Hello, I was reading today “Finding Supply And Demand Zones That WORK” and at page 17 you say:
“The supply zones which formed due to the banks placing trades had the market return to them because the banks wanted to get their trades placed at a similar price, not because there weren’t enough buy orders coming into the market when they wanted to get their trade placed initially.”
I agree that the bank traders try to place their trades at the same level, it makes a lot of sense.
But the second part of the phrase… I don’t really understand what you mean.
If initially there were enough buy orders (enough for them to sell the full quantity they wanted to sell), why would the bank traders wait for a return to the zone to place more trades?
For them the best /sure way to place the trades at the same price would be to place the trade in one piece if there are enough opposing orders from the retail traders.
In my understanding (maybe I’m wrong because english is not my native language), you say that even if there were enough buy trades initially, the bank traders didn’t place all the orders they wanted, and then they waited for a return to place more trades at a similar price.
If that’s what you want to say, I don’t agree with you this time.
When the bank traders (BT) decide they want to place sell trades, they will sell a number of lots equal with all the lots the retail traders (RT) are willing to buy.
They have to fill all the buy orders from the retail traders, if they will stop selling and there are more RT willing to buy the price will go higher and the BT will be at a loss, right?
What I really mean is I think when the BT decides to place a trade, they really have to commit to this, if not they are risking to take a loss. T
hey will have to absorb all the orders coming from the RT, if not the price will go against their trades.
So, the bank traders could have only 2 possible reasons to place trades again at a supply zone:
- they couldn’t sell enough when they placed the first trade (not enough buy orders from the RT)
- They had sell what they wanted, but the RT bought again for whatever reason (before BT took profits on their trades), price come up and they had to defend their positions
They will place the new trades at a similar price, but this is an effect, not a cause. Do you agree?
At the end of the day this don’t makes any difference about how should we trade, but you made me think about what’s going on behind the scenes and sometimes I don’t understand or don’t agree with what you are saying.
Did you had a chance to think about changing the position size according to what you are willing to risk on a trade?
And keeping the same risk, no matter how big is the stop loss?
Have a good day!
My Response:
It appears we have a small misunderstanding… Let me clarify.
I’ve been suggesting the market’s return to the supply or demand zone is not due to the zone itself. Rather, it’s because banks are executing trades at similar prices, which align with the supply or demand zone.
When I mentioned, “not because there were not enough orders coming into the market initially,” I was refering to the usual reason markets return to these zones… Banks are unable to place all their trades in one go.
Sometimes, even though supply and demand zones have formed and we see the market return to them, the market might not technically be returning to them. The banks may be aiming to place their trades at comparable prices, regardless of whether a zone has formed.
Let’s remember…
When bank traders execute their trades, they aim for a volume larger than the incoming market orders.
If they just match the volume of retail traders’ orders, price will remain static because the size of the orders are equal.
Banks need to sell or buy a more than retail traders to instigate price movement.
If they buy or sell the same volume as retail traders, a single order from a retail trader larger than the banks’ orders can push the price against the banks’ positions.
Hope this clarifies things,
Best,
PAN.