Everytime supply swamps demand we see a swift and robust breakout the same is true whenever demand overcomes supply. Effectively creating an imbalance when there are more sellers than buyers and the other way around.
In the wake of the breakaway there are always unfilled orders left and it is imperative that once price retraces back into the origin of the S&D imbalance that price will exhibit a sharp reversal.
A note before we analyse the structure of S/D zones. It is key that the breakout occurs on the back of fast and big candles same thing is true for the retest. Furthermore for a confirmed S/D zone price needs to trade away dramatically, post breakaway.
Steps of a supply imbalance.
Price was traversing gradually higher where it suddenly dipped and created a sharp pin to the downside.
The gradual move picked up again until it hit consolidation
Followed by a massive and unstoppable move lower, making a clean break past the sharp pin from earlier.
If we were to label this structure. A would be the base of the supply zone. B is the top of the range and C marks the entire range.
Several month later price revisits the zone and bounces as prior unfilled orders dominate direction.
Steps of a demand zone
In this example price was rising and created a sharp pin to the upside.
Price consolidated and made a clean break past the pin
A few sessions later price fell back to the demand zone and got supported by more buy orders.
Variation to the S/D imbalance structure.
Price spiked lower two times creating two pins in the process which act as the imbalance base
Following a clean breakaway from the spike base we see price moving back into the supply zone and loading up further on sell orders and eventually collapsing.