How to Trade Supply and Demand Zones: 8 Steps and SPY Data

Michael Whitman · Trading since 2017, full-time since 2020 · YouTube creator, 137K subscribers · Published 2026-09-07 · Updated 2026-10-27 · Reviewed 2026-10-27

To trade a supply and demand zone, mark the last candle before a fast move, wait for price to come back to it once, and set the stop beyond the far edge before you enter. On SPY since 1993, almost two in three demand zones drew that first return within 60 sessions, and more than half of those returns closed through the zone.

Most supply and demand teaching draws a box around a sideways patch and calls it a zone. That is a range, and a range is the one thing a zone is not. This procedure starts from the departure instead.

Before you start

A clean chart on two timeframes. The slower one decides which side you are allowed to take; the faster one is where you draw. Nothing else on the chart — indicators come later or not at all.

One instrument you already watch. Zones are read against how a market normally moves, and you cannot judge “left fast” on something you have never seen before.

A stop distance you can measure before entering. The far edge of the zone plus a margin. You need this in step one because it decides the size, and therefore whether the trade is takeable at all.

The steps

1. Set the direction on the slow chart first

Higher highs and higher lows means you take demand zones only. The reverse means supply only. This step costs nothing and removes half the zones on the chart before you draw one.

2. Find where price left, not where it stayed

Scan for moves that went somewhere fast — several bars in one direction with little overlap between them. The zone sits at the start of that move. Ignore every quiet patch that led nowhere.

3. Draw the zone from the last candle before the move

One candle, not the whole base. Take its high and its low, and that is the box. A zone drawn around twenty bars of chop is a range with a new name, and price will be inside it constantly.

4. Check that anyone was actually there

The departure should carry more volume than the bars around it. A fast move on nothing is a thin market with no one in it, and there are no unfilled orders left behind by absence.

5. Mark it and then leave it alone

An untouched zone is the only kind the reasoning applies to. Once price has returned and traded through it, whatever was unfilled there is gone. Delete zones after their first test.

6. Wait for price to come back to it

You do not chase price into the move. You wait at the origin. On SPY just over a third of demand zones saw no return inside 60 sessions, and that is the procedure working rather than failing.

7. Place the stop beyond the far edge before you enter

Below the low of a demand zone, above the high of a supply zone, plus a margin for noise. A stop placed inside the box sits inside the range the box was drawn to contain.

8. Size from that distance, then take it or skip it

Divide what you are willing to lose by the stop distance. If the resulting size is absurd, the zone is too wide, and the answer is to skip it rather than to move the stop closer.

How to tell it worked

The test is not whether the trade won. One result tells you nothing, because across the S&P 500 since 1950, 59% of ten-day windows finished higher than they started. That is a coin flip with a slight lean, so a single winning trade is indistinguishable from luck.

Score your last 20 trades against these four counts. How many came from a departure rather than a consolidation. How many were first returns. How many had the stop set before entry. And how many were sized from the stop distance rather than from confidence. Anything under 20 out of 20 on the last two is a procedure problem, not a market problem.

Then count how many of your marked zones never got a return. On SPY’s daily chart that was 96 of 278 demand zones, just over a third. If every zone you mark gets revisited within days, the drawing is catching ordinary candles: on SPY, an ordinary session’s own range was traded back into within 60 sessions 92.45% of the time.

Why the first touch is the whole idea

The reasoning behind a zone is unfilled orders. Price left fast because one side was overwhelmed and not everyone who wanted to transact got to. The claim is that some of that interest is still sitting there.

That claim can only be true once. When price returns and trades through the area, whatever was left is filled. A second visit is a level with a memory, which is a different and much weaker idea — and treating the two as equivalent is how a chart ends up with forty boxes on it.

The answer to the question on that chart is that the zone does not decide it; the drawing does. If it came from a departure and this is its first return, the plan already exists and the stop is already chosen. If you are asking the question at the moment price arrives, the work was not done beforehand — and that is the actual failure, not the trade.

Two SPY zones from the last year

One that held. On 16 September 2026 SPY traded between $749.60 and $761.67. Three sessions later, on 21 September, it closed at $773.50, 1.81 average true ranges above that high. The first return came on 1 October, with a low of $758.79, and no close in the ten sessions from there fell below $749.60.

One that did not. On 22 October 2025 the range was $663.30 to $672.00, and the close on 27 October was $685.24. Price came back on 6 November (low $668.72), and on 18 November it closed at $660.08, under the zone’s low. A stop beyond the far edge was reached, which is exactly what it was placed there to allow.

The original data

The rule, as coded. A demand zone is one SPY session whose high sits at least 1.5 average true ranges (Welles Wilder’s 14-session version, as of that session) below the close three sessions later; the zone is that session’s high and low. A supply zone mirrors it below the low. After a zone is found, the search resumes once its move ends. The first return is the first session after the move, within 60, whose low reaches the zone’s high (for supply, whose high reaches the low). The zone counts as closed through if a close lands beyond the far edge on the return day or in the nine sessions after it.

The sample. SPY daily bars from Yahoo Finance at the prices traded, 8,493 sessions from 29 January 1993 to 26 October 2026. 281 demand zones were found; 278 have the full 60-session wait plus a 10-session window, the last of them on 10 June 2026.

The finding. 182 of the 278 demand zones (65.47%) drew a first return within 60 sessions, a median of 9 sessions after the move ended, and 96 (34.53%) drew none. Of the 182 first returns, 105 (57.69%) closed below the zone within 10 sessions. Supply zones were revisited more often: 244 of 284 (85.92%), with 153 of those returns (62.70%) closing above the zone.

The base rate. Run the same test on every session’s own high and low, with no departure required: 8,406 sessions, 92.45% traded back into within 60 sessions, and 67.80% of those returns closed below the range within 10. So departure zones were revisited less often than ordinary candles and closed through less often, though still more than half the time.

The sensitivity. With a 1.0 range move the count rises to 542 zones, 69.74% revisited and 55.82% of returns closing through; with 2.0 ranges it falls to 105 zones, 57.14% and 61.67%.

The check. On Nasdaq’s SPY history from October 2016, with its stale 20 April 2026 row left out, the same rule finds the same 95 demand zones and 87 supply zones on the same dates, with identical return and close-through dates. Every zone with the full window is listed in the SPY departure-zone file. One fund, one daily chart, no costs, and nothing here measures what a trade at the zone made.

Demand for the subject is real. Of the 24,971 unique videos in the search study behind this site, 127 have an instruction-shaped title mentioning supply and demand, at a median of 61,247 views across 85 channels, with a maximum of 3,367,668. TradingView tutorials number 693 at a median of 3,497, so this subject, with under a fifth of the supply, pulls more than seventeen times the audience per video.

When it fails

In a range the method eats itself. Every small push looks like a departure, so every bar becomes a zone, and price returns to all of them constantly. Up and down closes alternate almost at random — on the S&P 500 since 1950 only 53.1% of days closed higher — so most moves stop almost at once, and in a range each of those brief pushes is a candidate. A chart with a dozen live zones on it is telling you the conditions are wrong, not that there are a dozen opportunities.

The second failure is treating the zone as a floor. On SPY more than half of first returns to a demand zone closed below it within two weeks. The far-edge stop is not a formality; it is the part of the plan that is used most often.

A third is a gap straight through. Price opens past the zone, the entry never triggers or fills far away, and the stop is already behind. No zone survives a move that happens between bars.

A fourth is drawing from the base instead of the departure. It produces wide boxes that price is always inside, which makes the stop enormous and the size tiny.

A fifth is trading the second and third touch. The unfilled-order reasoning is spent after the first, and what is left is an ordinary level being treated as a special one.

And a sixth is taking a zone against the slow chart. Demand in a market falling on the higher timeframe is a zone in front of a train, which is why that was step one.

Questions people ask

How do you trade supply and demand zones?

Mark the last candle before a fast move on the trading chart, in the direction the slow chart allows, then wait for the first return and put the stop beyond the far edge before entering. The size comes from that stop distance.

How often does price come back to a demand zone?

On SPY’s daily chart from 1993 to 2026, 182 of 278 demand zones (65.47%) drew a first return within 60 sessions, a median of 9 sessions after the move. Supply zones were revisited more often, 85.92% of the time.

Do supply and demand zones hold?

Often not. 105 of the 182 first returns to SPY demand zones (57.69%) closed below the zone within 10 sessions. That is fewer than for an ordinary candle’s range (67.80%), but it is still the majority.

Why only the first touch?

The zone’s reasoning is unfilled orders left behind by a fast departure. Once price trades back through the area those orders are filled, so a second visit is an ordinary level rather than the thing the zone was drawn for.

Related

Supply and demand explains what the zone is claimed to represent and why the imbalance matters more than the shape. Demand zone covers the buy side on its own, including how it differs from a support line. And support and resistance is the simpler idea underneath, which is worth being fluent in before adding zones on top of it.

This page is educational, not financial advice. Test every idea on your own charts before risking money.