What Is Supply Zone?
A supply zone is a price area where concentrated selling interest exists, identified by prior price action where a significant downward move originated. When price revisits this zone, the remaining unfilled sell orders and the memory of sellers who profited from the previous drop create resistance, often causing price to reverse again.
How Supply Zone Works
Supply zones are identified by looking for strong bearish candles that initiated a significant move downward. The zone encompasses the consolidation or basing area just before the drop. Unlike a simple resistance line, a supply zone has depth — it's a range rather than a single price level, typically spanning from the high of the pre-drop consolidation to its low.
Why It Matters for Traders
Supply zones are a core concept in supply-and-demand and Smart Money trading approaches. In crypto, supply zones are particularly powerful because of the leverage-driven nature of the market — when price enters a supply zone, it triggers both profit-taking from holders and new short entries, creating substantial selling pressure. Fresh (untested) supply zones are stronger than retested ones.
