Technical Analysis · Intermediate · 4 min

Fresh vs. tested zones

You can tell a fresh zone from a tested one, explain why repeated tests can weaken a zone and watch the strength of each reaction.

Each bounce smaller

A zone holds the first time the price returns, with a strong bounce. It holds again, but the bounce is smaller. On the third visit, it gives way, and the price falls through as if the zone had never been there.

That sequence is common enough that supply and demand traders build a rule around it. This lesson explains the rule and its reasoning.

Fresh first

A fresh zone is a supply or demand zone that the price has not returned to since it formed. A tested zone has been visited at least once.

The reasoning follows from the idea of unfilled orders in the first lesson of this chapter:

If large buyers left orders unfilled in a demand zone, the first return meets all of them. The reaction can be strong.
Each later return may meet fewer, because some orders were filled on earlier visits and some traders gave up.
Eventually, too little demand remains, and the zone breaks.

The fictional chart shows the pattern. A demand zone forms between 38.00 and 38.70 before a jump to 42.

Test 1: the price returns to 38.50 on candle 15 and rallies to 41.56, a bounce of about 3 points.
Test 2: it returns to 38.67 on candle 25 and bounces only to 39.96, about 1.3 points.
Break: on candle 29, it closes at 37.40, below the zone.

Traders in this school therefore watch two things more than the number of touches: whether the zone is fresh, and how strong each reaction is. Weakening bounces suggest weakening interest.

This mirrors Wyckoff's idea of testing supply, from chapter 3. It also fits the research on order clusters, in which orders at a level are used up as they are filled. Neither proves that a particular zone will hold or break on a given visit.

The third visit breaks

Look closer at the end of the fictional chart.

After test 2, the price drifts around the zone for three candles, with lows at 38.74, 38.67 and 38.51. Buyers no longer push it away.
Candle 29 opens at 38.62, inside the zone, and closes at 37.40, clearly below it.
The decline continues to 36.50.

A trader who bought on test 2 with a stop below the zone, under 38.00, had a planned loss. A trader who kept buying every touch because the zone "always held" had growing losses. The zone had told a story with its weakening reactions. It had not promised anything.

Common mistakes

Counting touches as strength. Many touches can mean a nearly empty zone.
Ignoring weaker bounces. They are a warning sign.
Moving the zone after a break. A broken zone is broken.
Assuming fresh zones always hold. Fresh only means untested.

The takeaway

A fresh zone hasn't been revisited since it formed. Each test may use up waiting orders, so reactions often weaken until the zone breaks.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the candle where the zone finally broke.

Tap the chart.

Candle 29 fell from 38.62 to a close of 37.40, below the zone. The weaker second bounce had already been a warning.
2What makes a zone fresh?

Until the first return, any unfilled orders the zone may hold are untouched.
3Why can each test weaken a zone?

This is the reasoning in supply and demand trading. Watching how strong each reaction is helps more than counting touches.
4The first bounce from a zone gained 3 points, the second only 1.3. What does that suggest?

Weaker reactions show that fewer buyers are stepping in. It is a warning, not a certainty.

of 4 correct.

Sources

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