What is a Supply Zone?
The mirror image
A supply zone has the identical three-part structure as demand but flipped: (1) Leg-in upward, (2) Base of indecision candles, (3) Explosive leg-out DOWNWARD. The leg-out must close below ALL base candles and the leg-in candle.
The legout rule for supply
The leg-out candle must close below every candle in the base AND below the leg-in candle. This explosive close downward is the proof that sellers overwhelmed all remaining buyers at the base level.
Unfilled selling and price origin
Large sell orders that couldn't be fully filled during the brief base remain pending at that price. When price rallies back to the supply zone, that waiting supply can cap price and drive it back down.
Distribution of selling
Like buyers, sellers distribute their orders across base candles. A supply zone with 1–3 base candles means selling was concentrated and urgent — stronger zone. A wide, multi-candle base shows gradual distribution — weaker signal.
Reading on Nifty
When Nifty consolidates in a tight 2–3 candle range and then drops sharply, that consolidation area marks a supply zone. Future rallies back to that area can be studied for potential supply reactions — purely as structural reference.
Practice checklist
- Leg-in is upward, base is indecision, leg-out is explosive downward
- Leg-out must close below ALL base candles and the leg-in
- Count base candles: 1–3 is tight and strong
- Zone rectangle covers only the base candles
Mistakes to avoid
- Confusing a supply zone with a simple resistance horizontal line
- Marking the entire drop instead of just the base that preceded it
- Including leg-in or leg-out candles inside the zone rectangle