Drawing S/D Zones: Mastering Proximal & Distal Lines

Drawing supply and demand zones is like framing a picture – you need to make sure the edges are aligned just right. And in this case, the “proximal” and “distal” lines are our frame.

• “Proximal line”?
• “Distal line”?

What do they even mean? And where did they come from?

Don’t worry, it’s simpler than it sounds.

In this post, I’ll break down what proximal and distal lines really mean and how they can help you accurately draw supply and demand zones.

Proximal & Distal Lines: The Secret to Accurate Zones? (But Not Mandatory!)

In supply and demand trading, ‘proximal’ and ‘distal’ lines mark the upper and lower limits of the small pause or consolidation that creates the ‘Base’.

The Proximal line marks the boundary closest to price.

The Distal line represents the boundary furthest from price.

Think of proximal and distal lines like fence posts: the lines mark the first and last points where smart money buying (demand) or selling (supply) entered the market, ultimately shaping the zone itself. Future market reversals from a zone will always begin within the boundaries defined by these two lines.

Your “base,” the heart of the zone, sits between the two lines.

Got the hang of it?

Key Point: Proximal lines aren’t just about marking the entry point for pending orders. The line also provides a minimal threshold for Pin Bars and Engulfing Patterns to confirm a valid a trade entry.

Drawing SD Zones Using Proximal/Distal Lines

Drawing zones using proximal and distal lines help us visualize supply and demand zones. But how can you actually use them to draw zones accurately?

Let’s break it down step by step:

Step 1) Identify Your Supply Or Demand Zone

FIRST: Locate the supply or demand zone you’re aiming to draw. Look for a steep, sudden price move from a small pause or consolidation (that’s the base!).

Steep rise? Check!

Let’s use this neat demand zone on Eur/Usd.

And this supply zone on Gbp/Jpy.

2) Place The Proximal Line At The Beginning Of Rally/Decline

Now, let’s pinpoint the proximal line.

Remember, the proximal line is the front door to your supply or demand zone – it’s the edge always closest to the current price.

• For demand zones, it’s where the rally started.
• For supply zones, it’s where the steep decline began.

For demand zones, the proximal line marks where demand finally overpowered supply, triggering the surge of buying forming the rally. It’s the final chance smart money had to execute sizable buy positions, making it critical to include when drawing the zone.

See the small consolidation before price shot up?

Sellers all over this area, sparking a reversal and forming our demand zone. To validate this zone, our proximal and distal lines need to stretch across the entire area.

For two-three candle zones, the lines should encapsulate the lone candle that initiated the move away.

For supply zones, the proximal line tells a similar story.

It marks the moment when supply finally overwhelmed demand, causing the steep decline. It’s also the last time smart money could sell before the market tanked. Eager buyers were still ready and available to take the other side of the SM’s trades (sellers must be matched with buyers, remember!)

Just like with demand zones, this point is critical to include when drawing your supply zone.

Don’t Forget: Don’t overlook the importance of incorporating nearby swing highs and lows when defining your supply and demand zones.

Neglecting these points can lead to missed opportunities and frustrating false signals.

3) Place The Distal Line At The Most Recent Swing Low/High

Alright, we’ve got the proximal line in place, marking the starting point of the supply or demand zone. Now it’s time to anchor the other end of your zone with the distal line.

So, where does the distal line belong?

• For demand zones, it’s the lowest swing low UNDER the base.
• For supply zones, it’s the highest swing high ABOVE the base.

Here’s some examples…

For demand zones, the distal line (furthest away from the current price) marks the lowest point where the smart money stepped in to reverse the prevailing downtrend.

What happens when the smart money buys aggressively?

The demand overwhelms the existing sellers (supply), and prices pushes upwards. This buying pressure creates a demand zone, forming an area where SM buyers hold the upper hand. The distal line marks the bottom of this buying activity, often where the smart money initially absorbed the selling from downtrend traders.

Pro Tip: Spot the long tail on the swing high candle?

Upper and lower shadows (or tails) on candlesticks aren’t just random. They always point to some kind of important smart money activity:

• Taking Profits (Most likely)
• Placing Trades (Rarest)
• Closing Trades (Rare)

In the case of an upper shadow, it’s a tell tale sign smart money has stepped in to sell. How else could price fall and create the long shadow? It’s not retail traders selling, that’s for sure! It’s smart money selling into the upward momentum, causing a price reversal.

This becomes obvious when you realize SM needs counterparties (buyers to match against sells, in this case) to execute their trading positions.

For SM to buy, willing sellers must be available.

For SM to sell, willing buyers must be free.

It’s a simple but important concept:

Smart money can’t act in a vacuum. Their buying and selling depends on the presence of other traders willing to take the opposite side.

For supply zones, the distal line (the one furthest away from current price) marks the highest point where the smart money unleashed selling to reverse the prior uptrend.

What happens when the smart money sells?

They overwhelm the existing buyers and push price downwards, creating a prominint swing high. Further selling pressure eventually creates your supply zone, representing an area where sellers have the upper hand. The distal line marks the peak of this selling activity, often where the smart money absorbed the buying pressure from those trying to catch the tail end of the uptrend.

Never try to catch a falling knife – you’re more likely to get hurt than to grab the handle.

The Bottom Line

Misdrawn zones are a common stumbling block for traders trying to profit from supply and demand.

Use Proximal and Distal lines to accurately identify the upper and lower boundaries of your supply and demand zones, but make sure your lines are precise! The proximal line should always appear closest to the current price, while the distal line marks the furthest point of smart money activity from the base.

So, keep your lines accurate, and you’ll be well on your way to success.

Until next time, happy trading!

P.S: Still find “Proximal” and “Distal” confusing? SupdemV2 (Free MT4 SD indicator) can automatically identify and mark zones on your charts, taking the guesswork out of drawing zones.