Are you tired of seeing seemingly perfect supply and demand zones fail to deliver the reversals you expect?
Have you ever wondered why some zones seem to work like magic while others crumble under pressure?
The answer might surprise you!
In the world of supply and demand trading, a common misconception prevails: that a strong move away from a zone is the key indicator of its strength.
However, this couldn’t be further from the truth.
In this lesson, we’ll debunk this myth and reveal the real factor that determines the power of a supply or demand zone:
The move before the zone forms!
​Why The Move Away Is Misleading For Identifying Powerful Zones​
Check out the zone below…​
It’s clear:
Our demand zone has a powerful move away…
The steep rise is largely composed of multiple, large, bullish candles, with only a smattering of small, bearish candles breaking up the action.
In the eyes of most S&D experts, this zone is extremely powerful.
Seems like a great trade, right?
Let’s see what happens when the price returns…​
… Ah, I’ll bet you’ve seen this happen before.
A seemingly “perfect” zone fails, and the price blasts through with minimal resistance. It’s a frustrating experience, especially when the “experts” assured you it was a strong zone.
So, what went wrong?
Why did the demand zone fail, despite having a strong bullish move away, a solid base, and a quick price return?
​The Real Key To SD Zone Power​
The truth is, the “experts” got it wrong.
The strength of a supply and demand zone doesn’t hinge on the move away from it, as many claim.
A strong move away from a zone is NOT a reliable indicator of its strength. While some powerful zones do exhibit a strong move away, it’s not the defining factor.
The true power of a zone lies in the price action that occurred before the zone formed
Remember how banks operate?
Banks can ONLY buy when others are SELLING.
Banks can ONLY sell when others are BUYING.
Whether by placing trades, closing trades, or taking profits. The size of the banks positions is directly proportional to the number of opposing orders available. The more traders buying or selling, the larger the positions banks can take:
1) Place bigger trades.
2) Secure more profits.
3) Close existing trades more easily.
Make sense?​
The Golden Rule of Supply & Demand: The more traders entering in the opposite of direction to what the banks want, the larger positions they can place.
Write this dow!
If you don’t grasp this fundamental principle, the rest of this guide won’t make much sense.
“What the banks can and can’t do depends entirely upon how many retail traders are doing the opposite, and yes, size matters.”
Here’s the breakdown:
For banks to execute large trades or secure substantial profits (the actions that create most Supply & Demand zones), they need thousands of traders acting against them – either buying when they want to sell, or selling when they want to buy.
More traders entering against the banks = more buy or sell orders for the banks to use.
So, the burning question is:
What determines how many traders are buying or selling?
Answer… The market (duh!)
All traders buy or sell according to the current market sentiment: Price rising, falling, or moving sideways.
It’s common sense, really!
If the market is heavily bullish, what are most traders doing:
Buying or selling?
Buying—price is rising, and the market is heading higher.
The opposite holds true when the market is bearish.
Therefore, to accurately assess the strength of a zone, we must determine how many traders were buying or selling before it formed. This will give us insight into the size of the orders the banks used to create the zone in the first place.
To do this,
Analyze the price action that occurred before the zone formed.
Think about it:
Market sentiment leading up to the zone—whether the price was rising, falling, or moving sideways—directly influenced how many traders were buying or selling. This, in turn, dictated the size of the orders the banks had available to execute their actions.
Example:
If a long downtrend preceded a demand zone, that zone is likely to be quite powerful. Why? The downtrend fueled a wave of selling, and the only way price could reverse and form a demand zone is if banks stepped in with massive buying power to absorb all those sell orders.
In short, the actions the banks took to create the zone—whether placing new trades or taking profits—required a large volume of opposing orders. Banks themselves had to enter with substantial orders to reverse the market.
The Takeaway:
The move before the zone is far more important than the move away from it.
The preceding price action reveals how many retail traders were buying or selling, giving us a clue about the size of the banks’ orders and, ultimately, the strength of the zone.
Formidible demand zone = a large number of traders SELLING before the zone formed.
Powerful supply zone = a large number of traders BUYING before the zone formed.​