Many students email me wanting to know how to tell if a supply or demand zone is likely to hold or break. Understanding this is critical for trading, for if we buy or sell at the wrong time we give up the opportunity to make greater profits or worse, we lose money.
In the Online Trading Academy’s Professional Trader Course as well as the Extended Learning Track, we stress the importance of our Odds Enhancers as a way to filter out weak opportunities and find the best trades that we should take. Although the strategy of using Supply and Demand is relatively simple, traders and investors must know that not every turning point in the market is a high quality trading opportunity. There are many Odds Enhancers, but with knowledge and practice using them becomes second nature and your consistency in the markets generally improves.
An Odds Enhancer that we look at when determining the strength of a zone is how price left that zone. Think of a glass of water sitting on a table. If you were to grab the glass only to find it filled with scalding hot water, you are likely to release your grip very quickly. But if the glass was filled with room temperature water you could hold the glass as long as you would like or even take a sip.
Price works the same way. Traders need to focus on the strength at which price left the origin of the supply or demand zone. If price leaves quickly, it shows a large imbalance of supply and demand and, therefore, a stronger zone.
Looking at the following chart we can see that we left the demand zone with large green candles when demand was formed. This means that this is an area where buyers are much stronger than the sellers. The glass is hot! When price returns to that level we would have a high probability buying opportunity since the sellers are weak there and price is likely to rise again.
What happens if we leave the area slowly? We would likely see smaller candles and/or a mix or red and green candles. The battle between buyers and sellers is pretty even and no one side has the major advantage. Without clear direction in this zone, prices are less likely to bounce fast.
The same can be said for supply zones. For the zone to offer us a higher probability selling opportunity we would want to see a fast drop from that level. On the charts this would be characterized by large red candles, gaps down and/or topping tails on the candles.
If you do not see that occurring you would have a lower probability of success in selling at those levels.
So, now you are aware of one of the Odds Enhancers we can use to increase our chances for success in trading any market and any time frame. To learn the others join us at one of our worldwide education centers and increase your knowledge.
Editors’ Picks
EUR/USD extends losses on dovish remarks from ECB members, trades near 1.0780
EUR/USD continues its downward trend for the fourth consecutive day, driven by a stronger US Dollar influenced by the hawkish market sentiment surrounding the Federal Reserve and expectations of prolonged higher interest rates.
GBP/USD trades sideways above 1.2600 amid quiet session
The GBP/USD pair trades sideways around 1.2622 during the early Friday. The market is likely to be mute in light trading on Good Friday. Later in the day, the US Core Personal Consumption Expenditures Price Index will be released.
Gold ends Q1 2024 at record highs, what’s next?
Gold is sitting at an all-time high of $2,236, lacking a trading impetus amid holiday-thinned conditions on Good Friday. Most major world markets, including the United States are closed in observance of Holy Friday, leaving volatility around Gold price highly subdued.
Ripple's move above this key level could trigger nearly 50% rally for XRP
Ripple price has overcome a critical resistance level and flipped into a support floor on the weekly time frame. This development happened while XRP tightly consolidated for roughly 250 days. As this coiling up comes undone, investors can expect XRP to kickstart a massive rally.
Will they won’t they cut rates is the question of Q2?
There has been some significant push back from Fed and Bank of England members around the timing of rate cuts, and the Bank of Japan still haven’t physically intervened in the FX market to stem yen weakness although they are threatening to do so.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
Discover how to make money in forex is easy if you know how the bankers trade!
5 Forex News Events You Need To Know
In the fast moving world of currency markets, it is extremely important for new traders to know the list of important forex news...
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and...
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.