This is my interpretation of both of these similar items, which has helped me to better read price and understand exactly which one I am interacting with on the charts based on a defined criteria for price behavior. I have additional criteria for engaging with both, but for this post I’ll share how I differentiate Support & Resistance from Supply & Demand.
Do your own research to determine if this theory has merit for yourself. Don’t believe me, believe the data that you collect. I am only sharing my opinion which is formed based on the data that I have collected.
The difference between Support & Resistance and Supply & Demand
Supply is Resistance and Demand is Support, but Resistance is not Supply and Support is not Demand. They may change roles from Support & Resistance to Supply & Demand and from Supply & Demand into Support & Resistance. Both are functionally the same when price arrives to them, but they are different in how price departs from them. All Supply and Demand is a form of Support and Resistance, but Support and Resistance is NOT Supply and Demand. This is the same as every dog is an animal, but every animal is not a dog.
Support & Resistance:
Price moving between Support & Resistance doesn’t break the opposing Support & Resistance (failure to Break Structure) until Supply or Demand forms which will break the opposing support or resistance (Breaks Structure).
Example: If price rallies from Support it will not break through Resistance. Price will only break through Resistance if price is rallying from an area of Demand.
This is seen in ranges and consolidation (yes there is a difference between a range and consolidation). Support & Resistance is the Base in DBD, DBR, RBR, RBD.
Supply & Demand:
Price moving from Demand to Supply happens in an uptrend. So price breaks through opposing Resistance. When Demand can no longer break Resistance, it becomes ordinary Support until Demand forms (Support reverts back into Demand) and breaks Resistance (Breaks Structure) or Supply forms and breaks Support (Breaks Structure). Reverse this for a downtrend. This can be seen in uptrends and downtrends. Supply & Demand are the Drops and Rallies in DBD, DBR, RBR, RBD.
Does Support & Resistance or Supply & Demand become stronger or weaker the more they are tested?
They both become weaker. Neither Support & Resistance or Supply & Demand get stronger the more they are tested because pending orders and traders waiting to enter market orders at those levels are depleted on each test.
Think about it like this: Your floor doesn’t get stronger by hitting (testing) it with a sledge hammer as you destroy the structural integrity of the floor. Pending orders and traders willing to enter at a level are the structural integrity of Support & Resistance and Supply & Demand. This is why untested Supply & Demand works best and why every Support & Resistance level is eventually broken.
DBD = Drop Base Drop
DBR = Drop Base Rally
RBR = Rally Base Rally
RBD = Rally Base Drop