Supply and demand zones are often marked incorrectly because traders focus on where price moved from rather than the market structure that caused the move.
A previous high or low on its own does not automatically make a valid supply or demand zone. The important question is what happened structurally around that area.
In this lesson, we look at how a change of character, valid highs and lows, and the final buy-to-sell or sell-to-buy move work together to identify the areas where genuine supply and demand can form.
The same structural process can then be applied across different timeframes, including internal structure and imbalances.
What Makes a Supply or Demand Zone Valid?
The starting point is market structure.
Rather than drawing every area where price has previously reacted, the process begins by identifying a meaningful structural shift.
When the market changes from bullish to bearish, for example, a bearish candle closing through the relevant structure low creates the change of character. This gives us the structural reason to begin looking for supply.
From there, we identify the relevant valid high and then locate the final buy-to-sell move that ultimately breaks structure.
Watch the change of character and valid high → 00:45
Identifying the Supply Zone
Once the valid high has been identified, the supply area can be marked from the high of the relevant candle down to its low.
The important part is that this is not simply an arbitrary rectangle placed around a previous reaction. The zone comes from the last buy-to-sell move that breaks structure.
In some situations, that move can consist of more than one candle.
Watch how the supply zone is marked → 01:18
Watch the two-candle supply example → 02:05
When price eventually returns to the area, the structural reason for the zone helps explain why the market can react from it.
Watch price return to the supply zone → 01:42
How to Identify a Demand Zone
The same principle works in the opposite direction.
For demand, we first want to see the market shift from bearish to bullish. A breakout through the relevant structure creates the change of character and gives us the reason to look for a demand area.
We then identify the valid low created by the move.
Watch the demand structure and valid low → 02:23
The demand zone comes from the last sell-to-buy move that breaks structure.
In the example, this consists of a series of candles rather than simply one isolated candle. The full zone can then be marked so that you know the complete area in which price could potentially react.
Watch the demand zone being identified → 03:04
There are therefore two important ideas to keep together:
Market structure tells you where to look. The final move that breaks that structure gives you the supply or demand area.
Not Every Previous Low Is a Demand Zone
This is where simply drawing zones from previous highs and lows can lead to problems.
A previous low might look like an obvious demand area, but if the underlying structural conditions are no longer valid, the reaction can instead become a sweep of structure rather than evidence that the demand zone is holding.
The video shows an example where an existing demand area becomes invalidated and a new structural demand area subsequently forms.
Watch the invalidated demand zone and structure sweep → 03:28
This is an important distinction: a price reaction does not automatically validate the zone. The structural context matters.
Using Structure to Find Supply and Demand More Efficiently
Once the structural rules are understood, the same process can be applied repeatedly across a chart.
This is where the Structure Companion Tool becomes useful.
The tool does not simply draw supply and demand zones for you. Instead, it identifies the underlying structural points that you need to find in order to apply the supply and demand process.
Watch the Structure Companion Tool being introduced → 04:01
It identifies the relevant structure points so that you can quickly see where potential supply and demand areas originate.
For example, the tool can identify the highs from which supply can be derived and the lows from which demand can be derived as structure develops.
Watch the tool identify the structural supply and demand points → 04:25
This removes much of the repetitive manual work involved in mapping structure before beginning your analysis.
Applying the Framework on the 2-Hour Chart
The same structural process can be applied on different timeframes.
In the video, the process is taken down to the 2-hour timeframe and worked through using replay so that the structure develops in front of us.
Watch the 2-hour example begin → 05:25
The first step remains the same: identify the structural break and then locate the sell-to-buy move that created the demand area.
Watch the 2-hour demand example → 05:49
An imbalance can also sit within or close to the structural area. Rather than treating the imbalance and the structural zone as completely separate ideas, the analysis can consider how the two areas overlap.
Watch how the demand zone is combined with the imbalance → 06:06
The zone can then be assessed in terms of the potential trade location and risk-to-reward rather than automatically taking every zone that appears.
Watch the entry and risk-to-reward example → 06:22
The example also demonstrates how a lower timeframe can be used for confirmation when looking for a more refined entry.
Combining Market Structure With Imbalances
Supply and demand do not need to be analysed in isolation.
Once the structural direction has been established, an imbalance can provide additional information about where price may move or where a zone can be refined.
The important point is that the structure remains the foundation. The imbalance is being considered alongside the structural information rather than replacing it.
Watch the structure and imbalance example → 07:20
This becomes particularly useful when price is moving through a larger structural area and there are multiple potential levels to consider.
Why Higher-Timeframe Structure Matters
The same analysis can then be viewed across multiple timeframes.
In the example, the 2-hour, 4-hour and 8-hour structures are aligned bullishly.
That higher-timeframe context helps determine how the lower-timeframe supply and demand areas should be interpreted.
Watch the higher-timeframe structure alignment → 07:58
It also means that not every technically identifiable zone automatically becomes a trade.
The zone still needs to make sense in terms of its size, location and potential risk-to-reward.
Watch why this demand zone is not taken → 08:13
Internal Structure Can Reveal Additional Supply and Demand
One of the more important parts of this framework is that structure does not only exist at the obvious swing level.
There can also be internal structure within the larger move.
The Companion Tool can identify this internal structure, which can reveal supply and demand areas that may otherwise be missed when only looking at the major swing highs and lows.
Watch the internal structure example → 08:47
This changes how a trader can analyse a developing move.
Instead of automatically using the most obvious previous low as demand, the structural information can reveal a stronger or more relevant area within the move.
Watch how the stronger structural demand is identified → 09:12
As price continues to develop, internal structure and imbalance can then provide additional levels to monitor.
Watch the internal pullback and imbalance → 10:18
Using a Structure Sweep to Find New Demand
A particularly useful example occurs when price pushes through a previously identified area.
Rather than assuming the old demand zone is still valid, the structural reaction needs to be reassessed.
In the example, price sweeps the low into the previous area. That old area was not itself the structural zone being used for the new entry.
Instead, the sweep creates new information about the market.
Watch the sweep into the previous demand area → 10:51
The previous demand is removed from consideration and a new potential sell-to-buy move develops through internal structure.
That gives us another structurally based demand area.
Watch the new internal demand develop → 11:12
Price subsequently reacts from that internal demand.
Watch the reaction from the internal demand → 11:27
This demonstrates why simply marking the last obvious low can miss important information contained within the internal structure of the move.
Finding Supply From the Same Structural Process
The process works in reverse when the market reaches a previous supply area.
After the market breaks structure, we can look back to identify the previous high and the buy-to-sell move responsible for the bearish move.
Watch the previous supply area being identified → 12:11
The larger structural move can then be examined more closely to identify the precise supply area.
Watch the last buy-to-sell move → 12:43
The area can also be refined in relation to the imbalance within the move.
Watch the supply and imbalance refinement → 12:51
This gives you a repeatable process rather than relying on visually obvious areas on the chart.
Finding Demand With the Same Process
The same principles can then be applied when looking for the next demand area.
Identify the structural move, locate the last sell-to-buy move and then consider the surrounding imbalance and potential depth of the pullback.
Watch the next demand area being identified → 13:16
The important point is that price does not necessarily have to react from the first part of the zone you identify. The surrounding structure and imbalance can show why a deeper return remains possible.
Watch the deeper demand and imbalance example → 13:32
Price eventually returns into the deeper area of demand and holds.
Watch the final demand reaction → 13:47
The market then moves higher from the structural demand area.
Watch the reaction and continuation → 14:03
The Supply and Demand Process
The framework can therefore be reduced to a repeatable structural process:
1. Identify the market structure.
2. Identify the change of character.
3. Establish the relevant valid high or valid low.
4. Locate the last buy-to-sell move for supply or last sell-to-buy move for demand.
5. Mark the resulting supply or demand area.
6. Consider the surrounding imbalance and higher-timeframe structure.
7. Continue reassessing the zone if price develops new internal structure or sweeps an existing level.
The key idea is that the zone comes from the structure — not the other way around.
Using the Structure Companion Tool
The Structure Companion Tool is designed to make this structural mapping process much quicker.
Rather than manually drawing and tracking the structure yourself every time you start analysing a chart, the tool identifies the relevant structural points across different timeframes and markets.
You can then use those structural points to apply your own supply and demand analysis.
Watch the final explanation of the process → 14:12
The purpose isn’t to have the tool make the trading decision for you. It is to make the structural framework visible, so you can spend less time manually mapping the chart and more time analysing what the structure is telling you.
If you want to apply this same structural process automatically, you can access the Structure Companion Tool, including its training, workflow and support system, below.