3 Key Facts Sam Seiden Gets Wrong About Supply And Demand

If you trade supply and demand, you’ve probably heard of Sam Seiden.

Sam Seiden put supply and demand trading on the map in 2010. Without him, supply and demand trading as we know it (and probably this website too!) wouldn’t exist.

However, hold the applause… please…

While Sam Seiden’s work has been influential, there are THREE KEY FLAWS in his approach to supply and demand that just don’t jive with how markets actually operate:

• Older Zones: Sam claims old zones can cause major price reversals, even if price hasn’t returned for months/years.
• Pending Order: He says smart money places pending orders to reverse price from supply/demand zones.
• Zone Strength Misconception: He emphasizes zones with strong moves away from them are more powerful. (This one’s a bit more nuanced, but it’s generally not the case.)

Sound familiar?

These are some of the most common misconceptions in the S&D world.

On the surface, they seem plausible – after all, we do see reversals at old zones sometimes, right? But these core ideas just don’t hold up when you examine them critically.

So, let’s expose the truth behind these three S&D myths.

Myth 1) Price Reverses From Supply/Demand Zones Due To Left Over Pending Orders

You might be thinking…

“Is this really that important for S & D trading?”

The answer: YES, it is…

The idea smart money use pending orders to trigger price reversals from supply and demand zones forms the very backbone of Sam’s theory.

As an order runnner, Sam reportedly observed institutional traders placing buy and sell orders around specific price levels. These orders wouldn’t necessarily be filled immediately; they’d lie in wait until enough buyers or sellers entered the market to trigger their execution.

This observation led Sam to develop his concept of Supply and Demand: Identifying and trading key price areas where smart money was poised to act.

Or, as we now call them…

Supply And Demand zones.

Sam’s description of how smart money enter leftover trades doesn’t quite hit the mark. He suggests SM utilize pending orders for this purpose, but there’s two clear problems with this:

1) Smart money operates discreetly.

If they placed a massive, visible order, other market participants could front-run them, driving up price before they could fill their order or even use that information to trade against them. If a hedge fund identifies a giant pending order to buy at 1.24000 on EUR/USD, they may deduce a major rally is anticipated, hence the massive buy order.

Why place a order to buy if other traders can see it?

… yeh, didn’t think so!

2) If price returns and there are not enough incoming orders, SM trades could only partially execute. Partial fills are inefficient and risky for institutions. They force the smart money to either wait for an uncertain price return or actively manipulate the market, both of which are undesirable.

So, if SM aren’t using pending orders, what are they using?

Market Orders.

Market orders offer the flexibility to enter immediately at the current bid or ask price. This mitigates the risk of having to return repeatedly to a specific price to execute all their trades, avoiding the many risks associated with pending orders, such as slippage.

Myth 2) Old Supply/Demand Zones Cause Recent Reversals

Sam also proposes older supply and demand zones are just as likely to trigger a reversal as new zones.

Take a quick look at your charts, and you’ll notice older supply and demand zones seemingly cause reversals all the time (sometimes months, or even years after formation).

But, let’s pause here:

Is supply/demand genuinely behind these reversals or is something else at play?

While it may seem like price reversals originate from old supply and demand zones, assuming zones are the sole catalyst for the reversal is a bit of a leap. Instead, it’s likely a more recent technical factor, unrelated to supply and demand, is a coinciding with similar price levels. Why would smart money wait months or even years for price to return to a specific zone, just to execute a few leftover trades?

Markets can crash, wars can break out, pandemics (Covid!) – the entire market landscape could shift, rendering their initial reason for entry obsolete.

Remember: Smart money want orders filled ASAP!

Consider the following:

Imagine you enter a enourmous buy trade expecting a swift rise, but haven’t been able to execute all your buy orders at your ideal price.

Fancy waiting 3+ months for the price to return to that level?

Absolutely not, right?

You’d naturally want price to return to the same level quickly to complete your trades, wouldn’t you? If you wait weeks or months, your initial rationale for anticipating a rally might change, making it pointless to execute any remaining buy positions.

SM operates the same way: Any remaining orders must be filled as quickly as possible!

The longer they wait for price to reach a certain level, the greater the chance something unexpected could negatively impact the market and hurt their positions.

What that ‘something else’ is depends on where price currently stands.

It could be a support or resistance level, a significant psychological number (very common!) a cluster of stop orders, a news release.

If you’re unsure whether a zone is old or not, check out this list:

• 1 min/5 min/15 min charts – 1 day
• 30 min/1 hour/4 hour charts – 20 days
• Daily chart – 3 months

These are rough estimates of when a zone becomes old and should be avoided. They’re not exact times – allow for some flexibility – but they should help you focus on the right zones.

Myth 3) Powerful Supply/Demand Zones Always Feature a Steep Rally/Decline Away

Sam Seiden consistently emphasizes that the strongest supply and demand zones originate from a steep rally or decline away from a small base.

Picture demand zones like this, for example:

In Sam’s view: The steep rally suggests smart money still holds a number of leftover orders open at demand.

Technically speaking, Sam has a point.

Whenever price takes off or plunges lower, it indicates the entry of a massive order – hence the resulting supply and demand imbalance. It’s highly improbable SM managed to place their massive orders all at once. The abrupt rally prevented them from placing all their orders, so they probably had some leftovers.

The flaw in his logic lies in what I explained earlier:

Smart money don’t use pending orders to execute trades…

Instead, they use market orders.

If smart money were to pre-emptively place pending orders at a zone, they would be in the dark about whether enough opposing buyers or sellers will be available when the market returns.

This uncertainty could lead to a scenario where the opposing orders are too small. This, in turn, could result in their positions not getting executed, thereby leading to a repeat of the same situation.

It just kind of defeats the purpose, don’t you think?

Key takeaway: The idea zones with a steep move away are strong, owing to the fact they indicate a surplus of leftover smart money orders at the zone… well, it doesn’t hold water. I understand why Sam thinks this way and how it seems to be that way from a chart perspective, but that’s not actually the case.

It just can’t be, given SM don’t use pending orders to initiate trades.

To pinpoint the strongest SD zones: focus on zones preceded by a prolonged rise or decline.

Why, you ask?

It all boils down to the concept of ‘trend’.

Remember, smart money trades are absolutely colossal, requiring masses of opposing orders (traders entering in the opposite direction) for successful execution. Prolonged movements (or ‘trends’) afford smart money the chance to execute larger positions at better prices, given the higher availability of opposing orders.

The bigger the smart money’s positions, the more opposing traders are required to execute them.

What about the ‘move away’?

No impact here, I’m afraid.

The move away demonstrates that sell orders (assuming the smart money executed buys) got consumed rapidly, catapulting the price higher. It doesn’t imply the smart money executed a large position or holds a surplus of pending orders ready to exectue at the zone.

Hence, it doesn’t bear any weight on the probability of price reversing upon its return.

The Bottom Line

Sam Seiden undoubtedly provides a wealth of valuable insights into supply and demand… that’s indisputable.

However, the three rules (or guidelines) dissected today miss the mark; it’s as simple as that. While they seem convincing and logical on the surface, they don’t align with the actual mechanics of the market or the way smart money must operate to enter large positions.