The Best Way to Use Supply and Demand in Smart Money Concepts

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Let’s begin by defining what supply and demand 
zones are. In classical technical analysis,  

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a demand zone is an area on the chart where 
significant buying has previously occurred,  

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causing the price to rally, while a 
supply zone is where selling pressure  

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has led to a price drop. These zones are 
typically identified by previous highs and  

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lows or areas of high trading volume, 
and they act as psychological levels  

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where traders anticipate potential 
price reversals or continuations.

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However, here at ComLucro, we’ve refined these 
concepts to better suit the needs of day traders,  

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making them more practical and effective 
for shorter-term strategies. First,  

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we classify supply and demand zones into 
three types based on market structure:  

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order blocks, order flows, and consolidation 
areas. Order blocks are optimized supply and  

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demand areas with aggressive buying and clear 
fair value gaps leading to a break of structure.

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The latest candle creating the fair value gaps 
is marked, and the liquidity sweep below this  

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candle is noted before the price takes off. 
When placing a buy limit at this order block,  

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the stop loss should be below the wick where the 
movement started, incorporating this area into  

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the order block zone as the price corrects. We 
enter positions when trading opportunities arise.

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If the last candle creates inefficiency, we place 
the stop above the swing high for protection,  

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expanding our trading zone and stop. Sometimes,  

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order blocks form with opposite-colored 
candles in the midst of heavy movement,  

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utilized by institutions and big players to 
fill remaining orders. We consider these order  

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blocks and look for trading opportunities 
upon the price’s return to these levels.

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Next, let’s discuss the second type of supply and 
demand zone: order flow. Order flow represents  

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areas where buying or selling pressure built up 
before an aggressive market movement. The bullish  

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order flow is where the last bearish pressure 
occurred before the bullish move — and vice versa  

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for bearish order flow. These areas are crucial in 
Smart Money Concepts. For example, a move creating  

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fair value gaps and breaking structure includes 
the last bearish momentum before a drastic move,

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forming a large zone often containing an order 
block. Monitoring market structure closely is  

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vital for optimal trade execution. Finally, 
consolidation areas are key supply and demand  

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zones. These occur when buyers and sellers lack 
the strength to drive the market into a trend,  

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causing the price to oscillate within 
a range. Liquidity accumulates,  

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eventually leading to a breakout. 
Consolidation zones become crucial  

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supply or demand areas for traders, 
provided there is an imbalance.

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For instance, if the price consolidates during 
the Asian session and London liquidity enters,  

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this consolidation zone becomes an ideal demand 
zone for long opportunities. The stop is protected  

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above the zone, with multiple targets set. Similar 
to order flow areas, consolidation zones can be  

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large, requiring careful trade entry to avoid 
extensive stop loss. So if you're ready to deepen  

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your knowledge and elevate your trading, don't 
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