And Demand Zones

Not just for ICT & SMC - this topic is crucial for every trading strategy. Simply put, the market runs on this.

📌 What are Supply And Demand Zones?

This is not just important for ICT & SMC, it's a crucial topic for every trading strategy. Simply put, the market runs on supply and demand. So without further ado, let's dive into the topic.

🟢 What is a Demand Zone?

When the market is selling and suddenly there's a large volume of buying, that's when a demand zone is formed. This means when the market is going down, buyers are ready to buy. Not in small amounts, but in large quantities all at once. The market then starts buying from that point. We call such a place a demand zone.

Zone Strength: After a demand zone is formed, the market movement as it reverses and buys from that zone determines how strong that zone is.
Line Chart vs Candle Stick Chart: To make it clearer, I'll show you both a line chart and a candle stick chart.
Key Point: In a demand zone, the candle body must close outside the zone. Only then can it be considered a valid demand zone.

📈 Line Chart - Demand Zone

🕯️ Candle Stick Chart - Demand Zone

🔴 What is a Supply Zone?

When the market is buying and suddenly there's a large volume of selling, that's when a supply zone is formed. This means when the market is going up, sellers are ready to sell. Not in small amounts, but in large quantities all at once. The market then starts selling from that point. We call such a place a supply zone.

Zone Strength: After a supply zone is formed, the market movement as it reverses and sells from that zone determines how strong that zone is.
Line Chart vs Candle Stick Chart: To make it clearer, I'll show you both a line chart and a candle stick chart.
Key Point: In a supply zone, the candle body must close outside the zone. Only then can it be considered a valid supply zone.

Line Chart - Supply Zone

️ Candle Stick Chart - Supply Zone

📊 How Zones Form from Sideways Movement

When the market moves sideways at one place and then suddenly makes a big move, a supply zone or demand zone is formed there.

Sideways = Accumulation/Distribution: When the market stays at one place, institutional traders accumulate or distribute their orders.
Breakout Direction: The direction in which the market breaks out from the sideways movement determines whether it's a demand zone or supply zone.
Strong Breakout = Strong Zone: If the market breaks out from the sideways with large candles, that zone is considered a very strong zone.

⚡ How to Identify Zone Strength

Not all zones are the same. The strength of a zone is determined by several factors.

✅ Strong Zone: If the market leaves the zone quickly with large candles (sharp departure), it's a strong zone.
❌ Weak Zone: If the market leaves the zone slowly with small candles (slow departure), it's a weak zone.
📈 Fresh Zone: If the market is coming to the zone for the first time, it's very strong. Second or third visits reduce the strength.
🕐 Timeframe: Zones formed on higher timeframes (1H, 4H, Daily) are stronger than those on lower timeframes (5M, 15M).

🎯 Practical Application

Identify supply and demand zones on your chart and look for trade entries when the market returns to those zones. You can take high probability trades at strong zones. If a zone is broken, it becomes invalid - so always check zone confirmation.

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