Finding Demand Zones
Demand zones are found when the market makes a large move up from a single candle or a base.
Here is an example of a demand zone with a base……
All of these images show the only two types of supply and demand zone that exist in the forex market.
A zone is constructed of either a single candle or a base, there are no other types of zones.
The strength of the movement away from supply or demand zone is not a determining factor in how strong the zone is.
As long as a zone has at least one large bullish or bearish candle moving away from it’s considered just as valid for trading as a zone which has a significant move away from it.
Zones With A Base Result In More Successful Trades
Typically supply or demand zones which are formed from a base tend to result in more successful trades than zones which form from a single candle.
This is due to the sensitive nature of the psychology of the traders who have were in trading positions back when the base was being created.
When the market swiftly moves up or down in the case of supply and demand zones it negatively affects the psychology of the traders who had trades placed in the base before the market made its move up or down.
A zone which forms with a single candle means not a lot of traders were caught on the wrong side of the market before the market moved up or down creating the supply or demand zone. A zone with a base contains far more trapped traders because the market was moving sideways in a consolidation before it began advancing higher or falling lower.
When the market returns to a zone formed from a base the traders who were trapped either long or short (depending on the zones) will begin closing their trades. Them closing their trades coupled with the additional buying or selling of traders trading the up or down move into the zone creates liquidity in the market.
This liquidity allows the bank traders to sneak their trades into the market without many people noticing, which is why the market moves out of a supply or demand zone when it returns.