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Support, resistance, supply, demand
The four flavors of a level and how they overlap.
10 min · Beginner · Free lesson
What you'll learn
- Distinguish support and resistance from supply and demand zones
- Draw a demand or supply zone from the base of a strong move
- Recognize role reversal, when broken resistance becomes support
The idea
Traders use four names for levels, and beginners often mix them up. Support and resistance describe where price turned. Supply and demand describe where an imbalance started. They are related, but they are not the same thing.
Support is a floor where buyers have shown up before and stopped a decline. Resistance is a ceiling where sellers have shown up before and stopped a rally. A demand zone is the small base price built right before a strong, fast move up. A supply zone is the base right before a strong, fast move down.
Here is an analogy. Support and resistance are the floor and ceiling of a room. Supply and demand zones are the doors where a crowd suddenly rushed in or out. The strongest spots on the chart are where a door sits right on the floor or the ceiling, meaning a demand zone and a support level overlap.
How it works
- Support: mark lows where price bounced at least once, ideally twice. Draw it as a zone that covers the wicks and the bodies near the turn.
- Resistance: mark highs where price was rejected at least once, ideally twice.
- Demand zone: find a strong move up, with big candles and rising volume. Go back to the last few small candles before that move. The zone runs from the low of that base to the top of its candle bodies. Price left so fast that many buyers never got filled.
- Supply zone: the mirror image. Find a sharp drop and mark the base of small candles just before it.
- Role reversal: once resistance breaks and price is accepted above it, that old ceiling often becomes a floor. The reverse is true for broken support. Traders who sold there want out at breakeven, and traders who missed the break want in.
- Fresh versus tested: the first return to a zone usually gets the best reaction. Each test uses up some of the waiting orders.
When two flavors overlap, such as a demand zone sitting on a prior support level, rank that area at the top of your map.
Worked example
Hypothetical stock ABC on a 15-minute chart.
- Tuesday: ABC chops in a tight base between $30.20 and $30.45 for four candles, then rips to $32.00 in two large candles on heavy volume. You mark $30.20 to $30.45 as a demand zone.
- Wednesday: ABC rallies into $32.00 twice and is rejected both times. You mark $31.90 to $32.00 as resistance.
- Thursday: ABC breaks out. A 15-minute candle closes at $32.40 on twice the average volume, and the next candle also closes above $32.00. Price then pulls back to $32.05, prints a small rejection wick, and a candle closes back up at $32.25.
Old resistance is acting as support. That is role reversal, and it is a level you can build a plan around:
- Entry: $32.25
- Stop: $31.85, below the $31.90 to $32.00 zone
- Risk per share: $32.25 - $31.85 = $0.40
- Target: $33.10, last week's high and the next level up
- Reward per share: $33.10 - $32.25 = $0.85
- Reward-to-risk: $0.85 / $0.40 = about 2.1R
With a $10,000 account and 1% risk, you can lose $100. $100 / $0.40 = 250 shares, which costs about $8,063.
Also note your map below. If the flip fails and price falls back under $31.85, the fresh demand zone at $30.20 to $30.45 is the next place buyers may show up. You now know where both the trade and the next decision point live.
Common mistakes
- Calling every pause a demand zone — you end up with zones everywhere and no edge. Only mark bases that launched a strong, fast move with volume.
- Assuming a zone works forever — every test fills more of the waiting orders, so the fourth test is weaker than the first. Favor fresh zones and get more skeptical with each touch.
- Forgetting role reversal — traders keep treating a broken level as resistance and miss the cleanest entries of the day. After a confirmed break, flip the label.
- Fighting a higher-timeframe zone — a 5-minute demand zone inside a daily supply zone is working against a bigger crowd. Check the daily and hourly map first.
Checklist
- Do I know whether this level is a turn (support or resistance) or a launch (supply or demand)?
- Did the zone produce a strong, fast move with volume?
- Is this the first or second test, not the fifth?
- If the level broke, has it been accepted and flipped?
- Does a higher-timeframe zone agree with my idea?
Practice: Find the four flavors
- Open Simulation Lab on any liquid stock such as AAPL or AMD and switch to a 15-minute chart.
- Mark one support level, one resistance level, one demand zone and one supply zone, and label each.
- Find one place where two flavors overlap and circle it as your top-ranked area.
- Replay forward and record whether the first test of each zone produced a reaction.
- Note in your Trade Journal which flavor gave the cleanest reaction on this ticker.
Key takeaways
- Support and resistance mark where price turned, while supply and demand zones mark where an imbalance started.
- Draw demand and supply zones from the base of small candles right before a strong, fast move.
- Broken resistance that is accepted often becomes support, and broken support often becomes resistance.
- Fresh zones and overlapping levels deserve the most attention.
Glossary
- Demand zone — The base of small candles just before a strong, fast move up, where buyers overwhelmed sellers.
- Supply zone — The base of small candles just before a strong, fast move down, where sellers overwhelmed buyers.
- Role reversal — When a broken level changes function, such as old resistance acting as new support after an accepted breakout.
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