What is a Demand Zone?
The three-part structure
Every demand zone is built from exactly three parts: (1) Leg-in — price arrives at the zone, typically with a bearish candle; (2) Base — price pauses in a small cluster of indecision candles (ideally 1–5); (3) Leg-out — price departs explosively upward with at least one exciting bullish candle that closes above ALL the base candles and the leg-in candle.
The legout rule is non-negotiable
The leg-out candle MUST close above every candle in the base AND above the leg-in candle. If it does not, it is not a valid demand zone — it is just a bounce. The explosive close proves that buyers overwhelmed all the remaining sellers in that base area.
Why demand zones form: price origin
The zone marks the exact price where buyers, for the first time, overwhelmed sellers so decisively that price had to leave sharply. Large institutional orders that could not all be filled during the brief base remain as 'pending demand' at that level. When price returns, those waiting buyers can push it up again.
Distribution of buying
Buyers do not buy in one single candle — they distribute their orders across the base candles. Fewer base candles means buying was concentrated and urgent (stronger zone). More base candles means buying was distributed slowly (weaker zone). A base of 1–3 candles is ideal; more than 5 is a red flag.
An Indian market example
If HDFC Bank drops into a tight 2-day base and then gaps up sharply on volume, those two base days form a demand zone. The zone will be watched on future revisits for another potential bounce — as a study reference, not a live trade call.
Practice checklist
- Identify the leg-in, base candles, and leg-out in sequence
- Confirm the leg-out closes above ALL base candles and the leg-in
- Count base candles: 1–3 is strong, 4–5 is average, more than 5 is weak
- Confirm the leg-out candle body is greater than 50% of its range (exciting)
- Mark the zone rectangle using only the base candles
Mistakes to avoid
- Marking the entire rally instead of just the base candles
- Calling any pause a demand zone without confirming the explosive leg-out
- Including the leg-in or leg-out candles in the zone — the zone is the BASE only