A short accumulation zone before a strong breakout can point to unfilled buy interest. It is reasonably safe to assume that after price leaves an accumulation zone, not all buyers got a fill and open interest still exists at that level. Supply and demand Forex traders can use this knowledge to identify high probability price reaction zones. Here are the six components of a good supply zone:. A supply zone typically shows narrow price behavior.

Lots of candle wicks and strong back and forth often cancel a supply zone for future trades. Good supply zones are somewhat narrow and do not hold too long. A shorter accumulation zone works better for finding re-entries during pullbacks that are aimed at picking up open interest. Narrow and short accumulation zones, followed by a strong breakout, are more meaningful. The spring looks like a false breakout after the fact, but when it happens it traps traders into taking trades into the wrong direction read more: Bull and bear traps.

Institutional traders use the spring to load up on buy orders and then drive the price higher.

This point is important. At one point, price leaves the supply zone and starts trending. A strong imbalance between buyers and sellers leads to strong and explosive price movements. As a rule of thumb, remember that the stronger the breakout, the better the demand zone and the more open interest will usually still exist — especially when the time spent at the accumulation was relatively short. When price goes from selling off to a strong bullish trend, there had to be a significant amount of buy interest entering the market, absorbing all sell orders AND then driving price higher — and vice versa.

Always look for extremely strong turning points; they are often high probability price levels. Strong turning points can offer great re-entry opportunities.

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Each time price revisits a supply zone, more and more previously unfilled orders are filled and the level is weakened continuously. This is also true for support and resistance trading where levels get weaker with each following bounce. The Rally-Range-Drop scenario describes a market top or swing high , followed by a sell-off. The market top signals a level where the sell interest got so great that it immediately absorbed all buy interest and even pushed price lower. The amateur squeeze allows good and patient traders to exploit the misunderstanding of how market behavior of consistently losing traders.

Typically, price will go beyond the initial zone to squeeze amateurs and triggers stops and pick up more orders. The concept of supply, demand and open interest can be used in 3 different ways:. After identifying a strong previous market turn, wait for price to come back to that area. If a false breakout occurs, the odds for seeing a successful reversal are extremely high. To create even higher probability trades, combine the fake breakouts with a momentum divergence and a fake spike through the Bollinger Bands. Supply and demand zones are natural support and resistance levels and it pays off to have them on your charts for numerous reasons.

Combining traditional support and resistance concepts with supply and demand can help traders understand price movements in a much clearer way. And while the support and resistance trader is being squeezed out of his trade, the supply and demand traders know better. Hi you have mentioned how to mark base by covering all the weaks. Is there any condition to mark top area. How we are coming to the conclusion. Hi David, you can start with my articles on supply and demand zones and lines.

Then if you still have questions, please let me know on admin colibritrader. I hope that helps! Excellent Article! It does not look like the previous bars are being engulfed by the candle and wicks of the Bullish Candles. Thanks for the feedback, Eric. If you check my article on Bullish and Bearish engulfing pattern, you will see my take on it. Anything else, please let me know or drop me a PM to my e-mail.

Ah ok I just read the article and understand what you are getting at now. Just to clarify a 2 Bullish engulfing pattern means there are 2 Bullish Candles where at least 1 of them engulfs the previous Bear Candle? And if there are 3 Bullish Candles, it is still an engulfing pattern if at least 1 engulfs the previous Bear Candle?

Yes, that is exactly what they do.

Supply and Demand Zones Indicator for MT4 - Download FREE

I have a question. As in the support and resistance zones, a broken supply area becomes into a demmand zone? I have gone through your thoughts and teaching three to four times. It is well explained on demand and supply zone. I have read many writers but you have given clear concept. So many many thanks to you and your team. Thank you for the nice words, Vinod! I hope this article can help you to reach consistency in trading! Stay positive! Your email address will not be published. Save my name, email, and website in this browser for the next time I comment.

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Forex Trader’s Guide to Supply and Demand Trading

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