Let’s face it the one thing as a supply and demand trader you are hoping for is once price moves back into the zone that there are orders left unfilled. That is the edge of the strategy. Reality is you never truly and %100 know if market participants are likely to show interest in that particular level ever again. But there are clues beyond the charts that can aid us in identifying the importance and magnitude of S/D zones.
The key to evaluating S/D zones credibility is to seek out its origin. What caused the imbalance and led to prices tumbling or soaring? Most of the time it is a news release sometimes it is just daily orderflow, and there are times where a key event or sentiment shift caused the imbalance. An event of such high importance that investors cannot ignore it and it continues to dominate participants perception of that particular instrument.
Under such circumstances it is imperative that professional traders are keen on placing orders right where price broke out and keep orders open as long as the reason behind the imbalance stays alive. I like to demonstrate the stopping power S/D levels have which originated from key events.
Eur/Usd 4h chart
Price tanked after FED announced their appetite for more hikes. Upon reaching that price level again after a few weeks traders took the pair down once more. The magnitude of more hikes is a game changer for every country and its respected currency. And as long as the hope for more hikes stays alive this level will find sellers.
Eur/Cad 4h chart
The Canadian dollar closely follows Oil’s price fluctuations as a result of that after OPEC members came to an agreement to cut oil production to address global glut, oil prices soared. So did the canadian dollar and in doing so created a supply level in its wake. The intensity of a production cut got firmer as more countries agreed to cut production. Thus every time the origin of the imbalance got revisited investors showed interest in the form of sell orders.
The two examples above encompass major sentiment shifts that dominate market for weeks and month to come. However there are smaller less significant yet credible imbalances that originated from smaller sentiment shifts or key new releases. And as long as the piece of news is still fresh we can expect a bounce off of those S/D zones.
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