Supply and demand trading marks the areas from which price previously moved sharply, on the theory that unfilled orders remain there and will move price again when it returns. A zone where price rallied hard is demand; one where it fell hard is supply. Traders buy at demand zones and sell at supply zones, with stops beyond the zone.
The claim is that these zones mark where large orders sit, and that price respects them more often than not.
We tested supply and demand zones as a mechanical rule across 17 years of data with real trading costs. The result was worse than no edge: the strategy lost money, and it did so consistently enough to be statistically significant rather than unlucky. Fading a sharp move at a zone tended to put the trader on the wrong side of a market that continued.
The reason is that a zone marks where a strong move began, and strong moves tend to continue rather than reverse when price returns to their origin. The zone is a record of momentum, and trading against it is trading against momentum.
If you trade it anyway, note that a rule that loses consistently is, in principle, a rule that could be reversed, but the reversed rule is simply a breakout strategy and should be assessed as one. Count every zone, not the ones that held.