What Is Demand and Supply in Forex?

Demand

In forex, demand represents areas where buyers are likely to step into the market and push the price upward. These are zones where price previously moved up strongly after touching a particular level showing that many buyers were waiting there.

When price revisits that zone, it often bounces upward again, because those unfilled buy orders may still exist.

Example:
If EUR/USD drops to 1.0700 and then shoots up to 1.0850, that 1.0700–1.0720 zone becomes a demand zone. When price returns there, it might rise again because traders see it as a “cheap” buying level.

Supply

Supply represents areas where sellers dominate, pushing the market down. These are zones where the price fell sharply after touching a level, indicating strong selling pressure.

When price returns to that zone, sellers often come back into the market, driving the price lower again.

Example:
If GBP/USD rallies to 1.2800 and then quickly drops to 1.2600, the 1.2780–1.2800 region becomes a supply zone. When price revisits that zone, it might fall again because traders view it as an “expensive” area to sell from.

Why Understanding Demand and Supply Zones Is Important

Improved Trade Entries:
Demand and supply zones act as high-probability entry areas. Instead of chasing price, traders can patiently wait for price to return to these zones before entering trades.
Better Risk Management:
These zones allow traders to set precise stop-loss levels just beyond the zone boundaries, improving risk-to-reward ratios.
Enhanced Market Timing:
Understanding where institutional traders (smart money) buy and sell helps you align your trades with major market moves.
Reduced Emotional Trading:
Demand and supply analysis helps traders trade based on logic and data, not emotion or impulse.

Difference Between Demand & Supply and Market Structure

While demand and supply focus on zones where price is likely to react, market structure focuses on how price moves overall, the sequence of highs and lows.

Aspect	Demand and Supply	Market Structure
Focus	Price reaction zones (where price is likely to reverse)	Price movement patterns (higher highs, lower lows)
Purpose	Identify entry zones for reversals or continuations	Identify trend direction and potential turning points
Nature	Static zones that price reacts to	Dynamic, changing with each swing
Example	EUR/USD demand zone at 1.0700	Uptrend structure with higher highs and higher lows

In short, market structure tells you the direction, while demand and supply tell you where to enter.

How to Combine Demand and Supply with Market Structure for Better Entries

Combining these two concepts can significantly improve your trading accuracy. Here’s how:

1. Identify Market Structure First

Before marking any zones, identify whether the market is:

In an uptrend (higher highs and higher lows)
In a downtrend (lower highs and lower lows)
In a range (sideways movement)

This tells you whether to look for demand zones (buys) or supply zones (sells).

Example:
If EUR/USD is in an uptrend, focus on buying at demand zones rather than selling at supply zones.

2. Mark Strong Demand and Supply Zones

Look for zones where price made a sharp move (impulse) away from an area with little overlap of candles , this shows institutional orders.

Demand zone: A strong bullish move starting from a base of consolidation.
Supply zone: A sharp bearish move starting from a base of consolidation.

3. Wait for Price to Return to the Zone

Patience is key. Let price retest the zone and look for confirmation signals, such as:

Bullish or bearish engulfing candles
Break of minor structure
Long rejection wicks

This shows that buyers or sellers are stepping in again.

4. Enter in the Direction of Market Structure

Combine your zone analysis with the trend:

Uptrend: Buy from demand zones.
Downtrend: Sell from supply zones.
Range: Trade both sides carefully or wait for breakout.

Example:
If the market is trending up and price retraces to a previous demand zone, you can buy there.
Stop-loss goes below the demand zone, and your take profit can be set near the next structure high or supply zone.

5. Example Setup

Imagine USD/JPY is in an uptrend:

The market makes higher highs and higher lows.
Price retraces to a demand zone at 149.20–149.40 (where it previously bounced).
You wait for a bullish candle to confirm buyers are active.
You enter a buy position with stop-loss below 149.00.
Take profit is near the previous swing high around 150.80.

This entry aligns demand zone + uptrend structure, giving a strong confluence for success.

In Summary

Understanding demand and supply zones helps traders identify where big players are likely to buy or sell, while market structure tells you in which direction to trade.
When you combine both, you trade with precision buying low in uptrends, selling high in downtrends, and avoiding random entries.

If you’re serious about mastering forex trading, start marking your charts with these zones and see how accurately price respects them. Over time, you’ll begin to read the market like a professional trader.