By Marco BösingWhat Are Supply & Demand Zones?
Supply and demand zones mark price areas where strong institutional activity has occurred in the past. A demand zone forms where aggressive buyers drove price higher. A supply zone forms where aggressive sellers pushed price lower.
The core idea: when institutional participants have built large positions in an area, they are likely to defend that area when price returns to it.
Supply & Demand in the Context of the Institutional Campaign
Institutional traders must move large volumes and are evaluated based on their average execution prices. They cannot simply dump thousands of contracts into the market at once. Instead, they accumulate positions over time — buying aggressively when price is favorable (below the value area) and reducing their activity when price becomes expensive.
A demand zone forms where institutions found favorable prices and loaded up heavily ("loading the boat"). A supply zone forms where institutions sold at high prices or distributed positions. These zones are visible in the volume profile as areas with high trading activity.
Supply & Demand vs. Support & Resistance
While support and resistance often rely on single price lines, supply and demand zones are price ranges. The key difference lies in the reasoning: supply and demand zones emerge from the way institutional participants execute their campaigns — they accumulate positions across a price range, not at a single point. This range is traceable in the volume profile.
Read the full article: Confirming Supply and Demand Zones with Volume